By Jules Rimmer
Mike Wilson foresees a lost decade for bonds
Successive wars against Afghanistan, Iraq, Iran and the coronavirus have created an inflationary paradigm that could last three decades, says Mike Wilson. Investors' primary ambition therefore must be to beat inflation.
The worldwide pandemic has started an inflationary boom that will last three decades, which means investors should turn to high-quality stocks rather than bonds for inflation protection, according to Morgan Stanley's chief U.S. equity strategist.
Mike Wilson believes the excess debt from multiple wars against Afghanistan, Iraq, Iran and the coronavirus can only be tackled one way: central banks and governments inflating their way out of trouble. Wilson was describing his theories on inflation to Meb Faber on the latter's regular podcast show that was just released.
Wilson has been consistently bullish on U.S. stocks since Liberation Day in 2025, a view predicated on what he labels &#34;a rolling recovery&#34; after the &#34;rolling recession&#34; of the previous three years. Starting in 2022 he observed a broad earnings recession for the S&amp;P 500 SPX, that was partly concealed by the Magnificent Seven MAGS boom and that bottomed in April 2025 with the DOGE initiative and its 300,000 attendant job losses in government.
Wilson's bullishness, he relates, broadened out from the narrow S&amp;P 500 to the Russell 2000 RUT small-cap index but this narrative was interrupted by the Iranian war. For Wilson, &#34;this is a temporary interruption,&#34; so long as oil (BRN00) does not exceed $140 for an extended period.
Wilson still prefers the equal-weighted S&amp;P 500 RSP over large-caps and also likes small caps and industrials XLI. He's now swapping out of energy XLE into materials XLB, while taking an interest in regional banks BKX. With small-caps, however, it should be noted, Wilson has a preference for the S&amp;P 600 SML index rather than the Russell 2000 which he regards as one of the lowest-quality indices.
One of Wilson's most startling predictions is that fixed-income investments will underperform for a decade. The defensive role once fulfilled by longer-term bonds BX:TMUBMUSD30Y, or duration, is now taken by gold (GC00) and so in Wilson's recommended portfolio weightings, the 40% previously devoted to bonds is now shared equally with gold.
Wilson makes some interesting observations on AI. Tracking beneficiaries and adopters of AI, his research finds the technology working. He predicts that the technology will become pervasive when the cost of compute collapses in the next few years. Wilson believes corporates will develop operating leverage as they need to hire fewer people.
Another trend he observes is that immigration restrictions may improve the negotiating capability of blue-collar workers while AI may decrease that of white-collar employees. This divergence could go some way to rebalancing the K-shaped economy, he says.
-Jules Rimmer
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03-26-26 0730ET

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Morgan Stanley's chief U.S. equity strategist, Mike Wilson, predicts a lost decade for bonds due to ongoing inflation driven by global conflicts and the pandemic. He advises investors to focus on high-quality stocks for inflation protection, favoring the equal-weighted S&P 500 and small-cap stocks. Wilson also suggests reallocating bond investments to gold and highlights the potential impact of AI on labor dynamics. He believes that fixed-income investments will underperform for the next decade, while the inflationary environment may persist for up to thirty years.

- Mike Wilson predicts a lost decade for bonds due to persistent inflation from recent geopolitical conflicts and the pandemic, urging investors to focus on high-quality stocks instead.  
- He asserts that central banks will inflate their way out of excess debt, highlighting a shift in investment strategy by reallocating funds from bonds to gold.  
- Wilson also discusses the implications of AI on the workforce, suggesting it may lead to greater operating efficiency for corporations while affecting blue-collar workers' negotiating power.

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A lost decade for bonds means high-quality stocks are best way to protect against inflation, says Morgan Stanley strategist