Mike Wilson on S&P 500 Earnings, Tariffs, and Market Correction

Earnings Forecast Downgrades

• 📉 Morgan Stanley has cut its 2025 S&P 500 earnings-per-share forecast to $257 from $271, citing tariff uncertainty.
• 🎯 A revised 2026 EPS forecast of $281 from $303 also reflects these concerns.

Headwinds Beyond Tariffs

• 💡 The earnings slowdown is attributed to more than just tariffs, with AI capex under pressure due to uncertain returns.
• ⚠️ Other significant headwinds include fiscal spending constraints and the negative wealth effect from market corrections.
• 🏦 The Federal Reserve's stance on not cutting rates further also contributes to economic pressure.

Policy and Trade Uncertainty

• 💰 The potential for corporate tax cuts is uncertain, with negotiations focusing on extending existing tax cuts rather than new ones.
• ✈️ The news of China ordering airlines not to take further Boeing deliveries highlights ongoing trade policy complexities and China's stance.
• 🌍 Negotiations with various countries over the next 90 days are expected to be contentious, particularly with China.

Foreign Capital Flows and Currency Markets

• 📊 Foreign governments have not been net buyers of U.S. Treasuries for some time, suggesting they may hold too many U.S. assets.
• 💲 Flows have moved from the U.S. to regions like Europe and China, partly due to the idea of capital concentration in the United States.
• 🇺🇸 The U.S. dollar is considered overvalued, which may accelerate the adjustment process.

Equity Market Outlook

• 🎢 The market correction is considered well advanced, with a potential retest of recent lows.
• 📊 Monday's trading session is described as a capitulation day with massive volume, indicating a potential momentum low for the bear market.
• ⏳ A choppy market and high volatility are expected for at least the next month or two, with a retest showing lower momentum.
• ✅ Despite current volatility, there's a possibility of positive market performance by the end of the year as growth impacts shift.