Morgan Stanley's Mike Wilson is still bullish on stocks but sees a summer correction ahead

Published Tue, Jul 7 20202:04 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

(This story is for CNBC Pro subscribers only.) Morgan Stanley 's Mike Wilson told CNBC on Tuesday that he is still optimistic about stocks long-term but believes the market may see a pullback this summer following a steep run-up from coronavirus-driven lows. "I think there is a risk of some sort of correction in July and August. As we go through earnings season, there will be some various disappointments," the firm's chief U.S. equity strategist said on "Halftime Report." But Wilson said he views the possibility of a setback as an opportunity to add stocks to the portfolio, not something that changes his overall perspective on the market. "We're in a bull market, and I think that the market is showing its leadership," Wilson said. "Leadership is growth stocks and, I would argue, some of these cyclicals stocks which have done quite well since late March, so we're going to be buyers of those two areas, in particular, on whatever pullback we're going to get this summer." Wilson was advising investors to start buying stocks in late March as the market approached virus-era lows, citing a strong risk-reward scenario. Now, as he looks at the market, he said he believes the S & P 500 will have difficulty breaking through the 3,200 level in the near term. It entered Tuesday's session at 3,179 . "We have higher targets as you move out because we think earnings will be supportive of a higher S & P target but today, even with low rates, it's hard to get the index much above 3,200," Wilson said. Of the risks to the market, Wilson said he believes the biggest one right now is the ongoing debate in Washington over additional government aid in response to the coronavirus pandemic. Congress has already approved trillions of fiscal stimulus, but some of the key support programs, such as enhanced unemployment benefits, are set to expire at the end of the month. "It may get more contentious. The higher the market is and the better the economic data is, the harder it may be to get that bill passed. It's kind of a tug of war," Wilson said. "I think ultimately it will get done but there may be some sort of corrective activity." Wilson said another potential risk factor deals with politics: the November elections. One of the most worrisome outcomes, he said, would be presumptive Democratic nominee Joe Biden defeating President Donald Trump in the presidential race while Republicans maintain a strong advantage in the Senate. "Because then it would be very difficult to get anything done, and we actually still need stimulus probably well into next year," Wilson said. "That could be a bigger risk that people aren't thinking about." While rising coronavirus cases are something to monitor closely, Wilson said he does not believe the U.S. economic recovery, on the whole, will be severely impaired. "Every new economic recovery is never a perfect straight line. There's always things that cause fear, doubt and uncertainty. In this case, it will be the virus," said Wilson, while stressing that outbreaks in certain regions can be dealt with in a more targeted manner than the initial widespread closures. "The good parts of the economy can offset the weaker parts and ultimately the broader economy will continue to reopen en masse," he said.

Mike Wilson, chief U.S. equity strategist and chief investment officer at Morgan Stanley.

Adam Jeffery | CNBC

(This story is for CNBC Pro subscribers only.)

Morgan Stanley's Mike Wilson told CNBC on Tuesday that he is still optimistic about stocks long-term but believes the market may see a pullback this summer following a steep run-up from coronavirus-driven lows.

"I think there is a risk of some sort of correction in July and August. As we go through earnings season, there will be some various disappointments," the firm's chief U.S. equity strategist said on "Halftime Report."

But Wilson said he views the possibility of a setback as an opportunity to add stocks to the portfolio, not something that changes his overall perspective on the market.