Morgan Stanley's Wilson Worried Fed Is Dragging Its Feet

Core Viewpoint - Morgan Stanley raises its S&P 500 price target to 7800 for 2026, citing strong earnings growth and a new bull market, particularly in lagging sectors [1] Economic Outlook - The evolving narrative suggests that the market is transitioning from growth-negative to growth-positive policies, with a belief that the economy is not in immediate danger [2][3] - There is a consensus that the Federal Reserve (Fed) needs to cut rates, not to save the economy, but to facilitate a rotation into interest rate-sensitive sectors [3][6] Market Dynamics - The current economic environment is characterized by a rolling recession in the private economy, with a rebalancing expected as government policies shift [4][5] - Various sectors, including housing and consumer goods, have been under pressure, but a change in administration policy and potential Fed rate cuts could improve the private economy [5] Federal Reserve Actions - The Fed is expected to adopt a more cautious approach, potentially cutting rates in December but maintaining a meeting-by-meeting strategy thereafter [6][7] - A clear path for continuous rate cuts is deemed necessary for market rotation, with two potential catalysts: supportive labor data or increased financial stress [7][8] Market Corrections - A previous expectation of a 10-15% market correction due to tightening liquidity is believed to be well advanced [9] - Concerns over liquidity are reflected in the performance of momentum stocks and cryptocurrencies, indicating market apprehension [10][12]