Third Quarter Is Quarter of Risk From Tariffs, Says Morgan Stanley's Mike Wilson

Tariffs and Import Costs - S&P 500 industries' rising import cost exposure is limited due to country scope and exemptions [1] - Companies are mitigating tariffs effectively, and import prices haven't increased significantly [4] - The big question is who is absorbing the tariffs, whether it's companies' balance sheets, exporters discounting prices, or consumers [5] - The third quarter is identified as a period of risk where tariffs may impact the cost of goods sold [6] Market Performance and Outlook - The market experienced a bear market in the first three to four months of the year, with stocks down 35-40% year-over-year [3] - Earnings revision breadth is surprisingly explosive [4] - The market views the tariff impact as temporary, with 2026 earnings growth prospects looking better [7] - A 5-7% correction is anticipated, representing a buying opportunity [6][7] - Pullbacks are expected to be short and shallow, with a potential correction of no more than 5-10% [8] - The current market behavior resembles the beginning of a new bull market, characterized by rapid acceleration [8]