Mike Wilson, Morgan Stanley’s chief U.S. equity strategist, said that last week’s soft payroll figures reinforce his view that the U.S. economy is transitioning from a “rolling recession” toward a “rolling recovery.”
“We’re not of the view that a rapid/acute rise in the unemployment rate and/or significantly negative payroll numbers are coming unless we were to see another shock to the economy,” Wilson wrote in a client note.
He highlighted what he called a “v-shaped rebound in earnings revisions breadth,” suggesting that corporate confidence “has improved materially since Liberation Day,” with June marking the low point for payrolls in this cycle.
Wilson acknowledged lingering weakness in the labor market, particularly in government positions, but said this should prompt a dovish stance from the Federal Reserve.
“This type of softness in lagging jobs data should drive a more dovish reaction function from the Fed, but there’s likely tension around this dynamic in the near-term,” he added.
According to Wilson, the market’s capacity to absorb weaker employment numbers hinges on whether monetary easing is “significant enough to counter the growth risks.”
He also warned that near-term volatility could persist, noting that Fed dynamics and funding market conditions “could lead to choppy price action during a weak seasonal window in September/October.”
Nonetheless, Wilson expects the environment to “set up a strong finish to the year and 2026 given our conviction for a durable and broad earnings recovery.”
For positioning, he favors large-cap healthcare stocks as a defensive hedge. Wilson pointed to the sector’s low valuations and improving earnings revisions, adding: “Biotech shows strong relative performance around rate-cutting cycles.”
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