Mike Wilson Sees Up to 10% S&P 500 Drop, Is Eager to Buy the Dip

i0q0di72gcc8lamyr7n6(77i_media_dl_1.png Bloomberg Intelligence

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(Bloomberg) — Morgan Stanley’s Mike Wilson, not long ago one of Wall Street’s most steadfast bears, says he sees a bull market building in stocks. But first the S&P 500 Index may have to take a hit. 

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The bank’s chief US equity strategist sees US equity prices dropping 5% to 10% this quarter as the impact of President Donald Trump’s trade policies gets reflected on corporate balance sheets. He thinks the decline will be short lived, giving investors an attractive entry point to a rally that will ultimately be driven by improving expectations for corporate earnings growth.

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“This is what the beginning of a new bull market looks like,” Wilson said Thursday in an interview on Bloomberg Surveillance. “It’s just explosive — it doesn’t let people in. The rate of change is accelerating beyond what you expected.”

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He added that any pullbacks will be “short and shallow” and that he “absolutely” would buy those dips. 

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The S&P 500 is on track for another all-time high on Thursday amid a stunning recovery that has added roughly $11.5 trillion in value over just a few months. In early April, the index was on the cusp of a bear market after Trump unleashed sweeping tariffs on trading partners around the world. His decision to pause those levies a week later unleashed this latest wave of enthusiasm.

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Wilson was one of a few Wall Street prognosticators to remain optimistic on US stocks throughout the volatility. Many of his peers quickly slashed their outlooks but had to subsequently change course as the market jumped back to new highs. 

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The S&P 500’s latest gains come as Corporate America and the US economy demonstrate resilience in the face of the White House’s ever-changing trade strategy. The enthusiasm also is being helped by the potential for profit growth from the recently passed tax bill.

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“The earnings revision breadth is explosive,” Wilson said. “You can’t deny the fact that companies are good at mitigating tariffs.”

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The strategist sees the third quarter as “probably the quarter of risk,” as the impact of levies could start to flow through to the cost of goods sold. But he expects the market impact to be temporary, with investors quickly looking ahead to anticipated growth in 2026. 

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That prediction got support Thursday morning from a strong June US retail sales report, which tempered some concerns about consumer spending. 

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An early start to the earnings season offers a mixed picture around how companies are navigating Trump’s ever-changing trade plans. United Airlines Holdings Inc. on Thursday said the second half of the year has become more predictable, but suggested it may be able to beat its earnings targets after customers resumed booking flights. Meanwhile, Alcoa Corp., the largest US aluminum producer, said tariffs on imports from Canada cost it $115 million in the second quarter.

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Still, Wilson expects the market to power ahead, despite the chances of a near-term drop due to the uncertainty surrounding the White House’s trade plans.

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“We bottomed in April,” Wilson said. “All the indicators we look at from a rate-of-change standpoint have inflected sharply, and it’s even surprised us to the upside.”

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—With assistance from Elena Popina, Jonathan Ferro, Annmarie Hordern, Lisa Abramowicz and Matt Turner.

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