Why Stocks Can Be Resilient Despite Geopolitical Risk

Mike Wilson, Morgan Stanley's CIO and Chief U.S. Equity Strategist, discusses the implications of a U.S. attack on Iranian nuclear facilities for U.S. equities. He argues that this event, along with other previously negative factors like immigration enforcement and tariffs, has likely peaked in its negative impact. Wilson points to a sharp rebound in earnings revision breadth since April and historical data showing that geopolitical shocks often precede higher equity prices, especially when oil prices aren't significantly elevated. He recommends large-cap, higher-quality equities due to long-term interest rates and the Fed's current stance, suggesting a shift to cyclical areas only if the Fed signals rate cuts. His favored sectors include industrials, financials, and software, with energy preferred over consumer discretionary as a hedge against potential oil price increases.