Mike Wilson on Fed Rate Cuts, Labor Market, and 2026 Market Outlook

Rolling Recession and Labor Market

• 💡 The U.S. economy has been experiencing a rolling recession, with individual sectors facing downturns sequentially rather than a single, widespread collapse.
• 🎯 The labor market may have already bottomed, with the rate of change in payrolls and layoffs peaking in April, coinciding with the market's low.
• 📈 This narrative is gaining traction as a rationale for the market's performance and suggests the Fed has more room to cut rates.

Fed Policy and Economic Recovery

• 🧠 The Fed's data is lagged, and revisions show a significant labor market downturn has already passed, which is positive for earnings growth.
• 💰 To foster a recovery in the private economy, particularly in sectors like housing and consumer goods, rate cuts are deemed necessary.
• ⚠️ A key risk for the Fed is the potential for an asset bubble if they cut rates into a strong earnings cycle.

Inflation and Wage Growth

• 📊 While headline inflation remains a concern, the speaker suggests that a lack of re-accelerating inflation next year could be a feature, not a bug, for company earnings.
• 📈 Accelerating inflation, coupled with a Fed that is not raising rates and potentially adding liquidity, creates a positive setup for equities.
• 🗣️ Addressing affordability requires wage growth to outpace inflation, supported by productivity gains through fiscal policy and immigration.

2026 Market Outlook

• 🚀 The strategy of rebalancing the economy through fiscal policy, tariffs, and immigration is seen as a way to improve productivity and real wage growth.
• 📈 Projections for the S&P 500 in 2026 include 17% earnings growth, potentially leading to significant market gains even if P/E ratios remain stable.
• ⚠️ The primary risk to this outlook is inflation returning to a level that forces the Fed to raise rates, which could derail the bull market.