Welcome to Thoughts on a Market.

I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategies for Morgan

Stanley.

A lot of my colleagues bring you a variety of perspectives.

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

It's Monday, April 26 at 11.30 a.m. in New York, so let's get after it.

Over the past month we've been taking a different path than most strategists.

Rather than getting excited about the reopening, we're getting a bit more concerned about

execution risk and what's already priced.

To prepare for this risk, we've downgraded small caps and consumer discretionary stocks

while recommending a move up on the quality curve.

First on the execution front, we're hearing more anecdotal evidence that supply remains

a problem for many companies, just as demand is picking up.

These issues have been more concentrated in certain materials and components until

recently, where it's now becoming more apparent that we have labor shortages as well.

We first began highlighting these concerns last month, and now we're even more convinced

that these concerns are warranted.

On valuation, the risk is elevated too, but with liquidity still flush and headline indices

making new highs every day, few seem worried.

From our vantage point, the equity risk premium is very much underpricing the risk we have

discussed.

Peacrate of change in fundamentals, as well as policy and liquidity, cost in margin pressures,

...