Morgan Stanley’s Chief U.S. Equity Strategist, Mike Wilson, illuminates a profound economic narrative that has eluded many observers. For nearly three years, since 2022, the U.S. economy has navigated a concealed downturn, one that defies conventional recession indicators. Instead of a uniform collapse marked by skyrocketing unemployment or plummeting GDP, this phenomenon unfolded as a “rolling recession.” Weakness permeated sector by sector, from pandemic-boosted tech and consumer goods to broader industries, each enduring its isolated trough at staggered intervals. This fragmented progression muffled the alarms of broad economic distress, allowing headline statistics like nominal GDP and overall employment to paint a deceptively stable picture.
Beneath this facade, several undercurrents amplified the veiled strain. Post-pandemic immigration surges initially bolstered labor figures, only for stricter enforcements to later distort interpretations. Traditional models faltered in capturing this asymmetry, as government hiring masked private-sector contractions. Supply-chain disruptions compounded the issue, eroding consumer confidence while median earnings growth across the Russell 3000 index lingered in negative territory for extended periods. Wilson emphasizes alternative gauges—earnings growth trajectories and confidence surveys—as superior barometers of economic vitality. By these metrics, the majority of companies grappled with subdued performance, underscoring a reality far grimmer than surface-level data suggested.
A pivotal inflection emerged in April 2025, dubbed “Liberation Day” following the White House’s imposition of new tariffs. This juncture signifies the recession’s nadir, evidenced by a dramatic, V-shaped resurgence in earnings revisions breadth—a key proxy for corporate guidance. Corroborating this bottom, payroll revisions and job cut announcements peaked last spring before receding, aligning with historical pro-cyclical patterns that turn positive during recoveries. The latest Bureau of Labor Statistics insights from August reinforce this thesis: a meager 22,000 jobs added, unemployment ticking to 4.3%, and significant downward adjustments to prior months’ figures, including a near-80% hiring collapse in July. Yet, these ostensibly grim numbers, affirm the transition from recession to recovery, as revisions historically worsen into downturns and improve thereafter.
As the rolling recession dissipates, an early-cycle environment takes shape, primed for rejuvenation. The Federal Reserve’s responsive monetary policy plays a starring role, with rate cuts already initiated last summer via a 100 basis point reduction amid labor softening. Markets now anticipate further easing, pricing in a 25-50 basis point cut at the upcoming September meeting, potentially totaling 5.5-6 cuts through 2026. This accommodative stance is poised to catalyze durable growth, bolstering a nascent bull market that commenced in April. Recent economic pulses, such as Q2 GDP expanding at 3.3% annually and the ISM Services Index registering 52.0% in August, whisper of broadening momentum. Corporate confidence has materially elevated post-Liberation Day, with earnings projections turning upward, heralding a strong finish to the year and into 2026.
For investors, this paradigm shift unveils layered opportunities amid transitional volatility. Seasonal market choppiness and monetary uncertainties may persist, yet Wilson advocates resilience, forecasting broad-based earnings revival and fresh all-time highs. Sectors like large-cap healthcare stand out for their defensive value and sustained momentum, offering havens in this flux. Small caps, historically laggards in early recoveries, are expected to accelerate as the upswing widens. This redefinition of recessions—as waves rather than monoliths—invites a nuanced investment approach, where discerning hidden strengths beneath apparent weaknesses unlocks potential. As fundamentals solidify and policy support intensifies, the economy’s enigmatic layers peel back to reveal a promising horizon.
