Morgan Stanley's Mike Wilson and Wells Fargo's Chris Harvey Nailed Calls for Swift Stocks Recovery.

Morgan Stanley's Mike Wilson and former Wells Fargo Securities' Christopher Harvey maintained their bullish outlook on US stocks despite the chaotic selloff in April. Their predictions proved correct as the S&P 500 Index surged 30% from its April lows, fueled by advances in artificial intelligence and lower-than-feared tariff rates. Many sell-side strategists who initially downgraded their forecasts have now lifted their predictions to keep up with the market's momentum.

Despite the chaotic selloff in April, Morgan Stanley's Mike Wilson and former Wells Fargo Securities' Christopher Harvey maintained their bullish outlook on US stocks, and their predictions proved correct. The S&P 500 Index surged 30% from its April lows, driven by advances in artificial intelligence and lower-than-feared tariff rates.

The April selloff was triggered by former President Donald Trump's "Liberation Day" tariffs, which initially sent the market into a downturn. However, the market swiftly recovered as Trump backed down from his most extreme tariff proposals, setting the stage for a bonanza in the following months. The S&P 500 has since reached all-time records, with the Magnificent Seven companies—Apple, Amazon, Alphabet, Meta, Microsoft, Tesla, and Nvidia—leading the charge.

The surge in the S&P 500 can be attributed to several factors. Firstly, the AI revolution has been a significant driver, with the Magnificent Seven's stock prices exceeding earnings by record amounts. The release of ChatGPT in early 2023 sparked a wave of interest and investment in the AI sector, leading to substantial growth in the technology's key players. Secondly, the shift to passive funds has played a crucial role in the market's resilience. With about half of fund assets now held in passive funds, investors are buying stocks automatically, regardless of economic conditions or company performance.

While the market's performance has been unusual, it is not without precedent. The fundamentals theory held up well until the 2008 financial crisis, but the market's subsequent growth has been driven more by liquidity and AI expectations. The liquidity theory, which posits that the Federal Reserve's monetary policies drive market valuations, has been challenged by the market's performance in 2023 and 2024. Despite the Fed's interest rate hikes and liquidity drain, the market continued to soar, indicating that other factors are at play.

Many sell-side strategists who initially downgraded their forecasts have now lifted their predictions to keep up with the market's momentum. The market's resilience and the potential for continued growth in AI-driven sectors suggest that the bullish outlook may be justified.

References:
[1] https://www.theatlantic.com/economy/archive/2025/08/stock-market-theories/683780/