Welcome to the thoughts on the market. I'm Mike Wilson, Chief Investment

Officer and Chief U.S. Equity Strategies 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, July 27th at 1130 a.m. in New York, so let's get after it.

Last week the S&P 500 made a valiant effort to break out to new recovery highs but ultimately failed to do so as the

stock markets finished a week on a soft note.

While there was no smoking gun for this weakness, we would chalk it up to three things. First a spike in COVID cases has

continued and the virus remains far from contained in the US. This spike is

challenging the pace of reopening of the US economy, schools, and everyday activities of life.

Second, polls are suggesting Joe Biden has a very strong lead over President Trump in this year's election,

while the Democrats are also looking like favorites in congressional races.

A blue sweep would usher in meaningful changes to policy going forward that are perceived to be less market friendly.

Finally, valuations for the most favored parts of the equity market have reached their limits,

with some stocks now reaching bubble territory. On the last point, higher

valuations are justified for businesses that have proven to be quite resilient

during this pandemic. Many of these stocks are in sectors

perceived to be secular growers, companies that can do well in any kind of

economic environment. The pandemic has in many ways proven this thesis for many

of these winners.

Furthermore, record low long-term interest rates boost the valuations for hyper-growth stocks

as near-term profitability becomes less important to investors.

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