Morgan Stanley CIO and chief U.S. equity strategist Mike Wilson said liquidity is now a bigger near-term risk for stocks than interest rate hikes. He warned that cash available in the financial system is shrinking, which could create pressure for equities.
Wilson said reserve-management programs are now about 75% smaller than their peak levels, while Treasury repo market volumes have dropped around 50%. According to him, both trends point to tighter market liquidity.
He added that stronger loan growth is making the situation worse because more capital is being absorbed by the real economy at a time when balance-sheet support is fading.
Wilson expects U.S. stocks to remain volatile in July and said a market pullback is possible. He believes the next earnings-driven rally may be delayed until liquidity conditions improve.
The Morgan Stanley strategist said last week’s FOMC meeting under Fed Chair Kevin Warsh was an important step in restoring the Federal Reserve’s credibility. He noted that the S&P 500-to-gold ratio has risen about 40% since Warsh’s nomination in February, which he sees as a sign of growing market confidence.
Wilson also supported Warsh’s decision to reduce extensive forward guidance from the Fed, saying markets should focus more on incoming economic data rather than trying to predict central bank comments.
In separate news, SpaceX has signed a compute agreement with Reflection AI, granting the startup access to NVIDIA GB300 chips via Elon Musk’s Colossus infrastructure. Reflection AI will pay $150 million per month from July 2026 through 2029, making the deal potentially worth up to $6.3 billion, although either party can terminate the agreement after three months with 90 days’ notice.
Meanwhile, Alphabet shares fell about 5% after DeepMind VP John Jumper announced he is leaving for Anthropic. The move follows Noam Shazeer’s recent departure to OpenAI and adds to concerns over talent retention in Google’s AI division.
Separately, DOE data showed Strategic Petroleum Reserve (SPR) crude oil stocks fell by 9.05 million barrels last week to 331.2 million barrels, the lowest level since June 1983. The decline was part of a previously announced plan to release 172 million barrels from the reserve and marked the third-largest weekly drawdown on record.
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