Morgan Stanley CIO Mike Wilson: The early-cycle rolling recovery has begun

Core Viewpoint - The economy is believed to be in a phase of reacceleration, with the recession risk considered to be behind us, despite the challenges in forecasting stock markets and economic conditions [2][3]. Economic Analysis - The market is thought to have been in a rolling recession for the past three years, with recent job revisions indicating that the labor cycle's trough occurred around March and April [3][4]. - The Federal Reserve is perceived to be lagging in its response to economic data, which may lead to continued bad numbers in the short term, despite the market already having bottomed [6][8]. Market Dynamics - Historically, the market tends to bottom during a recession rather than after it has ended, and the current situation aligns with this pattern [6][7]. - The Fed's current position is seen as more behind the curve compared to previous cycles, which could impact the recovery trajectory [8][14]. Interest Rates and Recovery - There is a belief that the Fed needs to cut rates to facilitate a full recovery, particularly to support small businesses and consumers who are currently facing high rates [10][11]. - The market is expected to experience tension due to the Fed's cautious approach, which may lead to a correction in the coming weeks [11][14]. Investment Outlook - The current phase is characterized as early cycle, suggesting that investors should consider buying stocks, as a new bull market is believed to have begun in April [12][13]. - The performance of small-cap and low-quality stocks is being monitored, as their underperformance could indicate broader market trends [14].