Sagarika Jaisinghani
2 min read
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(Bloomberg) -- Investors should buy any dips in US stocks fueled by Friday’s credit rating cut, as the trade truce with China has reduced the odds of a recession, according to Morgan Stanley’s Michael Wilson.
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The strategist sees a greater chance of a pullback in equities after the downgrade by Moody’s Ratings pushed 10-year bond yields above the key 4.5% level. However, “we would be buyers of such a dip,” Wilson wrote in a note.
S&P 500 futures slid 1.2% on Monday following the debt downgrade, which Moody’s said was in response to a ballooning budget deficit that showed little sign of narrowing. The move has reignited worries about whether US assets are still popular at a time of lingering global trade uncertainty.
Moody’s is the last of the major US rating agencies to issue such a downgrade. Fitch Ratings and S&P Global Ratings stripped US debt of its top rating in 2023 and 2011, respectively.
The benchmark US stock index has trailed international peers this year and only recovered its 2025 declines last week following the temporary trade deal between Washington and Beijing.
In an encouraging sign, Wilson said the corporate earnings season seemed to have ended with no major impact from the uncertainty over tariffs. A recent pickup in profit upgrades also bodes well for further equity gains, even if the coming months show slightly weaker trade data, he said.
“While we’re respectful of this potential outcome, we think the probability that the market looks through such weakness and deems it temporary just went up because of the trade agreement with China,” Wilson said.
Wilson warned in March that US equity volatility would persist until the second half of the year. The strategist is now among the few voices favoring US stocks over international peers.
Meanwhile, Goldman Sachs Group Inc. strategist David Kostin said he expects the Magnificent Seven group of technology stocks to resume outperforming the broader S&P 500 on robust earnings trends. The cohort has slumped so far this year as investors dumped pricey US stocks.
--With assistance from Michael Msika.
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