Come on in, the water’s warm. That’s what a top Wall Street analyst is saying about this earnings season, arguing that it’s validating his long-running thesis that the economy was in a secret kind of recession that most economists just didn’t see for three years now. The robust third-quarter earnings season is revealing that his thesis of a “rolling recovery” for the economy is underway, with the “rolling recession” retreating into the past.
During the pandemic and its grinding aftermath, much of the U.S. private sector endured what Morgan Stanley strategists, led by chief equity analyst Mike Wilson, have labeled a “rolling recession”—a drawn-out downturn that escaped headline GDP but left deep marks in business hiring, earnings, and confidence. “Most of the private sector of the U.S. economy has not been hiring and/or has been trimming headcount for years,” the report from Nov. 3 notes, “so there is less need to be reactive to further slowing.”
One of the most remarkable findings of the current earnings season, Wilson argues, is that revenue “beat” rates are more than double their historical averages, and median stock earnings growth has notched its fastest pace since 2021. The S&P 500’s collective revenue surprise now stands at 2.3% compared with its 1.1% norm, signaling not just stabilization but firming top-line momentum. Wilson notes it’s the fastest earnings growth since the third quarter of 2021 and “marks the end of one of the longest earnings recessions on record,” he added, referring to a period of two or more consecutive quarters of falling corporate profits, year over year. Wilson said he thinks this is “an underappreciated story” and sees the trend continuing into 2026.
April as an inflection point
Wilson says the economic cycle quietly reset in April—a month marked by President Trump’s “Liberation Day,” when he unveiled a worldwide round of “reciprocal tariffs” on April 2. Without linking the two events, Wilson continued his refrain that April marked the end of the rolling recession, citing a rebound in both survey and company guidance data. Earnings revisions, which serve as a key real-time indicator of corporate sentiment and future prospects (and Wilson’s “preferred” proxy), made a “V-shaped” recovery at that time. Median stock earnings growth among the Russell 3000 hit 11% for the third quarter, a sharp rise from 6% in the previous quarter and just 2% at the start of 2025.
Cost structures have become significantly leaner as companies rightsized during the downturn, Wilson said, pointing to how wage expense for corporates has come down significantly in growth rate terms. Most of the excess labor cost was wrung out during the depths of the rolling recession, aligning wage expenses with profitability and setting up businesses to benefit disproportionately from any top-line improvement. “A little bit of firming in top line and pricing power goes a long way,” he argues, suggesting that bottom-line leverage will be greater now that costs are restrained.
The National Federation of Independent Business (NFIB) small-business survey also shows stabilization in pricing power for the first time in years. And while risks remain—such as a hesitant Federal Reserve, tariffs, or funding stress—most of the indicators now point toward renewed expansion, not contraction.
Seen from a worker perspective, this dynamic is altogether more brutal and bears a few viral catchphrases to sum up the shift from over-hiring to lean and efficient: The “Great Resignation” turned into the “Great Flattening,” resulting in a workforce that went from “quiet quitting” to “job hugging.” It’s a tough landscape for Gen Z, which is facing an unemployment rate roughly double the national average, and finds itself having to persuade corporations to loosen their “low-hire, low-fire mentality.”
Shifts in market and policy
Markets themselves have responded to this quiet recovery ahead of the consensus, with Wilson wryly noting that, “as usual, stocks have figured this out ahead of the consensus forecaster.” The positive correlation between equity returns and bond yields, coupled with renewed breadth in stock performance, hints at a market that expects growth to hold steady or even reaccelerate—even as rate cut expectations have moderated and trade tensions have diffused since a pivotal meeting between the U.S. and China in October. The S&P 500 is forecasted to see strong earnings per share growth into 2026, and equity strategists see broadening leadership beyond just the Magnificent Seven megacap stocks that dominated the early recovery phase.
What corporate America is trying to tell us, in other words, is that the private side of the economy has quietly worked through a lot of pain for several years now and is poised for broader growth. The narrative of recession has shifted to one of potential acceleration, driven by robust earnings, lean cost bases, and an uptick in business confidence and investment, including a forecasted rebound in merger-and-acquisition activity and capital spending.
For this story, Fortune used generative AI to help with an initial draft. An editor verified the accuracy of the information before publishing.
