Dow Jones Industrial Average (DJIA) futures edged higher on Thursday, hinting at a cautiously optimistic stock market open. But not everyone is feeling the warm, fuzzy glow. Mike Wilson at Goldman Sachs said he’s “rooting for a recession” to bring some sensibility back to the market.
Speaking to CNBC, Wilson said yesterday:
“I’m rooting for a recession in some ways because that’s what would get the flush in terms of expectations that still has to happen. And then we can have a cyclical recovery.”
Talks of recession have gripped Wall Street since the infamous yield curve inversion earlier this year. Yet the Dow Jones and S&P 500 remain near record highs.
Dow Jones Industrial Average (DJIA) futures hovered 15 points higher at 6.06 am ET after a choppy overnight session.
S&P 500 futures were 0.09% higher while Nasdaq Composite futures carved out a 0.28% gain on the back of strong Tesla and Microsoft earnings. Bitcoin fell overnight to $7,453.
Wilson’s comments are controversial. It’s one thing to predict a recession; it’s a whole other thing to actively root for job losses and economic collapse.
The analyst’s logic is that a recession would “flush out” the misaligned expectations and re-set the stock market. It’s based on the theory that recessions are a natural part of the economic cycle and help “cleanse” the economy of bad actors and poorly-run companies. As Warren Buffett puts it:
“You only find out who is swimming naked when the tide goes out.”
There are no shortage of headwinds facing the global stock market. The US-China trade war, Brexit, shrinking manufacturing in Germany and the US, back-to-back US earnings decline, the inverted yield curve.
But the real warning sign, Morgan Stanley’s Wilson argues, is the decline of profit margins at small-mid sized businesses in America.
“We can agree that the engine of jobs growth in this country is small and medium businesses. My concern continues to be if this doesn’t improve for small, mid companies, then they are going to have to start laying people off.”
Rather than focus on the big names in the Dow Jones, Wilson believes the first real signs of recession will start lower in the food chain. And he’s not the only cautious investor on Wall Street. $222 billion fund Pictet Wealth Management began cycling money out of stocks and into cash earlier this year in a defensive move. Even Warren Buffet is sitting on the sidelines, perhaps anticipating a crash.
Following strong earnings reports at Microsoft and Tesla last night, Thursday offers a bumper line up of corporate numbers.
Twitter reports before the bell this morning. Visa, Amazon, Intel, and Illumina take the stage after the market closes tonight.
Elsewhere, European Central Bank president Mario Draghi will deliver his final speech as head of the central bank before passing the reigns to Christine Lagarde.