Markets Signal New Economic Cycle Amid Mixed Earnings Reports

The US economy and market may be on the cusp of a new cycle, according to Mike Wilson, Chief US Equity Strategist and Chief Investment Officer for Morgan Stanley. In a recent interview with Bloomberg Businessweek Daily, Wilson discussed his 2026 market outlook, pointing to a broadening of the economy as the key story. "There have been many parts of the economy that have been sort of mired in a recession for the last three years or so, and they're just now starting to emerge," Wilson said.

This optimism is not universally shared, however, as evidenced by the recent performance of Australian digital payments company Zip Co. The company's shares experienced their largest drop in over a decade after guiding toward flat cash earnings growth in the second half of the financial year. This mixed earnings report highlights the ongoing challenges faced by some companies, even as the broader market appears to be entering a new cycle.

Wilson's comments suggest that the US economy is transitioning out of a period of stagnation, with previously underperforming sectors beginning to show signs of life. This broadening of the economy is expected to have a positive impact on the market, with Wilson reiterating his 7,800 S&P 500 year-end target.

The Morgan Stanley strategist's views are based on his analysis of the US economy, which he believes has been experiencing a "rolling recession" over the past three years. During this time, certain sectors, such as housing and autos, have struggled, while others, like technology, have continued to thrive. However, Wilson believes that this dynamic is now shifting, with the previously underperforming sectors beginning to emerge from their recessionary state.

This shift is expected to have a positive impact on the market, as investors become more confident in the economy's prospects. Wilson's 7,800 S&P 500 year-end target reflects this optimism, suggesting that the market has the potential to make significant gains in the coming year.

In contrast, Zip Co.'s earnings report highlights the ongoing challenges faced by some companies. The Australian digital payments company's decision to guide toward flat cash earnings growth in the second half of the financial year was met with a significant sell-off, with the company's shares experiencing their largest drop since 2014.

The reasons behind Zip Co.'s disappointing earnings report are complex and multifaceted. However, the company's struggles may be indicative of the broader challenges faced by the financial technology sector, which has experienced significant disruption in recent years.

Despite these challenges, Wilson's comments suggest that the US economy and market are entering a new cycle, one that is characterized by broadening and growth. As the market continues to evolve, it will be important for investors to remain vigilant, monitoring the performance of individual companies and sectors, while also keeping a close eye on the broader economic trends.

Ultimately, the interplay between these competing forces will determine the trajectory of the market in the coming year. While some companies, like Zip Co., may continue to face challenges, others may thrive in the new economic cycle. As Wilson noted, "That broadening out is the real story."