Thoughts on the Market

Can the U.S. equity market break out of its expected range? Our CIO and Chief U.S. Equity Strategist Mike Wilson looks at whether the Trump administration’s shifting tariff policy and Fed uncertainty will continue weighing down stocks.Read more insights from Morgan Stanley. ----- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today, I will discuss what it will take for the US equity market to break out of the 5000-5500 range. It's Monday, April 21st at 11:30am in New York.So, let’s get after it.Last week, we focused on our view that the S&P 500 was likely to remain in a 5000-5500 range in the near term given the constraints on both the upside and the downside. First, on the upside, we think it will be challenging for the index to break through prior support of 5500 given the recent acceleration lower in earnings revisions, uncertainty on how tariff negotiations will progress and the notion that the Fed appears to be on hold until it has more clarity on the inflationary and growth impacts of tariffs and other factors. At the same time, we also believe the equity market has been contemplating all of these challenges for much longer than the consensus acknowledges. Nowhere is this evidence clearer than in the ratio of Cyclical versus Defensive stocks as discussed on this podcast many times. In fact, the ratio peaked a year ago and is now down more than 40 per cent.Coming into the year, we had a more skeptical view on growth than the consensus for the first half due to expectations that appeared too rosy in the context of policy sequencing that was likely to be mostly growth negative to start. Things like immigration enforcement, DOGE, and tariffs. Based on our industry analysts' forecasts, we were also expecting AI Capex growth to decelerate, particularly in the first half of the year when growth rate comparisons are most challenging. Recall the Deep Seek announcement in January that further heightened investor concerns on this factor. And given the importance of AI Capex to the overall growth expectations of the economy, this dynamic remains a major consideration for investors. A key point of today’s episode is that just as many were overly optimistic on growth coming into the year, they may be getting too pessimistic now, especially at the stock level. As the breakdown in cyclical stocks indicate, this correction is well advanced both in price and time, having started nearly a year ago. Now, with the S&P 500 closing last week very close to the middle of our range, the index appears to be struggling with the uncertainty of how this will all play out.Equities trade in the future as they try to discount what will be happening in six months, not today. Predicting the future path is very difficult in any environment and that is arguably more difficult today than usual, which explains the high volatility in equity prices. The good news is that stocks have discounted quite a bit of slowing at this point. It’s worth remembering the factors that many were optimistic about four-to-give months ago—things like de-regulation, lower interest rates, AI productivity and a more efficient government—are still on the table as potential future positive catalysts. And markets have a way of discounting them before it's obvious.However, there is also a greater risk of a recession now, which is a different kind of slowdown that has not been fully priced at the index level, in our view. So as long as that risk remains elevated, we need to remain balanced with our short-term views even if we believe the odds of a positive outcome for growth and equities are more likely than consensus does over the intermediate term. Hence, we will continue to range trade.Further clouding the picture is the fact that companies face more uncertainty than they have since the early days of the pandemic. As a result, earnings revisions breadth is now at levels rarely witnessed and approaching downside extremes assuming we avoid a recession. Keep in mind that these revisions peaked almost a year ago, well before the S&P 500 topped, further supporting our view that this correction is much more advanced than acknowledged by the consensus. This is why we are now more interested in looking at stocks and sectors that may have already discounted a mild recession even if the broader index has not. Bottom line, if a recession is averted, markets likely made their lows two weeks ago. If not, the S&P 500 will likely take those lows out. There are other factors that could take us below 4800 in a bear case outcome, too. For example, the Fed decides to raise rates due to tariff-driven inflation; or the term premium blows out, taking 10-year Treasury yields above 5 per cent without any growth improvement.Nevertheless, we think recession

Our analysts Michael Zezas and Erik Woodring discuss the ways tariffs are rewiring the tech hardware industry and how companies can mitigate the impact of the new U.S. trade policy.Read more insights from Morgan Stanley. ----- Transcript -----Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Public Policy Research.Erik Woodring: And I'm Erik Woodring, Head of the U.S. IT Hardware team.Michael Zezas: Today, we continue our tariff coverage with a closer look at the impact on tech hardware. Products such as your smartphone, computers, and other personal devices.It's Thursday, April 17th at 10am in New York.President Trump's reciprocal tariffs announcements, followed by a 90 day pause and exemptions have created a lot of turmoil in the tech hardware space. People started panic buying smartphones, worried about rising costs, only to find out that smartphones may or may not be exempted.As I pointed out on this podcast before, these tariffs are also significantly accelerating the transition to a multipolar world. This process was already well underway before President Trump's second term, but it's gathering steam as trade pressures escalate. Which is why I wanted to talk to you, Erik, given your expertise.In the multipolar world, IT hardware has followed a China+1 strategy. What is the strategy, and does it help mitigate the impact from tariffs?Erik Woodring: Historically, most IT hardware products have been manufactured in China. Starting in 2018, during the first Trump administration, there was an effort by my universe to diversify production outside of China to countries friendly with China – including Vietnam, Indonesia, Malaysia, India, and Thailand. This has ultimately helped to protect from some tariffs, but this does not make really any of these countries immune from tariffs given what was announced on April 2nd.Michael Zezas: And what do the current tariffs – recognizing, of course, that they could change – what do those current tariffs mean for device costs and the underlying stocks that you cover?Erik Woodring: In short, device costs are going up, and as it relates to my stocks, there's plenty of uncertainty. If I maybe dig one level deeper, when the first round of tariffs were announced on April 2nd, the cumulative cost that my companies were facing from tariffs was over $50 billion. The weighted average tariff rate was about 25 per cent. Today, after some incremental announcements and some exemptions, the ultimate cumulative tariff cost that my universe faces is about $7 billion. That is equivalent to an average tariff rate of about 7 per cent. And what that means is that device costs on average will go up about 5 per cent.Of course, there are some that won't be raised at all. There are some device costs that might go up by 20 to 30 per cent. But ultimately, we do expect prices to go up and as a result, that creates a lot of uncertainties with IT hardware stocks.Michael Zezas: Okay, so let's make this real for our listeners. Suppose they're buying a new device, a smartphone, or maybe a new laptop. How would these new tariffs affect the consumer price?Erik Woodring: Sure. Let's use the example of a smartphone. $1000 smartphone typically will be imported for a cost of maybe $500. In this current tariff regime, that would mean cost would go up about $50. So, $1000 smartphone would be $1,050.You could use the same equivalent for a laptop; and then on the enterprise side, you could use the equivalent of a server, an AI server, or storage – much more expensive. Meaning while the percentage increase in the cost will be the same, the ultimate dollar expense will go up significantly more.Michael Zezas: And so, what are some of the mitigation strategies that companies might be able to use to lessen the impact of tariffs?Erik Woodring: If we start in the short term, there's two primary mitigation strategies. One is pulling forward inventory and imports ahead of the tariff deadline to ultimately mitigate those tariff costs. The second one would be to share in the cost of these tariffs with your suppliers. For IT hardware, there's hundreds of suppliers and ultimately billions of dollars of incremental tariff costs can be somewhat shared amongst these hundreds of companies.Longer term, there are a few other mitigation strategies. First moving your production out of China or out of even some of these China+1 countries to more favorable tariff locations, perhaps such as Mexico. Many products which come from Mexico in my universe are exempted because of the USMCA compliance. So that is a kind of a medium-term strategy that my companies can use.Ultimately, the medium-term strategy that's going to be most popular is raising prices, as we talked about. But some of my companies will also leverage affordability tools to make the cost ultimately borne out over a longer period of time. Meaning today, if you buy a smartphone over two-year of an

The ever-evolving nature of the U.S. administration’s trade policy has triggered market uncertainty, impacting corporate and consumer confidence. But our Head of Corporate Credit Research Andrew Sheets explains why he believes this volatility could present a silver lining for credit investors.Read more insights from Morgan Stanley. ----- Transcript -----Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley. Today I’m going to talk about how high uncertainty can be a risk for credit, and also an opportunity.It's Wednesday, April 16th at 9am in New York.Markets year-to-date have been dominated by questions of U.S. trade policy. At the center of this debate is a puzzle: What, exactly, the goal of this policy is?Currently, there are two competing theories of what the U.S. administration is trying to achieve. In one, aggressive tariffs are a negotiating tactic, an aggressive opening move designed to be bargained down into something much, much lower for an ultimate deal.And in the other interpretation, aggressive tariffs are a new industrial policy. Large tariffs, for a long period of time, are necessary to encourage manufacturers to relocate operations to the U.S. over the long term.Both of these theories are plausible. Both have been discussed by senior U.S. administration officials. But they are also mutually exclusive. They can’t both prevail.The uncertainty of which of these camps wins out is not new. Market strength back in early February could be linked to optimism that tariffs would be more of that first negotiating tool. Weakness in March and April was linked to signs that they would be more permanent. And the more recent bounce, including an almost 10 percent one-day rally last week, were linked to hopes that the pendulum was once again swinging back.This back and forth is uncertain. But in some sense, it gives investors a rubric: signs of more aggressive tariffs would be more challenging to the market, signs of more flexibility more positive. But is it that simple? Do signs of a more lasting tariff pause solve the story?The important question, we think, is whether all of that back and forth has done lasting damage to corporate and consumer confidence. Even if all of the tariffs were paused, would companies and consumers believe it? Would they be willing to invest and spend over the coming quarters at similar levels to before – given all of the recent volatility?This question is more than hypothetical. Across a wide range of surveys, the so-called soft data, U.S. corporate and consumer confidence has plunged. Merger activity has slowed sharply. We expect intense investor focus on these measures of confidence over the coming months.For credit, lower confidence is a doubled edged sword. To some extent, it is good, keeping companies more conservative and better able to service their debt. But if it weakens the overall economy – and historically, weaker confidence surveys like we’ve seen recently have indicated much weaker growth in the future; that’s a risk. With overall spread levels about average, we do not see valuations as clearly attractive enough to be outright positive, yet.But maybe there is one silver lining. Long term Investment grade corporate debt now yields over 6 percent. As corporate confidence has soured, and these yields have risen, we think companies will find it unattractive to lock in high costs for long-term borrowing. Fewer bonds for sale, and attractive all-in yields for investors could help this part of the market outperform, in our view.Thanks for listening. If you enjoy the show, leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

