Morgan Stanley’s Michael Wilson says companies will need to aggressively bring down expenses before he becomes more optimistic on US equities.
(Bloomberg) — Morgan Stanley’s Michael Wilson says companies will need to aggressively bring down expenses before he becomes more optimistic on US equities.
“When that layoff cycle picks up in earnest that will actually be one of the keys for us to get bullish because that means the bleeding will stop on the operating leverage,” the top-rated strategist told Bloomberg TV on Monday.
Major technology companies have announced about 100,000 jobs cut this year, according to Layoffs.fyi, as companies attempt to control ballooning expenses. Meta Platforms Inc., is reportedly expected to cut thousands of jobs as early as Wednesday. The Facebook parent announced plans for a headcount reduction for the first time in September.
Other companies that have also reduced their workforce or announced plans to do so include ride-hailing firm Lyft Inc. and hard-drive maker Seagate Technology Holdings Plc.
Tech companies have grown too far and too fast during the pandemic as people throughout the world became more dependent on their services to maintain productivity or stave off boredom. But as recession risks loom, inflation continues to surge and people’s behavior returns to pre-pandemic norms, the mounting expenses have been difficult to manage.
Still, Wilson, the strategist who correctly predicted this year’s slump in stocks, does not think the sector is dead. He expects a possible leadership change will occur next year when the US economy expands.
Plenty of good tech stocks will be fine, he said, adding that there are many great opportunities in single stocks without giving specifics. “The reality is there are too many of them and they got overvalued. So it’s not that technology is dead in terms of the spending trend, we are very bullish on technology spending.”
US equities are nearing the bottom of the bear market, he said. US stocks edged higher on Monday with the S&P 500 and the tech-heavy Nasdaq 100 recouping some early losses.
“What you want to try to figure out is what outperforms in the last leg down, because that will tell you what is going to outperform in the next leg up,” he said. “And that’s been industrials, financials and and some of the commodity complex, and that makes perfect sense.”
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
