The Geopolitical Shock Playbook (Mike Wilson, Morgan Stanley) | #623 - The Meb Faber Show - Better Investing Recap

Podcast: The Meb Faber Show - Better Investing

Published: 2026-03-20

Guests: Mike Wilson

What Happened

Mike Wilson, Chief U.S. Equity Strategist and Chief Investment Officer for Morgan Stanley, discusses the concept of 'rolling recessions and recoveries' to explain the staggered economic downturns observed post-pandemic. He notes that a broad earnings recession started in 2022, particularly affecting big tech stocks due to significant demand payback.

Wilson highlights the ongoing impact of AI disruption on labor markets and various sectors, notably software and business services stocks. He points out concerns about private credit malaise, though he believes it has not yet become a systemic issue. Wilson also mentions the effect of the Iran conflict on markets, drawing parallels with past geopolitical events while emphasizing the current strength of the underlying economy.

Oil and energy stocks have performed well leading up to the Iran conflict, which Wilson attributes to market anticipation of potential disruptions. Despite global oil price spikes, the U.S. remains somewhat insulated due to its excess production capacity. Additionally, an increase in tax refunds by 17% year over year offers consumers some buffer against rising gas prices.

The current economic environment is compared to the 1940s post-World War II era, characterized by high debt and inflationary pressures. Wilson discusses the equity risk premium being close to zero, indicating stocks are priced similarly to 10-year bonds. He suggests that small and mid-cap stocks might outperform in the short term due to inflationary impulses driving earnings growth.

Wilson comments on the changing market dynamics, noting shorter and hotter economic cycles compared to the past. He observes that the Federal Reserve is perceived as not fully independent, influenced by the need to support Treasury funding. He also touches on the potential of gold as an inflation hedge but argues that stocks might currently serve as a better hedge.

Geopolitical shocks historically do not lead to prolonged economic downturns, yet Wilson acknowledges the risk of exceptions. He emphasizes the strong geopolitical position of the U.S. due to its geographical advantages and resource production. Additionally, he notes Japan's measures to offset inflationary costs through subsidies for its citizens.

Wilson mentions the widening spread between Brent and WTI oil prices as an indicator of potential logistical challenges. He also points out that international stocks and small to mid-cap stocks have been improving since November, along with sectors like energy and metals experiencing de-risking and deconcentration in the market.

Finally, Wilson discusses the impact of AI on productivity, particularly in legal, business services, and consulting sectors, by reducing the need for additional hiring. He foresees a collapse in the cost of compute, making AI more accessible and beneficial for adopters, with healthcare, especially biotech, being ripe for disruption by AI in drug discovery.

Key Insights

• The concept of 'rolling recessions and recoveries' helps explain the staggered economic downturns post-pandemic. A broad earnings recession started in 2022, heavily impacting big tech stocks due to demand payback.
• AI disruption is affecting labor markets and sectors like software and business services. Although private credit malaise is a concern, it is not yet a systemic problem, according to Mike Wilson.
• Despite global oil price spikes, the U.S. is insulated due to excess production capacity. Tax refunds are up 17% year over year, providing consumers with a buffer against higher gas prices.
• The equity risk premium is near zero, suggesting stocks are priced similarly to 10-year bonds. Small and mid-cap stocks may outperform in the short term due to inflationary impulses driving earnings growth.