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Stocks Poised for Rebound as Earnings Outlook Brightens
4 Aug
Summary
- Robust earnings outlook for the coming year
- Fading inflation and softening labor market to spur Fed rate cuts
- Second-quarter earnings beat expectations
As of August 4th, 2025, Morgan Stanley strategist Michael Wilson is advising investors to take advantage of the recent selloff in US stocks, as the earnings outlook for the coming year remains strong. While the S&P 500 has faced pressure from a weakening labor market and tariff-related inflation that may delay Federal Reserve interest rate cuts, Wilson believes any pullback should be viewed as a buying opportunity.
Wilson's analysis indicates that the "rolling recovery has begun," with earnings revisions breadth analysis pointing to a robust earnings outlook. He notes that while the Fed remains on hold for now, the combination of a fading inflation impulse later this year and softness in the labor market should foster a "robust cutting cycle" that will provide support for US equities.
The article also highlights that the second-quarter earnings season has proven much better than expected, with S&P 500 firms on track to post a 9.1% jump in profits, far exceeding analysts' initial projections of 2.8%. The share of companies beating estimates is also the highest in four years, further bolstering the case for a rebound in US stocks.