As gold prices reach new all-time highs, Metals & Mining Commodity Strategist Amy Gower discusses whether the rally is sustainable.Read more insights from Morgan Stanley. ---- Transcript -----Welcome to Thoughts on the Market. I’m Amy Gower, Morgan Stanley’s Metals & Mining Commodity Strategist. Today I’m going to talk about the steady rise we’ve had in gold prices in recent months and whether or not this rally can continue. It’s Tuesday, April 15th, at 2pm in London.So gold breached $3000/oz for the first time ever on 17th of March this year, and has continued to rise since then; but we would argue it still has room to run. First of all, let’s look back at how we got here. So, gold already rallied 25 percent in 2024, which was driven largely by strong central bank demand as well as the start of the US Fed rate cutting cycle, and strong demand for bars and coins as geopolitical risk remained elevated. And arguably, these trends have continued in 2025, with gold up another 22 percent, and now rising tariff uncertainty also contributing. This comes in two ways – first, demand for gold as a safe haven asset against this current macro uncertainty. And second as an inflation hedge. Gold has historically been viewed by investors as a hedge against the impact of inflation. So, with the U.S. tariffs raising inflation risks, gold is seeing additional demand here too. But, of course, the question is: can this gold rally keep going? We think the answer is yes, but would caveat that in big market moves -- like the ones we have seen in recent weeks -- gold can also initially fall alongside other asset classes, as it is often used to provide liquidity. But this is often short-lived and already gold has been rebounding. We would expect this to continue with the price of gold to rise further to around $3500/oz by the third quarter of this year. There are three key drivers behind this projection: First, we see still strong physical demand for gold, both from central banks and from the return of exchange-traded funds or ETFs. Central banks saw what looks like a structural shift in their gold purchases in 2022, which has continued now for three consecutive years. And ETF inflows are returning after four years of outflows, adding a significant amount year-to-date, but still well below their 2020 highs, suggesting there’s arguably much more room to go here. Second, macro drivers are also contributing to this gold price outlook. A falling U.S. dollar is usually a tailwind for commodities in general, as it makes them cheaper for non-dollar holders; while a stagflation scenario, where growth expectations are skewed down and inflation risks are skewed up, would also be a set-up where gold would perform well. And third, continued demand for gold as a safe-haven asset amid rising inflation and growth risks is also likely to keep that bar and coin segment well supported.  And what would be the bullish risks to this gold outlook? Well, as prices rise, you tend to start ask questions about demand destruction. And this is no different for gold, particularly in the jewelry segment where consumers would go with usually a budget in mind, rather than a quantity of gold. And so demand can be quite price sensitive. Annual jewelry demand is roughly twice the size of that central bank buying and we already saw this fall around 11 percent year-on-year in 2024. So, we would expect a bit of weakness here. But offset by the other factors that I mentioned. So, all in all, a combination of physical buying, macro factors and uncertainty should be driving safe haven demand for gold, keeping prices on a rising trajectory from here. Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Our CIO and Chief U.S. Equity Strategist Mike Wilson probes whether market confidence can return soon as long as tariff policy remains in a state of flux.Read more insights from Morgan Stanley. ---- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today on the podcast I’ll be discussing last week’s volatility and what to expect going forward.It's Monday, April 14th at 11:30am in New York.So, let’s get after it.What a month for equity markets, and it's only halfway done! Entering April, we were much  more focused on growth risks than inflation risks given the headwinds from AI Capex growth  deceleration, fiscal slowing, DOGE and immigration enforcement. Tariffs were the final  headwind to face, and while most investors' confidence was low about how Liberation Day  would play out, positioning skewed more toward potential relief than disappointment.That combination proved to be problematic when the details of the reciprocal tariffs were  announced on April 2nd. From that afternoon's highs, S&P 500 futures plunged by 16.5 per cent into Monday morning. Remarkably, no circuit breakers were triggered, and markets functioned very well during this extreme stress. However, we did observe some forced selling as Treasuries, gold and defensive stocks were all down last Monday. In my view, Monday was a classic capitulation day on heavy volume. In fact, I would go as far  as to say that Monday will likely prove to be the momentum low for this correction that began back in December for most stocks; and as far back as a year ago for many cyclicals. This also means that we likely retest or break last week's price lows for the major indices even if some individual stocks have bottomed. We suspect a more durable low will come as early as next month or over the summer as earnings are adjusted lower, and multiples remain volatile with a downward bias given the Fed's apprehension to cut rates – or provide additional liquidity unless credit or funding markets become unstable. As discussed last week, markets are now contemplating a much higher risk of recession than  normal – with tariffs acting as another blow to an economy that was already weakening from the numerous headwinds; not to mention the fact that most of the private economy has been  struggling for the better part of two years. In my view, there have been three factors supporting headline GDP growth and labor markets: government spending, consumer services and AI Capex – and all three are now slowing.The tricky thing here is that the tariff impact is a moving target. The question is whether the  damage to confidence can recover. As already noted, markets moved ahead of the  fundamentals; and markets have once again done a better job than the consensus in predicting the slowdown that is now appearing in the data.  While everyone can see the deterioration in the S&P 500 and other popular indices, the  internals of the equity market have been even clearer. First, small caps versus large caps have  been in a distinct downtrend for the past four years. This is the quality trade in a nutshell which  has worked so well for reasons we have been citing for years — things like the k-economy and crowding out by government spending that has kept the headline economic statistics higher than they would have been otherwise. This strength has encouraged the Fed to maintain interest rates higher than the weaker cohorts of the economy need to recover.  Therefore, until interest rates come down, this bifurcated economy and equity markets are likely to persist. This also explains why we had a brief, yet powerful rally last fall in low quality  cyclicals when the Fed was cutting rates, and why it quickly failed when the Fed paused in  December. The dramatic correction in cyclical stocks and small caps is well advanced not only in  price, but also in time. While many have only recently become concerned about the growth  slowdown, the market began pricing it a year ago.Looking at the drawdown of stocks more broadly also paints a picture that suggests the market  correction is well advanced, but probably not complete if we end up in a recession or the fear  of one gets more fully priced. This remains the key question for stock investors, in my view, and  why the S&P 500 is likely to remain in a range of 5000-5500 and volatile – until we have a more  definitive answer to this specific question around recession, or the Fed decides to circumvent the growth risks  more aggressively, like last fall.With the Fed saying it is constrained by inflation risks, it appears likely to err on the side of remaining on hold de

Our Head of Corporate Credit Research analyzes the market response to President Trump’s tariff reversal and explains why rallies do not always indicate an improvement in the overall environment.Read more insights from Morgan Stanley. ---- Transcript -----Welcome to Thoughts on the Market. I'm Andrew Sheets, head of Corporate Credit Research at Morgan Stanley. Today I’m going to talk about the historic gains we saw this week in markets, and what they may or may not tell us. It's Friday April 11th at 2pm in London. Wednesday saw the S&P 500 gain 9.5 percent. It was the 10th best day for the U.S. equity market in the last century. Which raises a reasonable question: Is that a good thing? Do large one-day gains suggest further strength ahead – or something else? This is the type of Research question we love digging into. Pulling together the data, it’s pretty straightforward to sort through those other banner days in stock market history going back to 1925. And what they show is notable. I’m now going to read to you when those large gains occurred, in order of the gains themselves. The best day in market history, March 15th 1933, when stocks soared over 16 per cent? It happened during the Great Depression. The 2nd best day, Oct 30th 1929. During the Great Depression. The 3rd best day – Great Depression. The fourth best – the first trading day after Germany invaded Poland in 1939 and World War 2 began. The 5th best day – Great Depression. The 6th Best – October 2008, during the Financial Crisis. The 7th Best – also during the Financial Crisis. The 8th best. The Great Depression again. The 9th best – The Great Depression. And 10th best? Well, that was Wednesday. We are in interesting company, to say the least. Incidentally, we stop here in the interest of brevity; this is a podcast known for being sharp and to the point. But if we kept moving further down the list, the next best 20 days in history all happen during either COVID, the 1987 Crash, a Recession, or a Depression. So why would that be? Why, factually, have some of the best days in market history occurred during some of the very worst of possible backdrops. In some cases, it really was a sign of a buying opportunity. As terrible as the Great Depression was – and as the grandson of a South Dakota farmer I heard the tales – stocks were very cheap at this time, and there were some very large rallies in 1932, 1933, or even 1929. During COVID, the gains on March 24th of 2020, which were associated with major stimulus, represented the major market low. But it can also be the case that during difficult environments, investors are cautious. And they are ultimately right to be cautious. But because of that fear, any good news – any spark of hope – can cause an outsized reaction. But it also sometimes doesn't change that overall challenging picture. And then reverses. Those two large rallies that happened in October of 2008 during the Global Financial Crisis, well they both happened around hopes of government and central bank support. And that temporarily lifted the market – but it didn’t shift the overall picture. What does this mean for investors? On average, markets are roughly unchanged in the three months following some of these largest historical gains. But the range of what happens next is very wide. It is a sign, we think, that these are not normal times, and that the range of outcomes, unfortunately, has become larger. Thanks for listening. If you enjoy the show, leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Our analysts Vishy Tirupattur and Martin Tobias explain how the announcement of new tariffs and the subsequent pause in their implementation affected the bond market.Read more insights from Morgan Stanley. ---- Transcript -----Vishy Tirupattur: Welcome to Thoughts on the Market. I am Vishy Tirupattur, Morgan Stanley's, Chief Fixed Income Strategist.Martin Tobias: And I'm Martin Tobias, from the U.S. Interest Rate Strategy Team.Vishy Tirupattur: Yesterday the U.S. stock market shot up quite dramatically after President Trump paused most tariffs for 90 days. But before that, there were some stresses in the funding markets. So today we will dig into what those stresses were, and what transpired, and what investors can expect going forward.It's Thursday, April 10th at 11:30am in New York.President Trump's Liberation Day tariff announcements led to a steep sell off in the global stock markets. Marty, before we dig into that, can you give us some Funding Markets 101? We hear a lot about terms like SOFR, effective fed funds rate, the spread between the two. What are these things and why should we care about this?Martin Tobias: For starters, SOFR is the secured overnight financing rate, and the effective fed funds rate – EFFR – are both at the heart of funding markets.Let's start with what our listeners are most likely familiar with – the effective fed funds rate. It's the main policy rate of the Federal Reserve. It's calculated as a volume weighted median of overnight unsecured loans in the Fed funds market. But volume in the Fed funds market has only averaged [$]95 billion per day over the past year.SOFR is the most important reference rate for market participants. It's a broad measure of the cost to borrow cash overnight, collateralized by Treasury securities. It's calculated as a volume weighted median that covers three segments of the repo market. Now SOFR volumes have averaged 2.2 trillion per day over the past year.Vishy Tirupattur: So, what you're telling me, Marty, is that the, the difference between these two rates really reflects how much liquidity stress is there, or the expectations of the uncertainty of funding uncertainty that exists in the market. Is that fair?Martin Tobias: That's correct. And to do this, investors look at futures contracts on fed funds and SOFR.Now fed funds futures reflect market expectations for the Fed's policy rate, SOFR futures reflect market expectations for the Fed policy rate, and market expectations for funding conditions. So, the difference or basis between the two contracts, isolates market expectations for funding conditions.Vishy Tirupattur: So, this basis that you just described. What is the normal sense of this? Where [or] how many basis points is the typical basis? Is it positive? Is it negative?Martin Tobias: In a normal environment over the past three years when reserves were in Abundancy, the three-month SOFR Fed funds Futures basis was positive 2 basis points. This reflected SOFR to set 2 basis points below fed funds on average over the next three months.Vishy Tirupattur: So, what happened earlier this week is – SOFR was setting above effective hedge advance rate, implying…Martin Tobias: Implying tighter funding conditions.Vishy Tirupattur: So, Marty, what actually changed yesterday? How bad did it get and why did it get so bad?Martin Tobias: So, three months SOR Fed funds tightened all the way to -4 basis points. And we think this was a reflection of investors’ increased demand for cash; whether it was lending more securities outright in repo to raise cash, or selling securities outright, or even not lending excess cash in repo. This caused dealer balance sheets [to] become more congested and contributed to higher SOFR rates.Vishy Tirupattur: So, let's give some context to our listeners. So, this is clearly not the first time we've experienced stress in the funding markets. So, in previous episodes – how far did it get and gimme some context.Martin Tobias: Funding conditions did indeed tighten this week, but the environment was far from true funding stress like in 2019 and certain periods in 2020. Now, in 2019 when funding markets seized, and the Fed had to intervene and inject liquidity, three months SOFR fed funds basis averaged -9 basis points. And that compares to -4 basis points during the peak macro uncertainty this week.Vishy Tirupattur: So, Marty, what is your assessment of the state of the funding markets right now?Martin Tobias: Right. Funding conditions have tightened, but I think the environment is far from true funding stress. Thus far, the repricing has occurred because of a higher floor for funding rates and not a scarcity of reserves in the banking system.Vishy Tirupattur: So, to summarize, so the funding stress has been quite a bit earlier this week. Not as bad as the worst conditions we saw say in 2019 or during the peak COVID periods in 2020.

