Why Morgan Stanley's Mike Wilson is Betting on U.S. Stocks Over International Markets

Morgan Stanley’s Chief Investment Officer Mike Wilson has long been a vocal advocate for U.S. equities, and his 2025 analysis underscores a compelling case for favoring U.S. stocks over international peers. Amid a late-stage economic cycle, structural advantages, sector dynamics, and macroeconomic tailwinds position the U.S. market to outperform globally—despite near-term volatility. Here’s why.

The Late-Cycle Edge

Wilson’s thesis hinges on the economic cycle’s phase: as growth slows and the Federal Reserve remains hesitant to cut rates, quality growth stocks dominate. U.S. large-cap indices, such as the S&P 500, are packed with firms that have stable earnings, low leverage, and pricing power—traits that historically thrive in late cycles.

The U.S. market’s sector composition also plays a role. While international equities like the iShares MSCI EAFE ETF (EFA) surged 14% year-to-date in 2025, Wilson argues that the S&P 500’s sector mix—including tech, financials, and healthcare—will prove more durable. For example, U.S. software companies (e.g., Microsoft, Adobe) and financials (e.g., JPMorgan, Bank of America) benefit from rising interest rates and AI-driven revenue growth, whereas European banks and Asian exporters face trade headwinds.

The Dollar’s Role

A weaker U.S. dollar acts as a tailwind for domestic companies. Export competitiveness improves, and multinational firms benefit from reduced currency hedging costs. Meanwhile, a weaker dollar undermines international rivals, particularly in sectors like consumer goods and industrials.

Wilson notes that the dollar’s decline has already supported U.S. equities, with the S&P 500 breaking through resistance at 5,650. However, the critical hurdle lies between 5,750–5,800, where the 100-day and 200-day moving averages converge. A sustained breakout here could signal a broader uptrend.

Sector Priorities: Where to Focus

Wilson’s research highlights specific sector preferences:
1. Financials, Media/Entertainment, and Software over semiconductors and consumer services.
2. Utilities and REITs over staples and healthcare (despite their defensive appeal).
3. Large-cap quality stocks, especially those with pricing power, like industrials (e.g., Caterpillar) and AI-driven firms (e.g., NVIDIA).

Risks to the U.S. Outlook

The path isn’t without obstacles. Trade policy remains a wildcard: tariffs on China, Mexico, and Canada could reduce S&P 500 earnings by 5–7% if prolonged. Wilson stresses that companies with pricing power, supply chain flexibility, or currency hedging strategies (typically large, high-quality firms) will weather these storms best.

The bond market also looms large. If the 10-year Treasury yield breaches 4.5%, it could reignite a negative correlation between bonds and equities, pressuring valuations. Meanwhile, a deteriorating labor market—especially among small businesses—could tip the economy into recession.

Technical and Fundamentals: The Tipping Points

Wilson’s analysis relies heavily on technical levels and catalysts. Two of four key triggers for a sustained rally have already materialized:
1. Optimism around a China trade deal.
2. Stabilizing earnings revisions in tech-heavy sectors.

The remaining hurdles are:
- A more dovish Fed, with rate cuts becoming likely.
- The 10-year yield dropping below 4% to ease valuation pressures.

The Bottom Line: A Strategic Shift

Wilson’s call to favor U.S. equities over international markets isn’t without its skeptics. Europe’s outperformance in 2025 and Asia’s growth potential seem tempting. But his case is rooted in cyclical resilience:
- The S&P 500’s quality tilt and dollar-driven advantages will outlast near-term headwinds.
- International markets may only shine after a recession, when valuations reset.

The data supports this thesis:
- U.S. large-cap stocks have outperformed small caps by 10% since mid-2024.
- Sectors with tariff mitigation strategies (e.g., tech, healthcare) have seen earnings revisions improve by 2–3% in Q1 2025.

Final Takeaway

Mike Wilson’s stance isn’t a blanket endorsement of every U.S. stock—selectivity matters. Investors should prioritize quality, pricing power, and dollar exposure, while remaining vigilant on tariff risks and Fed policy. For now, the U.S. equity market’s structural and cyclical advantages make it a better bet than its global peers—provided investors stay disciplined through the noise.

In a market where patience and precision are rewarded, Wilson’s insights remind us: the late cycle favors those who lean on resilience, not momentum.

Data as of Q2 2025. Past performance does not guarantee future results.