The Bull Case After the Pullback in Stocks

Summary

Morgan Stanley's Mike Wilson argues the recent equity pullback is a healthy reset within an ongoing earnings-driven bull market, not the end of the cycle. He reaffirms a year-end S&P 500 target of 8,000 and expects leadership to broaden into cyclicals such as consumer discretionary goods, transports, and regional banks, supported by peaking macro headwinds and the Strait of Hormuz reopening deal.

• The equity correction is a pause, not a crash, within an intact earnings bull market.
• Earnings revision breath likely peaked, but absolute forward earnings estimates should continue rising.
• Liquidity injection pace is slowing, contributing to momentum trade corrections and potential leadership change.
• Maintains year-end S&P 500 price target of 8,000 with conviction.
• Market expected to broaden toward cyclicals after a period of narrow leadership.
• Preferred sectors: consumer discretionary goods, transports, and regional banks.
• Interest rates, crude oil, and the dollar may be peaking, easing headwinds.
• The Strait of Hormuz reopening deal could reduce oil pressure and allow a less hawkish Fed.