Earlier today, President Trump announced a pause on reciprocal tariffs for 90 days. Our Global Head of Fixed Income Research and Public Policy Strategy Michael Zezas looks at the fallout.----- Transcript ----- Welcome to Thoughts on the Market. I’m Michael Zezas, Morgan Stanley’s Global Head of Fixed Income Research and Public Policy Strategy. Today – possible outcomes of President Trump's sudden pause on reciprocal tariffs.It’s Wednesday, April 9th, at 10pm in New York. We’d actually planned a different episode for release today where my colleague Global Chief Economist Seth Carpenter and I laid out developments in the market thus far and looked at different sets of potential outcomes. Needless to say, all of that changed after President Trump announced a 90-day pause on most tariffs that were set to rise. And so, we needed to update our thinking.It's been a truly unprecedented week for financial markets. The volatility started on April 2, with President Trump’s announcement that new, reciprocal tariffs would take effect on April 9. When added to already announced tariffs, and later adding even more tariffs in for China, it all added up to a promise by the US to raise its average tariffs to levels not seen in 100 years. Understandably, equity markets sold off in a volatile fashion, reflecting investor concerns that the US was committed to retrenching from global trade – inviting recession and an economic future with less potential growth. The bond market also showed signs of considerable strain. Instead of yields falling to reflect growth concerns, they started rising and market liquidity weakened. The exact rationale is still hard to pin down, but needless to say the combined equity and bond market behavior was not a healthy situation.Then, a reprieve. President Trump announced he would delay the implementation of most new tariffs by 90 days to allow negotiations to progress. And though he would keep China tariffs at levels over 100 per cent, the announcement was enough to boost equity markets, with S&P gaining around 9 per cent on the day.So, what does it all mean? We’re still sorting it out for ourselves, but here’s some initial takeaways and questions we think will be important to answer in the coming days.First, there's still plenty of lingering uncertainties to deal with, and so investors can’t put US policy risk behind them. Will this 90 day reprieve hold? Or just delay inevitable tariff escalation? And even if the reprieve holds, do markets still need to price in slower economic growth and higher recession risk? After all, US tariff levels are still considerably higher than they were a week ago. And the experience of this market selloff and rapid shifts in economic policy may have impacted consumer and business confidence. In my travels this week I spent considerable time with corporate leaders who were struggling to figure out how to make strategic decisions amidst this uncertainty. So we’ll need to watch measures of confidence carefully in the coming weeks. One signal amidst the noise is about China, specifically that the US’ desire to improve supply chain security and reduce goods trade deficit would make for difficult negotiation with China and, ultimately, higher tariffs that would stay on for longer relative to other countries. That appears to be playing out here, albeit faster and more severely than we anticipated. So even if tariff relief is durable for the rest of the world, the trade relationship with China should be strained. And that will continue to weigh on markets, where costs to rewire supply chains around this situation could weigh on key sectors like tech hardware and consumer goods. Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Our CIO and Chief U.S. Equity Strategist explains why the new tariffs added momentum to a correction that was already underway, and what could ease the fallout in equity markets.Read more insights from Morgan Stanley. ---- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today on the podcast I’ll be discussing equity market reactions to the tariffs and what to expect from here. It's Tuesday, April 8th at 11:30am in New York.So, let's get after it. From our perspective, last week's Liberation Day was more like the cherry on top for a market that had been dealing with multiple headwinds to growth all year, rather than the beginning. While the magnitude of the tariffs turned out to be worse than our public policy team's base line expectations, the price reaction appears capitulatory to us given that many stocks were already down 30 to 40 percent before the announcement on Wednesday. As discussed in last week’s podcast, our 5500 first half support level on the S&P 500 quickly gave way given this worse than expected outcome for tariffs. The price action since then has forced us to consider new technical support levels which could be as low as the 200-week moving average. And that would be 4700 on the S&P 500. I think it’s worth highlighting that cyclical stocks started underperforming in April of last year and are now down more than 40 percent relative to defensive stocks. In other words, markets have been telling us for almost a year that growth was going to slow, and since January, it's been telling us it's going to slow significantly. In fact, cyclicals have underperformed defensives to a degree only seen during a recession, not prior to them. This fits very nicely with our long-standing view that most of the private economy has been much weaker than the headline numbers suggest – thanks to unprecedented fiscal spending, AI capex and wealthy consumers spending their gains from asset prices. With the exceptional fourth quarter surge in U.S. fiscal spending likely to decline even without  DOGE's efforts, global growth impulses will suffer too. Hence, foreign stocks are unlikely to provide much of a safe haven if the U.S. goes on a diet or detox from fiscal spending. Markets began to contemplate such an outcome with last week’s announcements. Therefore, I remain of the view we discussed two weeks ago that U.S. equities should trade better than foreign ones going forward. That is especially the case with China, Europe and Japan all which run big current account surpluses and are more vulnerable to weaker trade.Meanwhile, the headline numbers on employment and GDP have been flattered by government related jobs and the hiring of immigrants at below market wages. This is one reason the Fed has kept rates higher than many businesses and consumers need and why we remain in an economy of haves and have-nots. Our long standing thesis is that the government has been crowding out much of the economy since COVID, and arguably since the Great Financial Crisis. It's also why large cap quality has been such a consistent outperformer since the end of 2021 and why we have continued to have high conviction and our recommendation are overweight these factors despite short periods of outperformance by low quality cyclicals or small caps – like last fall when the Fed was cutting rates and we pivoted briefly to a more pro-cyclical recommendation. Bottom line, equity markets are discounting machines and they trade six months in advance of the headlines. With most stocks topping in December of last year and cyclicals’ relative performance peaking almost a year ago, this correction is well advanced, and this is not the time to be selling. However, it's fair to say that the tariff announcements last week have taken us to an area with greater tail risk that includes a recession or financial contagion that must be taken into consideration when thinking about levels and adding risk.I see three specific scenarios that could put in a durable floor more quickly:1. President Trump delays the effective date for the implementation of the additional tariffs beyond the initial 10 percent that went into effect this weekend2. The Fed offers support for markets, either explicitly or verbally3. A number of nations come to the table and negotiate on favorable terms to the United States.In short, get ready for another bumpy week and remember markets are looking much further ahead than today’s headline. I remain optimistic that the second half will be better than the first as these growth negative policies morph into growth positive ones via de-regulation, a better fiscal trajectory, lower interest rates and taxes and maybe even higher wages for the American consumer.Thanks for listening. If you enjoy the podcast, leave us a review wherever you listen and share Thoughts

As market turmoil continues, our global economists give their view on the ramifications of the Trump administration’s tariffs, and how central banks across key regions might react.Read more insights from Morgan Stanley. ---- Transcript -----Seth Carpenter: Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's, Global Chief Economist, and today we're going to be talking tariffs and what they mean for the global economy.It's Monday, April 7th at 10am in New York.Jens Eisenschmidt: It's 4pm in Frankfurt. Chetan Ahya: And it's 10pm in Hong Kong. Seth Carpenter: And so, I'm here with our global economists from around the world: Mike Gapen, Chief U.S. Economist, Chetan Ahya, our Chief Asia Economist, and Jens Eisenschmidt, our Chief Europe Economist. So, let's jump into it. Let me go around first and ask each of you, what is the top question that you are getting from investors around the world?Chetan?Chetan Ahya: Tariffs.Seth Carpenter: Jens?Jens Eisenschmidt: Tariffs.Seth Carpenter: Mike?Michael Gapen: Tariffs.Seth Carpenter: All right. Well, that seems clear. Before we get into the likely effects of the tariffs, maybe each of you could just sketch for me where you were before tariffs were announced. Chetan, let me start with you. What was your outlook for the Chinese economy before the latest round of tariff announcements?Chetan Ahya: Well Seth, working with our U.S. public policy team, we were already assuming a 15-percentage point increase on tariffs on imports from China. And China also was going through some domestic challenges in terms of high levels of debt, excess capacities, and deflation. And so, combining both the factors, we were assuming China's growth will slow on Q4 by Q4 basis last year – from 5.4 percent to close to 4 percent this year.Jens, what about Europe? Before these broad-based tariffs, how were you thinking about the European economy?Jens Eisenschmidt: We had penciled in a slight recovery, not really getting us much beyond 1 percent. Backdrop here, still rising real wages. We had some tariffs in here, on steel, aluminum; in cars, much again a bit more of a beefed-up version if you want, of the 18 tariffs – but not much more than that. And then, of course, we had the German fiscal expansion that helped our outlook to sustain this positive growth rates into 2026.Seth Carpenter: Mike, for you. You also had thought that there were going to be some tariffs at some point before this last round of tariffs. Maybe you can tell us what you had in mind before last week's announcements.Michael Gapen: Yeah, Seth. We had a lot of tariffs on China. The effective rate rising to say 35 to 40 percent. But as Jens just mentioned, outside of that, we had some on steel and aluminum, and autos with Europe, but not much beyond that. So, an effective tariff rate for the U.S. that reached maybe 8 to 9 percent.We thought that would gradually weigh on the economy. We had growth at around 1.5 percent this year and 1 percent next year. And the disinflation process stopping – meaning inflation finishes the year at around 2.8 core PCE, roughly where it is now. So, a gradual slowdown from tariff implementation.Seth Carpenter: Alright, so a little bit built in. You knew there was going to be something, but boy, I guess I have to say, judging from market reactions, the world was surprised at the magnitude of things. So, what's changed in your mind? It seems like tariffs have got to push down the outlook for growth and up the out outlook for inflation. Is that about right? And can you sketch for us how this new news is going to affect the outlook?Michael Gapen: Sure. So instead of effective tariff rates of 8 to 9 percent, we're looking at effective tariff rates, maybe as high as 22 percent.Seth Carpenter: Oh, that's a lot.Michael Gapen: Yeah. So more than twice what we were expecting. Obviously, some of that may get negotiated down. Seth Carpenter: And would you say that's the highest tariff rate we've seen in a while?Michael Gapen: At least a century. If we were to a 1.5 percent on growth before, it's pretty easy to revise that down, maybe even a full percentage point, right?So you’re, it's a tax on consumption and a tariff rate that high is going to pull down consumer spending. It's also going to lead to even much higher inflation than we were expecting. So rather than 2.8 for core PCE year-on-year, I wouldn't be surprised if we get something even in the high threes or perhaps even low fours.So, it pushes the economy, we would say, at least closer to a recession. If not, you're getting closer to the proverbial coin toss because there are the potential for a lot of indirect effects on business confidence. Do they spend less and hire less? And obviously we're seeing asset markets melt down. I think it's fair to describe it that way. And you could have negative wealth effects on the uppe

As markets continue reacting to the Trump administration’s tariffs, Michael Zezas, our Global Head of Fixed Income Research and Public Policy Strategy, lists the expected impacts for investors across equity sectors and asset classes.Read more insights from Morgan Stanley. ---- Transcript -----Welcome to Thoughts on the Market. I’m Michael Zezas, Morgan Stanley’s Global Head of Fixed Income Research and Public Policy Strategy. Today we’ll be talking about the market impacts of the recently announced tariff increases.It’s Friday, April 4th, at 1pm in New York.This week, as planned, President Trump unveiled tariff increases. These reciprocal tariffs were hiked with the stated goal of reducing the U.S.’s goods trade deficit with other countries. We’ve long anticipated that higher tariffs on a broad range of imports would be a fixture of U.S. policy in a second Trump term. And that whatever you thought of the goals tariffs were driving towards, their enactment would come at an economic cost along the way. That cost is what helped drive our team’s preference for fixed income over more economically-sensitive equities. But this week’s announcement underscored that we actually underestimated the speed and severity of implementation. Following this week’s reciprocal tariff announcement, tariffs on imports from China are approaching 60 per cent, a level we didn’t anticipate would be reached until 2026. And while we expected a number of product-specific tariffs would be levied, we did not anticipate the broad-based import tariffs announced this week. All totaled, the U.S. effective tariff rate is now around 22 per cent, having started the year at 3 per cent. So what’s next? Our colleagues across Morgan Stanley Research have detailed their expected impacts across equity sectors and asset classes and here are some key takeaways to keep in mind. First, we do think there’s a possibility that negotiation will lower some of these tariffs, particularly for traditional U.S. allies like Japan and Europe, giving some relief to markets and the economic outlook. However, successful negotiation may not arrive quickly, as it's not yet clear what the U.S. would deem sufficient concessions from its trading partners. Lower tariff levels and higher asset purchases might be part of the mix, but we’re still in discovery mode on this. And even if tariff reductions succeed, it's still likely that tariff levels would be meaningfully higher than previously anticipated. So for investors, we think that means there’s more room to go for markets to price in a weaker U.S. growth outlook. In U.S. equities, for example, our strategists argue that first-order impacts of higher tariffs may be mostly priced at this point, but second-order effects – such as knock-on effects of further hits to consumer and corporate confidence – could push the S&P 500 below the 5000 level. In credit markets, weakness has been, and may continue to be, more acute in key sectors where tariff costs are substantial; and may not be able to pass on to price, such as the consumer retail sector. These are companies whose costs are driven by overseas imports. So what happens from here? Are there positive catalysts to watch for? It's going to depend on market valuations. If we get to a point where a recession is more clearly in the price, then U.S. policy catalysts might help the stock market. That could include negotiations that result in smaller tariff increases than those just announced or a fiscal policy response, such as bigger than anticipated tax cuts. Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Our Thematics and Public Policy analysts Michelle Weaver and Ariana Salvatore discuss the top five strategies for companies to mitigate the effects of U.S. tariffs. Read more insights from Morgan Stanley. 

Our analysts Paul Walsh, Mike Wilson and Marina Zavolock debate the relative merits of U.S. and European stocks in this very dynamic market moment.Read more insights from Morgan Stanley. 

Our analysts Arunima Sinha, Heather Berger and James Egan discuss the resilience of U.S. consumer spending, credit use and homeownership in light of the Trump administration’s policies.Read more insights from Morgan Stanley. 

