According to Business Insider, Morgan Stanley’s chief stock strategist Michael Wilson has identified two key statistics from Q3 earnings season that support his bullish outlook for stocks through 2026. Wilson noted that sales beat rates are running at more than twice the historical average, while median companies in the Russell 3000 index achieved 11% EPS growth—the strongest in four years and nearly double the 6% rate from Q2. This performance across a wide range of companies supports Wilson’s thesis that a “rolling recovery” in earnings began in April, with profits expanding beyond Big Tech sectors. The strategist also highlighted that recent US-China trade developments have reduced tensions, though uncertainty remains around the Federal Reserve’s interest rate path following Chair Jerome Powell’s recent comments.
Sponsored content — provided for informational and promotional purposes.
The Quiet Revolution in Market Breadth
What makes Wilson’s analysis particularly compelling isn’t the magnitude of growth but its distribution. For years, market gains have been increasingly concentrated in a handful of mega-cap technology stocks, creating what many feared was an unsustainable foundation. The fact that median companies—not just the largest—are showing robust earnings expansion suggests something fundamental is changing. This isn’t just about AI-driven productivity gains benefiting a select few; it’s about broader economic resilience translating into corporate profitability across sectors. When companies representing the market’s middle achieve double-digit earnings growth, it indicates healthier underlying economic conditions than headline indices might suggest.
Understanding the “Rolling Recovery” Thesis
The concept of a “rolling recovery” represents a significant departure from traditional market cycle thinking. Rather than expecting synchronized growth across all sectors simultaneously, Wilson’s framework anticipates sequential improvements across different industries and market caps. This pattern is actually healthier than broad-based surges, which often precede sharp corrections. A rolling recovery creates stability—as some sectors mature in their growth cycles, others are just beginning theirs, providing natural diversification for portfolio returns. This dynamic helps explain why markets can continue advancing even when certain high-profile sectors experience temporary setbacks.
Strategic Implications for 2025-2026
For investors, the broadening earnings base suggests several strategic shifts. First, the traditional growth-versus-value dichotomy becomes less relevant when earnings strength appears across multiple sectors. Second, active stock selection may regain importance relative to passive indexing as dispersion between winners and losers increases within sectors. Third, the quality factor could see renewed emphasis as companies demonstrating consistent execution across varying economic conditions command premium valuations. Most importantly, this environment reduces dependency on Federal Reserve policy as the primary market driver—when companies are growing earnings organically through sales expansion, they become less sensitive to interest rate fluctuations.
The Challenges Wilson’s Thesis Faces
While the data supports Wilson’s optimistic outlook, several headwinds could disrupt the rolling recovery narrative. The most immediate concern is labor market dynamics—if unemployment rises more sharply than anticipated, consumer spending could contract faster than corporate earnings can adjust. Additionally, while trade tensions with China have eased, structural decoupling continues across technology and manufacturing sectors, potentially creating new supply chain inefficiencies. The Federal Reserve’s path remains uncertain, and while moderate weakness might prompt accommodative policy, the timing and magnitude of rate cuts could either accelerate or hinder the earnings recovery. Finally, geopolitical risks from multiple regions could introduce volatility that disrupts the sequential improvement pattern Wilson anticipates.
Where This Leads the Market
If Wilson’s rolling recovery thesis holds, we’re likely entering a period where market leadership becomes more democratic. The era of relying exclusively on the “Magnificent Seven” for returns may be ending, replaced by opportunities across mid-cap industrials, consumer discretionary, and even some value sectors. This doesn’t mean technology becomes irrelevant—rather, its role shifts from sole driver to participant in a broader advancement. The most successful portfolios through 2026 will likely be those positioned across multiple sectors experiencing their own recovery timelines, rather than concentrated in yesterday’s winners. This broadening could also support longer bull market cycles, as sequential sector recoveries create natural rotation opportunities that prevent excessive valuation bubbles in any single area.
