However, he also said that he does not think stock valuations will stay low for long, and this is not a 'secular structural bear market', it is actually a 'cyclical bear market' and there is enough liquidity to stabilize things. Mike Wilson thinks there are opportunities in individual stocks, as opposed to indices, which do not look as attractive to him at this point in time.įinally, Mike Wilson thinks that valuations will reset over the next two quarters. Moreover, some consumer-focused businesses and the retail segment have also repriced. The financials segment has 'repriced in a meaningful way', said Wilson. There are some areas within the market that Mike Wilson thinks have repriced and are presenting an opportunity. While these companies have cut costs, which has led to them rallying, Wilson believes that there are still risks associated with investing in them especially given the potential for further cost pressures. Moreover, Mike Wilson pointed out that tech companies experienced significant declines in their stock prices last year due to their high valuations and sensitivity to rising interest rates. The companies that are expected to come under pressure in a high interest rate environment and are most at risk of missing estimates, according to Wilson, include small-cap, lower quality, and cyclical companies.

According to Wilson, the market has started to 'revalue, or devalue, the companies that are most at risk of missing estimates'. Mike Wilson said that the degradation in multiples that stocks had last year was due to higher interest rates and not higher risk premiums. In our view, I think people are operating as if we're gonna go back to that predictable world and that's, I think, misplaced.' Whether we're talking about credit, whether we're talking about term premium in the bond market, or we're talking about equity risk premium. And now we're entering a world when it's just not as predictable, and that means higher risk premiums. The last 20 years has been a world of repression where all of these metrics were somewhat predictable, and that's for companies, that's for the Fed itself, that's for investors.

'It's just a much less predictable world, and this has been our theme for the last couple of years, that we're entering a period of economic volatility.

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