Policy questions and growth risks are likely to persist in the aftermath of the Trump administration’s upcoming tariffs. Our CIO and Chief U.S. Equity Strategist Mike Wilson outlines how to seek investments that might mitigate the fallout.Read more insights from Morgan Stanley. ----- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today on the podcast – our views on tariffs and the implications for equity markets.  It's Monday, March 31st at 11:30am in New York. So let’s get after it. Over the past few weeks, tariffs have moved front and center for equity investors. While the reciprocal tariff announcement expected on April 2nd should offer some incremental clarity on tariff rates and countries or products in scope, we view it as a maximalist starting point ahead of bilateral negotiations as opposed to a clearing event. This means policy uncertainty and growth risks are likely to persist for at least several more months, even if it marks a short-term low for sentiment and stock prices. In the baseline for April 2nd, our policy strategists see the administration focusing on a continued ramp higher in the tariff rate on China – while product-specific tariffs on Europe, Mexico and Canada could see some de-escalation based on the USMCA signed during Trump’s first term. Additional tariffs on multiple Asia economies and products are also possible. Timing is another consideration. The administration has said it plans to announce some tariffs for implementation on April 2nd, while others are to be implemented later, signaling a path for negotiations. However, this is a low conviction view given the amount of latitude the President has on this issue. We don't think this baseline scenario prevents upside progress at the index level – as an "off ramp" for Mexico and Canada would help to counter some of the risk from moderately higher China tariffs. Furthermore, product level tariffs on the EU and certain Asia economies, like Vietnam, are likely to be more impactful on a sector basis. Having said that, the S&P 500 upside is likely capped at 5800-5900 in the near term – even if we get a less onerous than expected announcement. Such an outcome would likely bring no immediate additional increase in the tariff rate on China; more modest or targeted tariffs on EU products than our base case; an extended USMCA exemption for Mexico and Canada; and very narrow tariffs on other Asia economies. No matter what the outcome is on Wednesday, we think new highs for the S&P 500 are out of the question in the first half of the year; unless there is a clear reacceleration in earnings revisions breadth, something we believe is very unlikely until the third or fourth quarter.Conversely, to get a sustained break of the low end of our first half range, we would need to see a more severe April 2nd tariff outcome than our base case and a meaningful deterioration in the hard economic data, especially labor markets. This is perhaps the outcome the market was starting to price on Friday and this morning.  Looking at the stock level, companies that can mitigate the risk of tariffs are likely to outperform. Key strategies here include the ability to raise price, currency hedging, redirecting products to markets without tariffs, inventory stockpiling and diversifying supply chains geographically. All these strategies involve trade-offs or costs, but those companies that can do it effectively should see better performance. In short, it’s typically companies with scale and strong negotiating power with its suppliers and customers. This all leads us back to large cap quality as the key factor to focus on when picking stocks. At the sector level, Capital Goods is well positioned given its stronger pricing power; while consumer discretionary goods appears to be in the weakest position.  Bottom line, stay up the quality and size curve with a bias toward companies with good mitigation strategies. And see our research for more details.  Thanks for listening. If you enjoy the podcast, leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

As credit resilience weakens with a worsening fundamental backdrop, our Head of Corporate Credit Research Andrew Sheets suggests investors reconsider their portfolio quality.Read more insights from Morgan Stanley. ----- Transcript -----Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley. Today I’m going to talk about why we think near term improvement may be temporary, and thus an opportunity to improve credit quality. It's Friday March 28th at 2pm in London. In volatile markets, it is always hard to parse how much is emotion, and how much is real change. As you would have heard earlier this week from my colleague Mike Wilson, Morgan Stanley’s Chief U.S. Equity Strategist, we see a window for short-term relief in U.S. stock markets, as a number of indicators suggest that markets may have been oversold. But for credit, we think this relief will be temporary. Fundamentals around the medium-term story are on the wrong track, with both growth and inflation moving in the wrong direction. Credit investors should use this respite to improve portfolio quality. Taking a step back, our original thinking entering 2025 was that the future presented a much wider range of economic scenarios, not a great outcome for credit per se, and some real slowing of U.S. growth into 2026, again not a particularly attractive outcome. Yet we also thought it would take time for these risks to arrive. For the economy, it entered 2025 with some pretty decent momentum. We thought it would take time for any changes in policy to both materialize and change the real economic trajectory. Meanwhile, credit had several tailwinds, including attractive yields, strong demand and stable balance sheet metrics. And so we initially thought that credit would remain quite resilient, even if other asset classes showed more volatility. But our conviction in that resilience from credit is weakening as the fundamental backdrop is getting worse. Changes to U.S. policy have been more aggressive, and happened more quickly than we previously expected. And partly as a result, Morgan Stanley's forecasts for growth, inflation and policy rates are all moving in the wrong direction – with forecasts showing now weaker growth, higher inflation and fewer rate cuts from the Federal Reserve than we thought at the start of this year. And it’s not just us. The Federal Reserve's latest Summary of Economic Projections, recently released, show a similar expectation for lower growth and higher inflation relative to the Fed’s prior forecast path. In short, Morgan Stanley’s economic forecasts point to rising odds of a scenario we think is challenging: weaker growth, and yet a central bank that may be hesitant to cut rates to support the economy, given persistent inflation. The rising risks of a scenario of weaker growth, higher inflation and less help from central bank policy temper our enthusiasm to buy the so-called dip – and add exposure given some modest recent weakness. Our U.S. credit strategy team, led by Vishwas Patkar, thinks that U.S. investment grade spreads are only 'fair', given these changing conditions, while spreads for U.S. high yield and U.S. loans should actually now be modestly wider through year-end – given the rising risks.  In short, credit investors should try to keep powder dry, resist the urge to buy the dip, and look to improve portfolio quality. Thanks for listening. If you enjoy the show, leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Our global economists Seth Carpenter and Rajeev Sibal discuss how global trade will need to realign in response to escalating U.S. tariff policy.Read more insights from Morgan Stanley. 

Our European Sustainability Strategists Rachel Fletcher and Arushi Agarwal discuss how fermentation presents a new opportunity to tap into the alternative proteins market, offering a solution to mounting food supply challenges.Read more insights from Morgan Stanley. ----- Transcript -----Rachel Fletcher: Welcome to Thoughts on the Market. I'm Rachel Fletcher Morgan Stanley's, Head of EMEA Sustainability Research.Arushi Agarwal: And I'm Arushi Agarwal European Sustainability Strategist, based in London.Rachel Fletcher: From kombucha to kimchi, probiotic rich fermented foods have long been staples at health-focused grocers. On the show today, a deeper dive into the future of fermentation technology. Does it hold the key to meeting the world's growing nutrition needs as people live longer, healthier lives?It's Wednesday, 26th of March, at 3 pm in London.Many of you listening may remember hearing about longevity. It's one of our four long-term secular themes that we're following closely at Morgan Stanley; and this year we are looking even more closely at a sub-theme – affordable, healthy nutrition. Arushi, in your recent report, you highlight that traditional agriculture is facing many significant challenges. What are they and how urgent is this situation?Arushi Agarwal: There are four key environmental and social issues that we highlight in the note. Now, the first two, which are related to emissions intensity and resource consumption are quite well known. So traditional agriculture is responsible for almost a third of global greenhouse gas emissions, and it also uses more than 50 percent of the world's land and freshwater resources. What we believe are issues that are less focused on – are related to current agricultural practices and climate change that could affect our ability to serve the rising demand for nutrition.We highlight some studies in the note. One of them states that the produce that we have today has on average 40 percent less nutrition than it did over 80 years ago; and this is due to elevated use of chemicals and decline in soil fertility. Another study that we refer to estimates that average yields could decline by 30 to 50 percent before the end of the century, and this is even in the slowest of the warming scenarios.Rachel Fletcher: I think everyone would agree that there are four very serious issues. Are there potential solutions to these challenges?Arushi Agarwal: Yes, so when we've written about the future of food previously, we've identified alternative proteins, precision agriculture, and seeds technology as possible solutions for improving food security and reducing emissions.If I focus on alternative proteins, this category has so far been dominated by plant-based food, which has seen a moderation in growth due to challenges related to taste and price. However, we still see significant need for alternative proteins, and synthetic biology-led fermentation is a new way to tap into this market.In simple terms, this technology involves growing large amounts of microorganisms in tanks, which can then be harvested and used as a source of protein or other nutrients. We believe this technology can support healthy longevity, provide access to reliable and affordable food, and also fill many of the nutritional gaps that are related to plant-based food.Rachel Fletcher: So how big is the fermentation market and why are we focusing on it right now?Arushi Agarwal: So, we estimate a base case of $30 billion by 2030. This represents a 5,000-kiloton market for fermented proteins. We think the market will develop in two phases. Phase one from 2025 to 2027 will be focused on whey protein and animal nutrition. We are already seeing a few players sell products at competitive prices in these markets. Moving on to phase two from 2028 to 2030, we expect the market will expand to the egg, meat and daily replacement industry.There are a few reasons we think investors should start paying attention now. 2024 was a pivotal year in validating the technology's proof of concept. A lot of companies moved from labs to pilot state. They achieved regulatory approvals to sell their products in markets like U.S. and Singapore, and they also conducted extensive market testing. As this technology scales, we believe the next three years will be critical for commercialization.Rachel Fletcher: So, there's potentially significant growth there, but what's the capital investment needed for this scaling effort?Arushi Agarwal: A lot of CapEx will be required. Scaling of this technology will require large initial CapEx, predominantly in setting up bioreactors or fermentation tanks. Achieving our 2030 base case stamp will require 200 million liters in bioreactor capacity. This equals to an initial investment opportunity of a hundred billion dollars. But once these facilities are all set up, ongoing expenses will focus on input costs for carbon, oxygen, water, nitrogen

Our European Heads of Diversified Financials and Banks Research Bruce Hamilton and Alvaro Serrano discuss the biggest themes and debates from the recent Morgan Stanley European Financials Conference.Read more insights from Morgan Stanley. ----- Transcript -----Bruce Hamilton: Welcome to Thoughts on the Market. I'm Bruce Hamilton, Head of European Diversified Financials.Alvaro Serrano: And I'm Alvaro Serrano, Head of European Banks.Bruce Hamilton: Today we'll discuss our key takeaways from Morgan Stanley's 21st European Financials Conference last week.It's Tuesday, March 25th, 3pm, here in London.We were both at the conference here in London where we had more than 550 registered clients and roughly a hundred corporates in attendance. Alvaro, once again, you were the conference chair, and I wondered if you could first talk about the title of the conference this year – Europe's moment. What inspired this and was it a clear theme at the conference?Alvaro Serrano: European banks are probably one of the strongest performing sectors globally. That has been on the back of expectations and prospects of a Ukraine peace deal, expectations of high defense spending, and we were going to German elections. I think it's fair to say that post German elections, Germany has delivered above expectations on the fiscal package. And the announcement was a big boost, at a time where U.S. growth is starting to be questioned. I think it's turning the investment flows into Europe. It's Europe's moment to shine, and hence the title.Bruce Hamilton: And what were some of the other sort of key themes and debates that emerge from company presentations and panels at the conference?Alvaro Serrano: The German fiscal/financial package definitely dominated the debate. But it was how it fed through the PNL that was the more tangible discussion. First of all, on NII – Net Interest Income – definitely more optimism among banks. The yield curve has steepened more than 50 basis points since the announcement together with increased prospects of loan growth. Accelerated loan growth is definitely improving the confidence from management teams on the median term growth outlook. I think that was the biggest takeaway for me.Bruce Hamilton: Got it. And our North American colleagues have been tracking the risks and opportunities for U.S. financials under the Trump administration. How, if at all, are European financials better positioned than their U.S. counterparts?Alvaro Serrano: Ultimately deregulation has been a big theme in the U.S. from the new administration. We've seen tangible sort of measures like the delay in implementation of Basel endgame; and some steps in around consumer legislation – so that we haven't seen [in] Europe.We had events from the supervisory arm of the ECB. And I think the overall message is that there's unlikely to be deregulation on the capital front.What grabbed a lot of the headlines, a lot of the debate was the proposal from the European Commission on Capital Markets Union now rebranded Savings and Investment Union. There's been measures and proposals around savings products, around a reform of the securitization market, which have pretty positive implications. Medium term, it should increase the velocity of the bank's balance sheets, and ultimately the profitability. So, more optimistic on the medium-term outlook.Bruce, I wanted to turn it over to you. The capital markets recovery cycle was a very big topic of discussion, especially given the rising investor concerns lately. What did you learn at the conference?Bruce Hamilton: So, yeah, you're right. I mean, obviously the capital markets cycle is pretty key for the performance of the diversified financial sector – as was clear from investor polling. I would say the messages from the companies were mixed. On the one hand, the more transactional driven models – so, some of the exchanges that the investment platforms – were relatively upbeat, across asset classes. Volume, momentum has been strong through the first quarter of this year. And so that was encouraging.And looking further out – the confidence around some of these secular growth drivers, across the business model. So, data growth, software solutions growth, post-trade opportunities, expanding fixed income offerings were all clear from the exchanges.On the other hand, the business models that are more geared to sort of deal activity, to M&A – sort of private market firms. Clearly there, the messaging was more mixed, given the slower start to the year in the light of tariff uncertainty, which has driven a widening in bid our spread. So certainly there, the messaging was a little bit more downbeat. Though in the context of a still-improving sort of multi-year recovery cycle anticipated in capital markets. So, a pause rather than a cancellation of that improvement.Alvaro Serrano: And what about private markets? Es

Our CIO and Chief U.S. equity strategist Mike Wilson discusses investors’ outlook following last week’s Fed meeting, and lists the key signals to gauge whether stocks can fully rebound from the recent correction.  Read more insights from Morgan Stanley. ----- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today on the podcast I’ll be discussing the recent rally in stocks and why it can continue. It's Monday, March 24th at 11:30am in New York. So let’s get after it. Last week's Fed meeting appeared to come as a relief to many market participants as Chair Powell seemed to downplay concerns about inflation, offering a bit more emphasis on the growth side of the Fed’s mandate. The Fed also made the decision to slow the pace of balance sheet runoff, a development that came sooner than some expected and indicated the Fed is ready to act, if necessary. Looking ahead, investors are now very focused on the April 2nd reciprocal tariff deadline. While this catalyst could offer some incremental clarity on tariff rates and countries and products in scope, we think it's more a starting point for tariff negotiations – as opposed to a clearing event. In short, a Fed put seems closer to being in the money than a Trump put though it probably would require material labor weakness or choppier credit and funding markets. So far, DOGE firings have had little impact on data like jobless claims or the overall unemployment rate. There may also be a lag between when employees are laid off and when these individuals show up as unemployed, given that severance is offered to most. The more important question for labor markets is whether the recent decline in the stock market, fall in confidence and rise in economic trade uncertainty will lead to layoffs in the private economy. Our economists' base case assumes that these factors won't drive an unemployment cycle this year; but payrolls, claims, and the unemployment rate will be critical to monitor to inform that view going forward.  As usual, looking at the S&P 500 alone does not fully describe the magnitude of the correction in equities. As I noted last week, equity markets got as oversold in this correction as they were during the bear market of 2022. One could ask: Is this the bottom or the beginning of something more severe? In our experience, it’s rare for volatility to end when price momentum is at its lows. However, you can get strong rallies from these conditions which is why we expected one to begin when the S&P 500 reached the bottom end of our first half trading range of 5500 on March 13th. Since then, stocks have rallied with lower quality, higher beta equities leading the bounce, so far. We believe that can continue in the near-term even though we are still advocating higher quality stocks in one's core portfolio for the intermediate term – given weakness in earnings revisions since last November. More specifically, earnings revisions have remained in negative territory for the major U.S. averages all year and have not yet showed signs of bottoming. However, we are starting to see some interesting shifts in revisions trends under the surface. The most notable change here is that the Magnificent 7 earnings revisions look to be stabilizing after a steep decline. This could halt the underperformance of these mega cap stocks in the near term as we head into earnings season and this would help stabilize the S&P 500, in line with our call from two weeks ago. It could also help to attract flows back into the U.S. In our view, one of the reasons why we've seen capital rotate to international markets is that the high-quality leadership cohort of the U.S. equity market began to underperform. So, if this group regains relative strength we could see a rotation back to the U.S. Finally, the weaker U.S. dollar could also reverse the relative earnings revisions downtrend between U.S. and European companies. If you remember, at the end of last year, the U.S. dollar was very strong and provided a headwind to U.S. relative revisions when companies reported fourth quarter results, as we previewed. This may be going the other way for first quarter results season and drive money back to the U.S., at least temporarily.  Thanks for listening. If you enjoy the podcast, leave us a review wherever you listen, and share Thoughts on the Market with a friend or colleague today.

