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 bring you a variety of perspectives.

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

It's Monday, May 10th at 11.30 a.m. in New York.

So let's get after it.

Over the past month, we've taken a different path than most equity strategists.

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

risk and what's already priced in.

First on the execution front, there's growing evidence that supply remains a problem for

many companies, just as demand is picking up.

These issues have been particularly acute in certain materials and components, and now

it's becoming more apparent that we have a labor shortage as well.

In addition to numerous surveys and company commentary, Friday's disappointing employment

reports suggest labor availability may be a gating factor on the speed of the reopening.

Furthermore, while these problems haven't broadly affected margin yet, stocks are

discounting machines, and they don't always wait for an engraved invitation.

To prepare for this execution risk, we downgraded small caps and early cycle stocks like consumer

discretionary, while upgrading consumer staples and recommending a move up the quality curve

across all sectors.

At the same time, we've maintained our reflationary bias with overweights in financials, materials,

...