Mike Wilson, CIO and chief US equity strategist at Morgan Stanley, discusses the fiscal tightening and what it means for the Standard and Poor's 500. He notes that the fiscal impulse over the past 12 months caught many off guard and kept the economy going, but now the cost of capital is going up. Wilson believes that growth is still slowing and that we may be in a down cycle, but he acknowledges that the boom bust thesis is still correct. Wilson emphasizes that investors need to be very selective at this stage.
1. Michael Wilson is the CIO and chief U.S Equity strategist at Morgan Stanley.
2. Fiscal tightening is being discussed and its impact on the Standard and Poor's 500.
3. The fiscal impulse experienced over the last 12 months has kept the economy going.
4. Interest rates are rising due to simple supply and demand and an enormous amount of supply from government spending.
5. The stock market has been funded by the government for the most part since the recovery and now the cost of capital is going up, which may have a knock-on effect on evaluation.
6. The recovery has been funded by the government, while the cost of capital is going up so that may catch people off guard.
7. Inflation is expected to come down much more rapidly at the company level than in government statistics and it can get tricky to predict.
8. The framework post-pandemic cycle was hot and short, with the expectation of a shorter cycle than previously seen.
9. Growth is still slowing, leading to a down cycle, and there may be a four-year cycle instead of a three-year cycle leading to a recession.
10. The boom bust thesis is still correct, and the market may be looking through it to the other side.