Amid lower growth and inflation concerns in the US, investors have begun scouring international markets for other opportunities. Our analysts Andrew Sheets, Neville Mandimika and Anlin Zhang dig into one potential outperforming category. Read more insights from Morgan Stanley. 

Our Global Head of Macro Strategy Matthew Hornbach and Chief U.S. Economist Michael Gapen discuss the outcome of the recent FOMC meeting, and the outlook for interest rates in 2025 and 2026.Read more insights from Morgan Stanley. ----- Transcript -----Matthew Hornbach: Welcome to Thoughts on the Market. I'm Matthew Hornbach, Global Head of Macro Strategy.Michael Gapen: And I'm Michael Gapen, Morgan Stanley's Chief U.S. Economist.Matthew Hornbach: Today we're talking about the March Federal Open Market Committee meeting and the path for rates from here.It's Thursday, March 20th at 10am in New York.Mike, the Fed released a new set of projections yesterday. What do these say and what did you learn from them?Michael Gapen: Yeah, Matt, well, the Fed's forecast actually now look a lot like our outlook for the U.S. economy. So, they revised down their expectation of growth. They revised up their expectation for inflation. So, it has a bit of a stagflation, slower growth, stickier inflation outlook – which is very much what we were thinking coming into this year. The Fed also, though, highlighted high policy uncertainty. They wrote down a forecast, but I'm not all that convinced that they have a lot of confidence in how things will evolve.So, I think for me, really, the bigger story were their updated perceptions about uncertainty and risks to the outlook. So, in December, if you remember, they told us; virtually everybody on the committee said, uncertainty around inflation is high and risk to inflation to the upside. They complemented that this week with the fact that uncertainty around growth in the labor market is high, but risk to growth is to the downside, the unemployment rate to the upside. So, you have kind of competing risks here around the Fed's dual mandate. They've got upside risk to inflation, downside risk to growth.To me, that's kind of the really important message. It's hard to have a confidence in a forecast right now, but I think that risk assessment is really interesting.Matthew Hornbach: And with that in mind, and given all the policy uncertainty that the Fed mentioned, what did Powell say about how the Fed should react? In other words, what is appropriate policy at this stage?Michael Gapen: Right. Yeah, it's tricky, right? So, on one side of your mandate, you think risks to inflation are squarely to the upside and growth in labor markets to the downside. So, what do you do? And I think Powell said, I think that the logical answer, which is, well, right now you do nothing, and you wait.But then I think what Powell said is: How we think this plays out is – tariffs may boost inflation in the short run. Which we're going to try to ignore. And if the economy does weaken and the labor market softens, we'll ease policy in order to support activity, right? So, there might be, say, symmetric risks around their dual mandate, but there's asymmetry in the policy outlook.He said we're either going to be on hold or we're going to be cutting rates. And generally, I think that's the right thing.Matthew Hornbach: So, Mike, what I heard from you was that the Fed was going to look through inflation in the near term, and then eventually cut. I mean, do you think they can do that?Michael Gapen: Yeah, I think, Matt, that's a great question. My answer to that is, I think it's easier said than done. We agree that the next move from the Fed is going to be a cut, but we think that cut comes much later.This is a very data dependent Fed. So, I think in the moment, if tariffs boost inflation now and weaken activity later, it's easy to say, ‘I'm going to look through that and cut.’ But in practice, I think it's hard.So, Matt, actually, at this point, though, I think I would actually kind of ask you the same question, but in a different way, right? We doubt the Fed may be able to do this. But the market priced in more rate cuts this year than we think is likely. How would you explain the market pricing and how far away from my expectation do you think it could run?Matthew Hornbach: What’s really interesting about how the market has priced the recent events is – it’s actually pricing more in line with the spirt of your view. In the sense that the market has priced more rate cuts in 2026 than it’s pricing in 2025. So, in spirit, the market is very much with you. But as we like to say, the market price is an average of all possible outcomes. And if one of the outcomes is the Fed does nothing for the foreseeable future. And the other outcome is the Fed cuts aggressively this year. Then the market price has to reflect some degree of additional easing in 2025 that wouldn't necessarily be aligned with a rational baseline for Fed policy.So, market in some ways is reflecting the idea that you're proposing in your forecast. But it's also reflecting the idea that it's a market and that it has to be priced for some amount of risk premia that the Fed is ultimately forc

Our analysts Michael Cyprys and Stephen Grambling discuss prediction markets’ rising popularity and how they could disrupt the U.S. sports betting industry.----- Transcript -----Michael Cyprys: Welcome to Thoughts on the Market. I'm Mike Cyprys, Morgan Stanley's head of U.S. Brokers, Asset Managers, and Exchanges Research.Stephen Grambling: And I'm Stephen Grambling, head of U.S. Gaming, Lodging, and Leisure.Michael Cyprys: Today, we'll talk about sports betting and how prediction markets can disrupt it.It's Wednesday, March 19th at 10 am in New York.Sports betting used to be against the law in most of America, outside of Nevada. That changed in 2018, when the U.S. Supreme Court declared a federal ban on sports betting to be unconstitutional. As a result, many American states legalized sports betting. Over the last seven years, it's become even more popular and profitable. The American sports betting industry posted a record [$]13.7 billion of revenues last year. That's up from 2023's record of [$]11 billion, according to the American Gaming Association.Now, prediction markets are set to potentially disrupt this industry.Stephen, to set the stage, how is the U.S. sports betting industry currently organized and regulated?Stephen Grambling: Well, as you mentioned, Mike, with the overturning of the Professional and Amateur Sports Protection Act in 2018, legalization of sports betting turned to the states. The path to legislation varies by state with different constituents to consider – beyond even the local government. You know, Senate and Congress, but also tribal casinos, commercial casinos, sports teams, leagues, etc.We now have 38 states plus D.C. and Puerto Rico offering legal sports betting in some format, collecting billions of dollars in taxes in aggregate. At this point, the big states that are remaining are really only Texas, Florida, Georgia, and California. Each state forms its own framework across taxes, what sports can or can't bet on, and regulations around advertising. This means a separate commission for each state regulates the industry, in conjunction with state lawmakers,Michael Cyprys: I see. And what exactly are betting exchanges and how do they fit within the U.S. sports betting market?Stephen Grambling: Betting exchanges have existed for a long time in markets around the world. These are really exchanges – and are platforms – where individuals can bet directly against each other on an event outcome, rather than against a bookmaker. These exchanges match opposing bets and then take a commission on the winnings and typically offer better odds by eliminating traditional bookmaker margins.That said, the all in commission can range at two to five per cent. Whereas the spread on a traditional singles bet is about five to six per cent. So, it's relatively small. This is also known as the, the vigorish or the vig, or what the book gets to keep. Due to the need to be perfectly balanced as an exchange, these platforms, which operate in various markets, as I said around the world, are generally more akin to premarket, single bets. So single bet, or sometimes people call them straight bets, are really just betting on the outcome of a match or the over-under. They don't typically impact things like multi leg bets, also known as parlays, since there's less of a consistent betting pool.Because the type of bets are more limited than what a sports book offers, these exchanges somewhat plateaued in popularity in markets like the UK. For frame of reference, we estimate these singles bets are about $900 million in markets where it's legal for sports betting, and roughly another $800 million in states without legislation.Again, this is really just the market for people who only bet on that type of bet; that don't do both singles bets and parlays, or parlays alone.Mike, maybe turning it back to you, sports betting is a type of prediction market. But from where you sit, how would you define prediction markets more broadly, and can you give some examples?Michael Cyprys: Sure. So prediction markets are a type of marketplace where event contracts trade. Sometimes they're called forecast markets or even information markets. A core feature here is trading an outcome at an event, such as the November election, economic indicators, or even corporate events. But unlike futures contracts, event contracts have a defined risk and defined reward.Generally, they're structured as binary options, which can be easily understood. For instance, a contract could pay a dollar if the consumer price index, or CPI, exceeds say, 3 per cent in March. If an investor buys that contract for 75 cents, they could generate a 25 percent potential return if CPI comes in over 3 per cent and they collect a dollar on that contract.Now, the counterparty on the other side of that trade is the investor who sold that contract, collected the 75 cents, and they would stand to lose 25 cents potentially – if they

