Here’s a twist nobody saw coming: Morgan Stanley says a recession could be great for your portfolio. Yes, you read that right.
In a striking departure from the usual Wall Street doom-and-gloom, the firm’s chief U.S. equity strategist Mike Wilson believes a mild recession might actually be the stock market’s best friend. Why? Because it could force the Federal Reserve to cut rates—hard—and reset corporate earnings expectations, setting up the next major rally.
Wait—A Recession Is Bullish?
Most investors hear “recession” and think: layoffs, plummeting profits, crashing stocks. But Morgan Stanley isn’t buying into the panic. Instead, it’s making a contrarian case that could flip the narrative: a short, shallow downturn might be exactly what this market needs.
According to the bank’s midyear outlook, even with some economic cooling, the S&P 500 could hit 6,500 in the next 12 months—a 10% gain. And if things break just right, we’re talking 7,200—a stunning 22% rally from current levels.
A “Reset,” Not a Meltdown
Wilson isn’t predicting chaos. He’s forecasting a refresh. Think of it like pruning a tree: you trim a few branches so it can grow taller, stronger, and faster.
“We’ve already had rolling recessions across sectors,” he wrote. “This one wouldn’t be like 2008—or even 2020. The hit to earnings would likely be light.”
Translation? The pain would be limited. The gains, potentially massive.
The Fed’s Hand Will Be Forced
Here’s where things get interesting. If the economy slows, the Fed won’t have a choice—it will have to slash interest rates. Morgan Stanley predicts up to seven cuts in 2026. That kind of stimulus has historically lit a fire under risk assets—stocks, especially.
In short, a mild recession could trap the Fed in “easing mode” while inflation continues to drift lower. That’s rocket fuel for equities.
The Rebound: Who Wins Big
This isn’t just about survival—it’s about upside. Wilson sees the biggest gains going to small caps and “junkier” names—stocks that have been left for dead in a high-rate world. When rates fall, these are the first to pop.
It’s a counterintuitive playbook, but it could work: Bet on the unloved. Prepare for the unexpected.
Second Half of 2025: The Setup Begins
Morgan Stanley is eyeing late 2025 as the real inflection point. Rate cuts will likely be on the table. Inflation could be under control. And corporate America, post-reset, may be leaner, meaner, and ready to surge.
Valuations could even return to the 23x earnings highs we saw in the post-COVID boom. If that happens, today’s hesitation will look like tomorrow’s biggest missed opportunity.
The Takeaway: Don’t Just Ride the Wave—Position for the Surge
Morgan Stanley’s message is loud and clear: don’t fear the downturn—embrace it. The recession might be coming, but it might also be the beginning of the next bull run.
Recession fatigue is real. But if Morgan Stanley’s bold scenario plays out, the biggest mistake investors could make… is sitting it out.
Sponsored by: $EDXC – Endexx Corporation https://endexx.com/
