Mike Wilson on S&P 500 Earnings Forecast Cut: Tariffs, AI Capex, and Market Correction

Earnings Forecast Revision

• 📉 Morgan Stanley strategist Mike Wilson has cut the 2025 earnings-per-share forecast for S&P 500 firms to $257 from $271, and the 2026 forecast to $281 from $303.
• ⚠️ The revision is attributed to tariff uncertainty, but Wilson emphasizes it's not the sole reason for the slowdown.

Broader Economic Headwinds

• 💡 AI capital expenditure is under pressure, with companies not seeing sufficient returns, impacting growth.
• 💰 Fiscal spending is also under pressure, and the stock market's correction is creating a negative wealth effect.
• 🏦 The Federal Reserve is not expected to cut rates, adding to economic pressures.

Policy and Tax Uncertainty

• ✈️ The situation with China and Boeing highlights ongoing trade policy complexities and adds to uncertainty.
• 🧾 Wilson is not anticipating additional corporate tax cuts, but warns that failure to extend existing tax cuts could significantly impact earnings in 2026.

Market Correction and Recession Risk

• 📊 The probability of a recession is considered elevated at around 40%, though lower than previously due to recent tariff pauses.
• 🎢 The market correction is described as well-advanced, with a potential retest of recent lows.
• ⏳ A period of high volatility and choppy markets is expected for at least another 30-60 days before potential stabilization.

Foreign Capital Flows

• 🌍 There's an indication that foreigners may have excessive assets in the United States, leading to flows moving towards regions like Europe and China.
• 💲 The US dollar is considered overvalued, which could accelerate adjustments in capital flows.