MW Why the Magnificent 7 can bounce into the next earnings season, according to Morgan Stanley's Mike Wilson

By Jamie Chisholm

A 'tradeable rally' in stocks appears set

The mood in equities is turning more optimistic. The S&P 500 SPX is eying further gains on Monday, having just managed to break a four-week losing streak.

There's a number of reasons for the improvement in sentiment, reckons Michael Wilson, stock-market strategist at Morgan Stanley.

Firstly, the market was looking oversold last week, with relative strength indices dropping sharply, and Morgan Stanley's own market sentiment indicator reaching what it terms a low "extreme."

Investors' positioning had become increasingly more bearish, a contrarian indicator, while from now seasonal trends become more supportive. Wilson also thinks month and quarter-end investment flows will underpin stocks.

A falling dollar and lower Treasury yields were additional supports, and this trend was helped by what Wilson sees as a dovish tilt by the Federal Reserve at last week's meeting.

All together, these factors allowed the S&P 500 to recover after falling toward the bottom of the 5,500 to 6,100 range in which Wilson see the index trading in the first half of the year.

A "tradeable rally" is occurring, says Wilson, with some favorites again in demand. "As expected, lower quality, higher beta equities have led the bounce so far and that can continue in the near-term even though we are still advocating higher quality stocks in one's core portfolio for the intermediate term outlook," he says.

The next hurdle will the April 2 reciprocal tariffs applied by the Trump administration. "While this deadline could offer some clarity on tariff rates and countries/products in scope, it's likely a starting point for tariff negotiations as opposed to a clearing event," says Wilson. So, for now, a perceived "Fed put" is more supportive than any "Trump put," they reckon. The put concept is the idea that the Fed, or the White House, will step in and take action if stocks fall below a particular threshold.

Wilson and team remain wary of consumer discretionary goods stocks right now amid concerns faltering household spending and the impact of tariffs.

On the other hand, multinationals may benefit from the weakening dollar, which, as the chart below shows, can lead more broadly to positive earnings revisions. That dynamic is "one reason we think relative performance versus international developed equities can swing back in favor of the U.S. in the near-to-intermediate term," says the Morgan Stanley team.

Helping the return of U.S. outperformance will be a revival in one sector of the market at the forefront of the recent sell-off: the Magnificent 7 stocks.

That's Alphabet $(GOOG)$, Amzon.com $(AMZN)$, Apple $(AAPL)$, Meta Platforms $(META)$, Microsoft $(MSFT)$, Nvidia $(NVDA)$, and Tesla $(TSLA)$.

Earnings revisions remain in negative territory for the major U.S. averages, and have yet to turn higher "but we are starting to see some interesting shifts in revisions trends under the surface. The most notable change here is that Mag 7 earnings revisions look to be stabilizing and potentially bottoming around 0%," says Wilson.

"This could halt the underperformance of these mega cap stocks in the near term as we head into earnings season," they conclude.

Markets

U.S. stock-index futures (ES00) (YM00) (NQ00) are higher as benchmark Treasury yields BX:TMUBMUSD10Y rise. The dollar index DXY is down, while oil prices (CL.1) dip and gold (GC00) is trading around $3,029 an ounce.

   Key asset performance                                                Last       5d     1m      YTD     1y 
   S&P 500                                                              5667.56    0.51%  -5.75%  -3.64%  8.28% 
   Nasdaq Composite                                                     17,784.05  0.17%  -8.91%  -7.91%  8.25% 
   10-year Treasury                                                     4.284      -2.20  -12.60  -29.20  3.80 
   Gold                                                                 3029.2     0.63%  2.03%   14.77%  39.40% 
   Oil                                                                  68.4       1.36%  -3.54%  -4.83%  -16.58% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

U.S. economic data due Monday include the S&P flash services and manufacturing PMIs for March, released at 9:45 a.m. Eastern.

The White House is narrowing its approach to tariffs set to take effect on April 2, according to the Wall Street Journal.

Shares in U.S.-based deck manufacturer Azek $(AZEK)$ are jumping 19% after agreeing to be bought by Australian building materials group James Hardie Industries AU:JHX $(JHX)$ in an $8.8 billion deal.

Housebuilder KB Home (KBH) will release earnings after Monday's closing bell on Wall Street.

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The chart

A Deutsche Bank team led by Jim Reid, head of global economics and thematic research, has just released its March 2025 survey, from which we pick the chart below. "Fascinatingly, although European equities are favored over the U.S. for the next year (85% to 15%), this flips to 28% to 72% over the next 12 months. So people expect U.S. exceptionalism to return...but not until next year," says Deutsche.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   TSLA    Tesla 
   NVDA    Nvidia 
   GME     GameStop 
   HOLO    MicroCloud Hologram 
   PLTR    Palantir Technologies 
   SMCI    Super Micro Computer 
   AAPL    Apple 
   TSM     Taiwan Semiconductor Manufacturing 
   MSTR    Strategy 
   AMZN    Amazon.com 

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March 24, 2025 06:35 ET (10:35 GMT)

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