Our Chief Fixed Income Strategist Vishy Tirupattur explains why credit markets have held firm amid macro volatility, and the scenarios which could hurt its strong foundation.----- Transcript -----Welcome to Thoughts on the Market. I am Vishy Tirupattur, Morgan Stanley’s Chief Fixed Income Strategist. Today, I will talk about why credit markets have been resilient even as other markets have been volatile – and market implications going forward. It's Tuesday, March 18th, at 11 am in New York. Market sentiment has shifted quickly from post-election euphoria and animal spirits to increasingly growing concern about downside risks to the U.S. economy, driven by ongoing policy uncertainty and a spate of uninspiring soft data. However, signaling from different markets has not been uniform. For example, after reaching an all-time high just a few weeks ago, the S&P 500 index has given up all of its gains since the election and then some. Treasury yields have also yo-yoed, from a 40-basis points selloff to a 60+ basis points rally. Yet in the middle of this volatility in equities and rates, credit markets have barely budged. In other words, credit has been a low beta asset class so far. This resilience which resonates with our long-standing constructive view on credit has strong underpinnings. We had expected that many of the supporting factors from 2024 would continue – such as solid credit fundamentals, strong investor demand driven by elevated overall yields rather than the level of spreads. While we expected the economic growth in 2025 to slow somewhat, to about 2 per cent, we thought that would still be a robust level for credit investors. These expectations have largely played out until recently. While we maintain our overall positive stance on credit, some of the factors contributing to its resilience are changing, calling the persistence of credit’s low beta into question. While we did anticipate that sequencing and severity of policy would be key drivers of the economy and markets in 2025, growth constraining policies, especially tariffs, have come in faster and broader than what we had penciled in. Incorporating these policy signals, our U.S. economists have marked down real GDP growth to 1.5 per cent in 2025 and 1.2 per cent in 2026. From a credit perspective, we would highlight that our economists are not calling for a recession. Their growth expectations still leave us in territory we would deem credit friendly, although edging towards the bottom of our comfort zone. On the positive side of the ledger, cooling growth may also temper animal spirits and continue to constrain corporate debt supply, keeping market technicals supportive. Also, while treasury yields have rallied, overall yields are still at levels that sustain demand from yield-motivated buyers. That said, if growth concerns intensify from these levels, with weakness in soft data spreading notably to hard data, the probability of markets assigning above-average recession probabilities will increase. This could challenge credit’s low beta, that has prevailed so far, and the credit beta could increase on further drawdowns in risk assets. Thanks for listening. If you enjoy the show, leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Our CIO and Chief U.S. Equity Strategist Mike Wilson explains the stock market tumble and whether investors can hope for a rally.----- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today on the podcast I’ll be discussing the recent Equity Market correction and what to look for next. It's Monday, March 17th at 11:30am in New York.  So let’s get after it.  Major U.S. equity Indices are as oversold as they've been since 2022. Sentiment, positioning gauges are bearish, and seasonals improve in the second half of March for earnings revisions and price. Furthermore, recent dollar weakness should provide a tailwind to first quarter earnings season and second quarter guidance, particularly relative to the fourth quarter results; and the decline in rates should benefit economic surprises. In short, I stand by our view that 5,500 on the S&P 500 should provide support for a tradable rally led by lower quality, higher beta stocks that have sold off the most, and it looks like it may have started on Friday. The more important question is whether such a rally is likely to extend into something more durable and mark the end of the volatility we’ve seen YTD? The short answer is – probably not.  First, from a technical standpoint there has been significant damage to the major indices—more than what we witnessed in recent 10 per cent corrections, like last summer. More specifically, the S&P 500, Nasdaq 100, Russell 1000 growth and value indices have all traded straight through their respective 200-day moving averages, making these levels now resistance, rather than support. Meanwhile, many stocks are closer to a 20 per cent correction with the lower quality Russell 2000 falling below its 200 week moving average for the first time since the 2022 bear market. At a minimum, this kind of technical damage will take time to repair, even if we don’t get additional price degradation at the index level. In order to forecast a larger, sustainable recovery, it’s important to acknowledge what’s really been driving this correction. From my conversations with institutional investors, there appears to be a lot of focus on the tariff announcements and other rapid-fire policy announcements from the new administration. While these factors are weighing on sentiment and confidence, other factors started this correction in December. In our year ahead outlook, we forecasted a tougher first half of the year for several reasons. First, stocks were extended on a valuation basis and relative to the key macro and fundamental drivers like earnings revisions, which peaked in early December. Second, the Fed went on hold in mid-December after aggressively cutting rates by 100 basis points over the prior three months. Third, we expected AI capex growth to decelerate this year and investors now have the DeepSeek development to consider. Add in immigration enforcement, the Department of Government Efficiency (DOGE) exceeding expectations, and tariffs – and it’s no surprise that growth expectations are hitting equities in the form of lower multiples. As noted, we highlighted these growth headwinds in December and have been citing a first half range for the S&P 500 of 5500-6100 with a preference for large cap quality. Finally, President Trump has recently indicated he is not focused on the stock market in the near term as a barometer of his policies and agenda. Perhaps more than anything else, this is what led to the most recent technical breakdown in the S&P 500. In my view, it will take more than just an oversold market to get more than a tradable rally. Earnings revisions are the most important variable and while we could see some seasonal strength or stabilization in revisions, we believe it will take a few quarters for this factor to resume a positive uptrend. As noted in our outlook, the growth-positive policy changes like tax cuts, de-regulation, less crowding out and lower yields could arrive later in the second half of the year – but we think that’s too far away for the market to contemplate for now.  Finally, while the Trump put apparently doesn’t exist, the Fed put is alive and well, in our view. However, that will likely require conditions to get worse either on growth, especially labor, or in the credit and funding market, neither of which would be equity-positive, initially. Bottom line, a short-term rally from our targeted 5500 level is looking more likely after Friday’s price action. It’s also being led by lower quality stocks. This helps support my secondary view that the current rally is unlikely to lead to new highs until the numerous growth headwinds are reversed or monetary policy is loosened once again. The transition from a government heavy economy to one that is more privately driven should ultimately be better for many st

As equity markets gyrate in response to unpredictable U.S. policy, credit has taken longer to respond. Our Head of Corporate Credit Research, Andrew Sheets, suggests other indicators investors should have an eye on, including growth data.----- Transcript -----Welcome to Thoughts on the Market. I’m Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley. Today on the podcast, I’ll be discussing how much comfort or concern equity and credit markets should be taking from each other’s recent moves.It’s Friday, March 14th at 2pm in London. Credit has weakened as markets have gyrated in the face of rising uncertainty around U.S. economic policy. But it has been a clear outperformer. The credit market has taken longer to react to recent headlines, and seen a far more modest response to them. While the U.S. stock market, measured as the S&P 500, is down about 10 per cent, the U.S. High Yield bond index, comprised of lower-rated corporate bonds, is down about just 1 per cent.How much comfort should stock markets take from credit’s resilience? And what could cause Credit to now catch-down to that larger weakness in equities?A good place to start with these questions is what we think are really three distinct stories behind the volatility and weakness that we’re seeing in markets. First, the nature of U.S. policy towards tariffs, with plenty of on-again, off-again drama, has weakened business confidence and dealmaking; and that’s cut off a key source of corporate animal spirits and potential upside in the market. Second and somewhat relatedly, that reduced upside has lowered enthusiasm for many of the stocks that had previously been doing the best. Many of these stocks were widely held, and that’s created vulnerability and forced selling as previously popular positions were cut. And third, there have been growing concerns that this lower confidence from businesses and consumers will spill over into actual spending, and raise the odds of weaker growth and even a recession.I think a lot of credit’s resilience over the last month and a half, can be chalked up to the fact that the asset class is rightfully more relaxed about the first two of these issues. Lower corporate confidence may be a problem for the stock market, but it can actually be an ok thing if you’re a lender because it keeps borrowers more conservative. And somewhat relatedly, the sell-off in popular, high-flying stocks is also less of an issue. A lot of these companies are, for the most part, quite different from the issuers that dominate the corporate credit market.But the third issue, however, is a big deal. Credit is extremely sensitive to large changes in the economy. Morgan Stanley’s recent downgrade of U.S. growth expectations, the lower prices on key commodities, the lower yields on government bonds and the underperformance of smaller more cyclical stocks are all potential signs that risks to growth are rising. It's these factors that the credit market, perhaps a little bit belatedly, is now reacting to.So what does this all mean?First, we’re mindful of the temptation for equity investors to look over at the credit market and take comfort from its resilience. But remember, two of the biggest issues that have faced stocks – those lower odds of animal spirits, and the heavy concentration in a lot of the same names – were never really a credit story. And so to feel better about those risks, we think you’ll want to look at other different indicators.Second, what about the risk from the other direction, that credit catches up – or maybe more accurately down – to the stock market? This is all about that third factor: growth. If the growth data holds up, we think credit investors will feel justified in their more modest reaction, as all-in yields remain good. But if data weakens, the risks to credit grow rapidly, especially as our U.S. economists think that the Fed could struggle to lower interest rates as fast as markets are currently hoping they will.And so with growth so important, and Morgan Stanley’s tracking estimates for U.S. growth currently weak, we think it's too early to go bottom fishing in corporate bonds. Thanks for listening. If you enjoy the show, leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Our Chief Asia Economist Chetan Ahya discusses the early indications of India’s economic recovery and why the country looks best-positioned in the region for growth.----- Transcript -----Welcome to Thoughts on the Market. I’m Chetan Ahya, Morgan Stanley’s Chief Asia Economist. Today I’ll be taking a look at the Indian economy amidst escalating trade tensions in Asia and around the globe. It’s Thursday, March 13, at 2pm in Hong Kong.Over the last few months, investors have been skeptical about India’s growth narrative. Investors – like us – have been caught off-guard by the surprising recent slowdown in India’s growth. With the benefit of hindsight, we can very clearly attribute the slowdown to an unexpected double tightening of fiscal and monetary policy. But India seems to be on its way to recovery. Green shoots are already emerging in recent data. And we believe the recovery will continue to firm up over the coming months. What makes us so confident in our outlook for India? We see several key factors behind this trend: First, fiscal policy’s turning supportive for growth again. The government has been ramping up capital expenditure for infrastructure projects like roads and railways, with growth accelerating markedly in recent months. They have also cut income tax for households which will be effective from April 2025. Second, monetary policy easing across rates, liquidity, and the regulatory front. With CPI inflation recently printing at just 3.6 per cent which is below target, we believe the central bank will continue to pursue easy monetary policy. And third, moderation in food inflation will mean real household incomes will be lifted. Finally, the strength in services exports. Services exports include IT services, and increasingly business services. In fact, post-COVID India’s had very strong growth in business services exports. And the key reason for that is, post-COVID, I think businesses have come to realize that if you can work from home, you can work from Bangalore. India's services exports have nearly doubled since December 2020, outpacing the 40 per cent rise in goods exports over the same period. This has resulted in services exports reaching $410 billion on an annualized basis in January, almost equal to the $430 billion of goods exports. Moreover, India continues to gain market share in services exports, which now account for 4.5 per cent of the global total, up from 4 per cent in 2020. To be sure there are some risks. India does face reciprocal tariff risks due to its large trade surplus with the US and high tariff rates that India imposes select imports from the U.S. But we believe that by September-October this year, India can reach a trade deal with the U.S. In any case, India's goods exports-to-GDP ratio is the lowest in the region. And even if global trade slows down due to tariff uncertainties, India's economy won't be as severely affected. In fact, it could potentially outperform the other economies in the region.Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

While tariffs continue to dominate headlines, our Global Head of Fixed Income Research and Public Policy Strategy Michael Zezas suggests investors should also focus on the sectoral impacts of additional U.S. policy choices.----- Transcript -----Welcome to Thoughts on the Market. I’m Michael Zezas, Morgan Stanley’s Global Head of Fixed Income Research and Public Policy Strategy. Today, we’ll be talking about U.S. policy impacts on the market that aren’t about tariffs.It’s Wednesday, March 12th, at 10:30am in New York.If tariffs are dominating your attention, we sympathize. Again this week we heard the U.S. commit to raising tariffs and work out a resolution, this time all within the span of a workday. These twists and turns in the tariff path are likely to continue, but in the meantime it might make sense for investors to take some time to look away – instead focusing on some key sectoral impacts of U.S. policy choices that our Research colleagues have called out. For example, Andrew Percoco, who leads our Clean Energy Equity Research team, calls out that clean Energy stocks may be pricing in too high a probability of an Inflation Reduction Act (IRA) repeal. He cites a letter signed by 18 Republicans urging the speaker of the house to protect some of the energy tax credits in the IRA. That’s a good call out, in our view. Republicans’ slim majority means only a handful need to oppose a legislative action in order to block its enactment. Another example is around Managed Care companies. Erin Wright, who leads our Healthcare Services Research Effort, analyzed the impact to companies of cuts to the Medicaid program and found the impact to their sector’s bottom line to be manageable. So, keeping an in-line view for the sector. We think the sector won’t ultimately face this risk, as, like with the IRA, we do not expect there to be sufficient Republican votes to enact the cuts. Finally, Patrick Wood, who leads the Medtech team, caught up with a former FDA director to talk about how staffing cuts might affect the industry. In short, expect delays in approvals of new medical technologies. In particular, it seems the risk is most acute in the most cutting edge technologies, where skilled FDA staff are hard to find. Neurology and brain/computer interfaces stand out as areas of development that might slow in this market sector. All that said, if you just can’t turn away from tariffs, we reiterate our guidance here: Tariffs are likely going up, even if the precise path is uncertain. And whether or not you’re constructive on the goals the administration is attempting to achieve, the path to achieving them carries costs and execution risk. Our U.S. economics team’s recent downgrade of the U.S. growth outlook for this and next year exemplifies this. Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Our analysts Adam Jonas and Michelle Weaver share a glimpse into the future from Morgan Stanley’s Annual Tech, Media, and Telecom (TMT) Conference, as agentic AI powers autonomous vehicles, humanoid robots and more.

Our Head of U.S. IT Hardware Erik Woodring gives his key takeaways from Morgan Stanley’s Technology, Media and Telecom (TMT) conference, including why there appears to be a long runway ahead for AI infrastructure spending, despite macro uncertainty. ----- Transcript -----Welcome to Thoughts on the Market. I’m Erik Woodring, Morgan Stanley’s Head of U.S. IT Hardware Research. Here are some reflections I recorded last week at Morgan Stanley’s Technology, Media, and Telecom Conference in San Francisco. It’s Monday, March 10th at 9am in New York. This was another year of record attendance at our TMT Conference. And what is clear from speaking to investors is that the demand for new, under-discovered or under-appreciated ideas is higher than ever. In a stock-pickers’ market – like the one we have now – investors are really digging into themes and single name ideas. Big picture – uncertainty was a key theme this week. Whether it’s tariffs and the changing geopolitical landscape, market volatility, or government spending, the level of relative uncertainty is elevated. That said, we are not hearing about a material change in demand for PCs, smartphones, and other technology hardware. On the enterprise side of my coverage, we are emerging from one of the most prolonged downcycles in the last 10-plus years, and what we heard from several enterprise hardware vendors and others is an expectation that most enterprise hardware markets – PCs , Servers, and Storage – return to growth this year given pent up refresh demand. This, despite the challenges of navigating the tariff situation, which is resulting in most companies raising prices to mitigate higher input costs. On the consumer side of the world, the demand environment for more discretionary products like speakers, cameras, PCs and other endpoint devices looks a bit more challenged. The recent downtick in consumer sentiment is contributing to this environment given the close correlation between sentiment and discretionary spending on consumer technology goods. Against this backdrop, the most dynamic topic of the conference remains GenerativeAI. What I’ve been hearing is a confidence that new GenAI solutions can increasingly meet the needs of market participants. They also continue to evolve rapidly and build momentum towards successful GenAI monetization. To this point, underlying infrastructure spending—on servers, storage and other data center componentry – to enable these emerging AI solutions remains robust. To put some numbers behind this, the 10 largest cloud customers are spending upwards of [$]350 billion this year in capex, which is up over 30 percent year-over-year. Keep in mind that this is coming off the strongest year of growth on record in 2024. Early indications for 2026 CapEx spending still point to growth, albeit a deceleration from 2025. And what’s even more compelling is that it’s still early days. My fireside chats this week highlighted that AI infrastructure spending from their largest and most sophisticated customers is only in the second inning, while AI investments from enterprises, down to small and mid-sized businesses, is only in the first inning, or maybe even earlier. So there appears to be a long runway ahead for AI infrastructure spending, despite the volatility we have seen in AI infrastructure stocks, which we see as an opportunity for investors. I’d just highlight that amidst the elevated market uncertainty, there is a prioritization on cost efficiencies and adopting GenAI to drive these efficiencies. Company executives from some of the major players this week all discussed near-term cost efficiency initiatives, and we expect these efforts to both help protect the bottom line and drive productivity growth amidst a quickly changing market backdrop. Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

