Welcome to Thoughts on the market. I'm Mike Wilson, Chief Investment Officer and Chief

U.S. Equity Strategist for Morgan Stanley. Along with my colleagues bringing you a variety

of perspectives, I'll be talking about the latest trends in the financial marketplace.

It's Monday, May 18th at 1130 a.m. in New York, so let's get after it.

After a sharp 30% rally in stocks on the March lows, most equity indices have struggled to make much progress over the past month.

Concerns have ranged from risks related to the reopening of the economy to stretched valuations.

Such consolidations are normal, however, after a sharp rally and part of the

bottoming process in our view. In fact, we looked at the 2009 experience to compare and contrast

with today's market actions.

What we found was not surprising but remarkable nonetheless.

First, stock price patterns look very similar to what happened after prices bottomed in March of 2009.

Using the S&P 500 as a proxy for global equity markets, the pattern

is eerily similar. Second, while this rally may appear narrow to some, small cap stocks

and broader indices have actually outperformed a larger, higher quality

S&P 500 benchmark. This too is similar to what happened in 2009. Furthermore, we've seen several

early cycle sectors and stocks begin to outperform, which is what typically happens in a recession trough.

And finally, from a valuation perspective, the Equity Risk Premium has fallen sharply since late March, and is also right in line with the 2009 experience.

The big difference between today and 2009 comes down to interest rates, more specifically longer-term interest rates or 10-year Treasury yields.

In 2009, during the worst part of the downturn, and while the banking system was in the middle

of a financial crisis, 10-year Treasury yields remained well above 2%. Today we are stuck well below 1% and closer to 50 basis points.

Just as important in my view is the observation of 10-year real rates are deep in negative territory, whereas in 2009

real rates are well above 1% and never really threaten the zero bound.

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