While policy noise continues to dominate the headlines, our Global Head of Fixed Income Research and Public Policy Strategy Michael Zezas points out a key theme: a transition toward a multipolar world.----- Transcript -----Welcome to Thoughts on the Market. I’m Michael Zezas, Morgan Stanley’s Global Head of Fixed Income Research and Public Policy Strategy. Today we’ll be discussing what investors need to focus on amidst all the U.S. policy headlines.It’s Friday, March 7th, at 12:30 pm in New York.In recent weeks the news flow on tariffs, immigration, and geopolitics has been relentless, culminating in this week’s state of the union address by President Trump and, if headlines hold, a partial reversal in course on Mexico and Canada tariffs that were just levied earlier this week. Understandably, measures of policy uncertainty, such as the Baker, Bloom, and Davis index, have reached all time highs. And this tracks with the confusion expressed by investing and corporate clients. In our view, this policy noise is going to continue. But, there is an important signal. These developments track with one of our four key themes of 2025. The transition toward a multipolar world. The tense White House meeting between Presidents Trump and Zelensky, played out live in front of the news cameras, was another reminder that the U.S. is evolving its role in driving international affairs. And tariffs on Mexico, Canada, and China are a reminder of the U.S.’s interest in rewiring global trade. The reasons behind this are myriad and complex, but in the near term it's about the U.S. looking more inward. Economic populism is, well, popular with voters in both parties. There’s a few net takeaways for investors here. One is a positive for the European defense sector. The combination of tariffs and the evolving U.S. posture on global security has long been part of our thesis on why Europe would eventually chart a new path and step up to spend more on defense. The current situation in Russia and Ukraine underscores this, with potential for another $0.9-$2.7 trillion in defense spending through 2035. Germany’s new ‘whatever it takes’ approach to defense spending is a key signpost in this trend, per our colleagues in European economics, equities, and foreign exchange. Another critical takeaway is around the effects of U.S. trade realignment on both macro markets and equity sector preferences. Whether these trade policy changes play out well over time or not, the attempt costs something in the near term. Tariffs are part of that cost. And while the precise path of tariff increases is unclear, what is clear is that they’re headed higher in the aggregate, a tactic in service of the administration’s goal of reducing trade deficits and creating reciprocal trade barriers in order to incentivize greater production in the U.S. Over the next year, our economists expect that those tariff costs will crimp economic activity. That slower growth should eventually feed through into a more dovish monetary policy. Both factors, in the view of our U.S. rates strategy team, should continue pushing yields lower – good news for bond investors, but more challenging posture for equity investors, and a key reason our cross asset team is currently flagging a preference for fixed income. That tariff activity should also drive supply chain realignment. But, going forward, changing those supply chains may now be more costly. Per work from our Global economics team, the supply chains that need to be moved now are complex and concentrated in geopolitical rivals. That’s a challenge for certain sectors, like U.S. IT hardware and consumer discretionary. But the investment to make it happen creates demand and is a benefit for the capital goods and broader industrials sector. Bottom line, the policy noise will continue, as will the market cross currents it’s driving. We’ll keep you informed on it all here. Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Recorded at our 2025 Technology, Media and Telecom (TMT) Conference, TMT Credit Research Analyst Lindsay Tyler joins Head of Investment Grade Debt Coverage Michelle Wang to discuss the how the industry is strategically raising capital to fund growth.----- Transcript -----Lindsay Tyler: Welcome to Thoughts on the Market. I'm Lindsay Tyler, Morgan Stanley's Lead Investment Grade TMT Credit Research Analyst, and I'm here with Michelle Wang, Head of Investment Grade Debt Coverage in Global Capital Markets.On this special episode, we're recording at the Morgan Stanley Technology, Media, and Telecom (TMT) Conference, and we will discuss the latest on the technology space from the fixed income perspective.It's Thursday, March 6th at 12 pm in San Francisco.What a week it's been. Last I heard, we had over 350 companies here in attendance.To set the stage for our discussion, technology has grown from about 2 percent of the broader investment grade market – about two decades ago – to almost 10 percent now; though that is still relatively a small percentage, relative to the weightings in the equity market.So, can you address two questions? First, why was tech historically such a small part of investment grade? And then second, what has driven the growth sense?Michelle Wang: Technology is still a relatively young industry, right? I'm in my 40s and well over 90 percent of the companies that I cover were founded well within my lifetime. And if you add to that the fact that investment grade debt is, by definition, a later stage capital raising tool. When the business of these companies reaches sufficient scale and cash generation to be rated investment grade by the rating agencies, you wind up with just a small subset of the overall investment grade universe.The second question on what has been driving the growth? Twofold. Number one the organic maturation of the tech industry results in an increasing number of scaled investment grade companies. And then secondly, the increasing use of debt as a cheap source of capital to fund their growth. This could be to fund R&D or CapEx or, in some cases, M&A.Lindsay Tyler: Right, and I would just add in this context that my view for this year on technology credit is a more neutral one, and that's against a backdrop of being more cautious on the communications and media space.And part of that is just driven by the spread compression and the lack of dispersion that we see in the market. And you mentioned M&A and capital allocation; I do think that financial policy and changes there, whether it's investment, M&A, shareholder returns – that will be the main driver of credit spreads.But let's turn back to the conference and on the – you know, I mentioned investment. Let's talk about investment.AI has dominated the conversation here at the conference the past two years, and this year is no different. Morgan Stanley's research department has four key investment themes. One of those is AI and tech diffusion.But from the fixed income angle, there is that focus on ongoing and upcoming hyperscaler AI CapEx needs.Michelle Wang: Yep.Lindsay Tyler: There are significant cash flows generated by many of these companies, but we just discussed that the investment grade tech space has grown relative to the index in recent history.Can you discuss the scale of the technology CapEx that we're talking about and the related implications from your perspective?Michelle Wang: Let's actually get into some of the numbers. So in the past three years, total hyperscaler CapEx has increased from [$]125 billion three years ago to [$]220 billion today; and is expected to exceed [$]300 billion in 2027.The hyperscalers have all publicly stated that generative AI is key to their future growth aspirations. So, why are they spending all this money? They're investing heavily in the digital infrastructure to propel this growth. These companies, however, as you've pointed out, are some of the most scaled, best capitalized companies in the entire world. They have a combined market cap of [$]9 trillion. Among them, their balance sheet cash ranges from [$]70 to [$]100 billion per company. And their annual free cash flow, so the money that they generate organically, ranges from [$]30 to [$]75 billion.So they can certainly fund some of this CapEx organically. However, the unprecedented amount of spend for GenAI raises the probability that these hyperscalers could choose to raise capital externally.Lindsay Tyler: Got it.Michelle Wang: Now, how this capital is raised is where it gets really interesting. The most straightforward way to raise capital for a lot of these companies is just to do an investment grade bond deal.Lindsay Tyler: Yep.Michelle Wang: However, there are other more customized funding solutions available for them to achieve objectives like more favorable accounting or rating agency treatment, ways for them

While central bank policy will always matter for markets, our Head of Corporate Credit Research Andrew Sheets explains why investors should not be worried about the number of Fed cuts in 2025.----- Transcript -----Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley. Today I’m going to talk about why the number of Fed rate cuts this year may matter less than you think.It's Wednesday, March 5th, at 2pm in London.Financial markets spend a lot of time discussing the Federal Reserve. And for good reason. The central bank of the world’s largest economy plays a central role in fighting inflation and setting interest rates. And what they’ll do this year is topical and shifting. At Morgan Stanley, our economists think that US Tariff and Immigration policy will lead the Fed to keep rates somewhat higher, for somewhat longer, than they did at the start of the year.Yet we think there may be just a little bit too much focus on just how much the Fed changes policy over the course of the year. Indeed, we’d go as far as to say that given the choice, investors should be rooting for less change, not more.To start, for all that’s happened in the world since the end of October of 2024, expectations for the Fed’s interest rate path have been remarkably stable. The US 2-year Treasury, which is a decent proxy of where the Fed’s rate will average over the next 24 months, has hovered in a very narrow range. It simply hasn’t been telling us very much; other factors have been moving markets.There’s also a pretty reasonable rule of thumb from history: stability is good. A stable Fed funds rate, almost by definition, implies a stable equilibrium that doesn’t involve overly high inflation pushing rates further up, or overly weak growth pushing them further down. The best growth in recent history, in the mid-1990s, occurred after the Fed reduced interest rates less than one-percent, and then kept them stable, at a pretty elevated rate for a pretty extended period of time.Large changes in rates, on the other hand, in either direction are a different story. Some of the markets worst losses have coincided with the largest declines in the Fed’s target rate – because those large rate cuts usually occur only when there is a large, unexpected slowing in the economy; something markets often don’t like.Meanwhile, we think the Fed also very much wants to avoid a scenario where it has to start raising rates again, given the potential confusion that this could signal after it only recently continued to lower them. And so if over the course of this year, the Fed does need to raise rates, given the very high bar we think they’ve given themselves for action – it probably suggests that something unexpected, and not in a necessarily good way, has occurred.Central bank policy will always matter for markets. But for investors, the question of whether the Fed will cut once, which is the Morgan Stanley base-case, twice, or not at all in 2025 may not matter all that much, at least for credit. Far more important is the performance of the economy, and whether big changes to tariffs or immigration policy drive big changes to growth and inflation. Those big changes, which could drive big changes in Fed policy responses, are the scenario that worries us.Thanks for listening. If you enjoy the show, leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today. 

Our U.S. Public Policy and Currency analysts, Ariana Salvatore and Andrew Watrous, discuss why the dollar fell at the beginning of the first Trump administration and whether it could happen again this year. ----- Transcript ----Ariana Salvatore: Welcome to Thoughts on the Market. I'm Ariana Salvatore, Morgan Stanley's U.S. Public Policy Strategist.Andrew Watrous: And I'm Andrew Watrous, G10 FX Strategist here at Morgan Stanley.Ariana Salvatore: Today, we'll focus on the U.S. dollar and how it might fare in global markets during the first year of the new Trump administration.It's Tuesday, March 4th at 10am in New York.So, Andrew, a few weeks ago, James Lord came on to talk about the foreign exchange volatility. Since then, tariffs and trade policy have been in the news. Last night at midnight, 25 percent tariffs on Mexico and Canada went into effect, in addition to 10 percent on China. So, let's set the scene for today's conversation. Is the dollar still dominant in global currency markets?Andrew Watrous: Yes, it is. The U.S. dollar is used in about $7 trillion worth of daily FX transactions. And the dollar's share of all currency transactions has been pretty stable over the last few decades. And something like 80 percent of all trade finance is invoiced in dollars, and that share has been pretty stable too.A big part of that dollar dominance is because of the depth and safety of the Treasury security market.Ariana Salvatore: That makes sense. And the dollar fell in 2017, the first year of the Trump administration. Why did that happen?Andrew Watrous: Yeah, so 2017 gets a lot of client attention because the Fed was hiking, there was a lot of uncertainty about would happen in NAFTA, and the U.S. passed a fiscally expansionary budget bill that year.So, people have asked us, ‘Why the U.S. dollar went down despite all those factors?’ And I think there are three reasons. One is that even though the possibility that the U.S. could leave NAFTA was all over the headlines that year, U.S. tariffs didn't actually go up. Another factor is that global growth turned out to be really strong in 2017, and that was helped in part by fiscal policy in China and Europe. And finally, there were some political risks in Europe that didn't end up materializing.So, investors took a sigh of relief about the possibility that I think had been priced in a bit that the Eurozone might break up. And then a lot of those factors went into reverse in 2018 and the U.S. dollar went up.Ariana Salvatore: So, applying that framework with those factors to today, is it possible that we see a repeat of 2017 in terms of the U.S. dollar decline?Andrew Watrous: Yeah, I think it's likely that the U.S. dollar continues to go lower for some of the same reasons as we saw in 2017. So, I think that compared to 2017, there's a lot more U.S. dollar positive risk premium around trade policy. So, the bar is higher for the U.S. dollar to go up just from trade headlines alone.And just like in 2017, European policy developments could be a tailwind to the euro. We've been highlighting the potential for German fiscal expansion as European defense policy comes into focus. And unlike in 2017, when the Fed was raising rates, now the Fed is probably going to cut more this year. So that's a headwind to the dollar that didn't exist back in 2017.So, on trade, Ariana. What developments do you expect? Do you think that Trump's new policies will make 2025 different in any way from 2017?Ariana Salvatore: So, taking a step back and looking at this from a very high level, a few things are different in spite of the fact that we're actually talking about a lot of similar policies. Tariffs and tax policy were a big focus in 2017 to 2019, and to be sure, this time around, they are too, but in a slightly different way.So, for example, on tax cuts, we're not talking about bringing rates lower on the individual and corporate side. We're talking about extending current policy. And on tariffs and trade policy, this round I would characterize as much broader, right? So, Trump has scoped in a broader range of trading partners into the discussion like Mexico and Canada; and is talking about a starting point that level-wise is much higher than what we saw in the whole 2018 2019 trade friction period.The highest rate back then we ever saw was 25 percent, and that was on the final batch of Chinese goods, that list four. Whereas this time, we're talking about 25 percent as a starting point for Mexico and Canada.I think sequencing is also a really important distinction. In 2017, we saw the tax cuts through the Tax Cuts and Jobs Act (TCJA) come first, followed by trade tensions in 2018 to 2019. This time around, it's really the inverse. Republicans just passed their budget resolution in the House. That lays the groundwork for the tax cut extensions.But in the meantime, Trump has been talking about tariff implementation since before he w

Our Semiconductors and Software analysts Joe Moore and Keith Weiss dive into the biggest market debate around AI and why it’s likely to shape conversations at Morgan Stanley’s Technology, Media and Telecom (TMT) Conference in San Francisco. ----- Transcript -----Joe Moore: Welcome to Thoughts on the Market. I'm Joe Moore, Morgan Stanley's Head of U.S. Semiconductors.Keith Weiss: And I'm Keith Weiss, Head of U.S. Software.Joe Moore: Today on the show, one of the biggest market debates in the tech sector has been around AI and the Return On Investment, or ROI. In fact, we think this will be the number one topic of conversation at Morgan Stanley's annual Technology, Media and Telecom (TMT) conference in San Francisco.And that's precisely where we're bringing you this episode from.It's Monday, March 3rd, 7am in San Francisco.So, let's get right into it. ChatGPT was released November 2022. Since then, the biggest tech players have gained more than $9 trillion in combined market capitalization. They're up more than double the amount of the S&P 500 index. And there's a lot of investor expectation for a new technology cycle centered around AI. And that's what's driving a lot of this momentum.You know, that said, there's also a significant investor concern around this topic of ROI, especially given the unprecedented level of investment that we've seen and sparse data points still on the returns.So where are we now? Is 2025 going to be a year when the ROI and GenAI finally turns positive?Keith Weiss: If we take a step back and think about the staging of how innovation cycles tend to play out, I think it's a helpful context.And it starts with research. I would say the period up until When ChatGPT was released – up until that November 2022 – was a period of where the fundamental research was being done on the transformer models; utilizing, machine learning. And what fundamental research is, is trying to figure out if these fundamental capabilities are realistic. If we can do this in software, if you will.And with the release of ChatGPT, it was a very strong, uh, stamp of approval of ‘Yes, like these transformer models can work.’Then you start stage two. And I think that's basically November 22 through where are today of, where you have two tracks going on. One is development. So these large language models, they can do natural language processing well.They can contextually understand unstructured and semi structured data. They can generate content. They could create text; they could create images and videos.So, there's these fundamental capabilities. But you have to develop a product to get work done. How are we going to utilize those capabilities? So, we've been working on development of product over the past two years. And at the same time, we've been scaling out the infrastructure for that product development.And now, heading into 2025, I think we're ready to go into the next stage of the innovation cycle, which will be market uptake.And that's when revenue starts to flow to the software companies that are trying to automate business processes. We definitely think that monetization starts to ramp in 2025, which should prove out a better ROI or start to prove out the ROI of all this investment that we've been making.Joe Moore: Morgan Stanley Research projects that GenAI can potentially drive a $1.1 trillion dollar revenue opportunity in 2028, up from $45 billion in 2024. Can you break this down for our listeners?Keith Weiss: We recently put out a report where we tried to size kind of what the revenue generation capability is from GenerativeAI, because that's an important part of this ROI equation. You have the return on the top of where you could actually monetize this. On the bottom, obviously, investment. And we took a look at all the investment needed to serve this type of functionality.The [$]1.1 trillion, if you will, it breaks down into two big components. Um, One side of the equation is in my backyard, and that's the enterprise software side of the equation. It's about a third of that number. And what we see occurring is the automation of more and more of the work being done by information workers; for people in overall.And what we see is about 25 percent, of overall labor being impacted today. And we see that growing to over 45 percent over the next three years.So, what that's going to look like from a software perspective is a[n] opportunity ramping up to about, just about $400 billion of software opportunity by 2028. At that point, GenerativeAI will represent about 22 percent of overall software spending. At that point, the overall software market we expect to be about a $1.8 trillion market.The other side of the equation, the bigger side of the equation, is actually the consumer platforms. And that kind of makes sense if you think about the broader economy, it's basically one-third B2B, two-thirds B2C. The automation is relatively equivalent o

Our Global Head of Fixed Income Research and Public Policy Strategy explains why conflicting news on tariffs and government spending may point to a case for bonds.----- Transcript -----Welcome to Thoughts on the Market. I’m Michael Zezas, Morgan Stanley’s Global Head of Fixed Income Research and Public Policy Strategy. Today we’ll be discussing recent U.S. public policy headline noise and the signal within that for investors.It’s Friday, February 28th, at 12:30 pm in New York.For investors paying attention to events in Washington, D.C., the past few weeks have been disorienting. Tariff announcements have continued, but with shifting details on timing and magnitude. And Congress passed a bill to enable substantial spending cuts, but subsequent media reports made clear the votes to actually enact these cuts later this year may not be there.  Our recent client conversations have revealed that investors’ confusion has reached new heights, and there’s little consensus, or conviction, about whether U.S. policy choices are set to help or hurt the economy and markets. Net-net, it's a lot of policy noise, and very little signal. That said, here’s what we think investors can anchor to. For all the headlines on potential new tariffs for China, Mexico, Canada and on products like copper, actual tariff actions have followed a graduated pace, in line with our base case of ‘fast announcement, slow implementation’ – where tariffs on China start and continue to climb, but tariffs on the rest of world move slowly and are more subject to negotiation. Tariffs on Mexico and Canada appear, in our view, likely to be pushed out once again given progress in negotiation on harmonizing trade policy and progress in reduced border crossings.  On the other hand, tariffs on China, already raised an incremental 10 percent a few weeks back, seem likely to step up again as there are much bigger disagreements that the two nations don’t appear close to resolving. But even if tariffs move according to the pace that we expect, that doesn’t mean they come without cost. The U.S.’s goal is to bring more investment onshore, with an aim toward increasing goods production, thereby reducing trade deficits, securing important supply chains, and growing industrial jobs. The theory is that higher tariff barriers might incentivize more direct investment into the U.S., as companies build supply chains in the U.S. to avoid the higher tariff costs.  But even if that theory plays out, there’s a cost to that transition. In a recent blue paper, my colleague Rajeev Sibal led a team through an analysis demonstrating that the next phase of supply chain realignment would be considerably costlier to companies, given the complexity of production that must be shifted. So either way, companies take on new costs – tariffs, CapEx, or both. That challenges corporate margins, and economic growth, at least for a time. And there’s plenty of execution risk along the way. So what’s an investor to do? Our cross asset and interest rate strategy teams think it's time to lean more heavily into bonds. Equity markets may do just fine here, with investors looking through these near term costs, but the risk of something going wrong with, for example, tariffs escalation or broader geopolitical conflict, may keep a ceiling on investors’ risk appetite. Conversely, a growth slowdown presents a clearer case for owning bonds, particularly since it wasn’t that long ago that better economic data helped the Treasury market price out most of the expected monetary policy cuts for 2025. Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Two recent surveys indicate that U.S. consumer confidence has shown a notable decline amid talks about inflation and potential tariff. Our Head of Corporate Credit Research Andrew Sheets discusses the market implications.----- Transcript -----Welcome to Thoughts on the Market. I'm Andrew Sheets, head of Corporate Credit Research at Morgan Stanley. Today I’m going to talk about the consumer side of the confidence debate. It’s Thursday, February 27th at 2pm in London. Two weeks ago on this program I discussed signs that uncertainty in U.S. government policy might be hitting corporate confidence, as evidenced by an unusually slow start to the year for dealmaking. That development is a mixed bag. Less confidence and more conservatism in companies holds back investment and reduces the odds of the type of animal spirits that can drive large gains. But it can be a good thing for lenders, who generally prefer companies to be more cautious and more risk-averse. But this question of confidence is also relevant for consumers. And today, I want to discuss what some of the early surveys suggest and how it can impact our view.To start with something that may sound obvious but is nonetheless important, Confidence is an extremely powerful psychological force in the economy and financial markets. If you feel good enough about the future, you’ll buy a stock or a car with little regard to the price or how the economy might feel at the moment. And if you’re worried, you won’t buy those same things, even if your current conditions are still ok, or if the prices are even cheaper. Confidence, you could say, can trump almost everything else. And so this might help explain the market’s intense focus on two key surveys over the last week that suggested that US consumer confidence has been deteriorating sharply.First, a monthly survey by the University of Michigan showed a drop in consumer confidence and a rise in expected inflation. And then a few days later, on Tuesday, a similar survey from the Conference Board showed a similar pattern, with consumers significantly more worried about the future, even if they felt the current conditions hadn't much changed. While different factors could be at play, there is at least circumstantial evidence that the flurry of recent U.S. policy actions may be playing a role. This drop in confidence, for example, was new, and has only really showed up in the last month or two. And the University of Michigan survey actually asks its respondents how news of Government Economic policy is impacting their level of confidence. And that response, over the last month, showed a precipitous decline. These confidence surveys are often called ‘soft’ data, as opposed to the hard economic numbers like the actual sales of cars or heavy equipment. But the reason they matter, and the reason investors listened to them this week, is that they potentially do something that other data cannot. One of the biggest challenges that investors face when looking at economic data is that financial markets often anticipate, and move ahead of turns in the underlying hard economic numbers. And so if expectations are predictive of the future, they may provide that important, more leading signal. One weak set of consumer confidence isn’t enough to change the overall picture, but it certainly has our attention. Our U.S. economists generally agree with these respondents in expecting somewhat slower growth and stickier inflation over the next 18 months; and Morgan Stanley continues to forecast lower bond yields across the U.S. and Europe on the expectation that uncertainties around growth will persist. For credit investors, less confidence remains a double-edged sword, and credit markets have been somewhat more stable than other assets. But we would view further deterioration in confidence as a negative – given the implications for growth, even if it meant a somewhat easier policy path. Thanks for listening. If you enjoy the show, leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Our Chief U.S. Economist Michael Gapen discusses the possible economic implications of restrictive immigration policies in the U.S., highlighting their potential effect on growth, inflation and labor markets.----- Transcript -----Welcome to Thoughts on the Market. I’m Michael Gapen, Morgan Stanley’s Chief U.S. Economist. Today I’ll talk about the way restrictive immigration policies could potentially slow U.S. economic growth, push up inflation, and impact labor markets.It’s Wednesday, February 26th, at 2pm in New York.Lately, investors have been focused on the twists and turns of Trump’s tariffs. Several of my colleagues have discussed the issue of tariffs from various angles on this show. But we think the new administration’s immigration policy deserves more attention. Immigration is more than just the entry of foreign citizens into the U.S. for residency. It's a complex process with significant implications for our economy. According to the Bureau of Labor Statistics, as of June 2024, 19 per cent of the US workforce was made up of immigrants – which is over 32 million people. This is a significant increase from 1994, when only about 10 per cent of the workforce was foreign-born. Immigrants tend to be employed in sectors like agriculture, construction and manufacturing, but also in face-to-face services sectors like retail, restaurants, hotels and healthcare. Immigration surged to about 3 million per year after the pandemic. In fact, immigration rates in 2022 to 2024 were more than twice the historical run rate. This surge helped the US economy to "soft land" following a period of high inflation. It boosted both the supply side and the demand side of the U.S. economy. Labor force growth outpaced employment, which helped to moderate wage and price pressures. However, Trump’s policymakers are changing the rules rapidly and reversing the immigration narrative. Already by the second half of 2024, border flows were slowing significantly based on the lagged effects of steps previously taken by the Biden administration. Under the new administration, news reports suggest immigration has slowed to near zero in recent weeks.In our 2025 year-ahead outlook, we noted that restrictive immigration policies were a key factor in our prediction for slower growth and firmer inflation. We estimate that immigration will slow from 2.7 million last year to about 1 million this year and 500,000 next year. The recent data suggests immigration may slow every more forcefully than we expect.If immigration slows broadly in line as we predict, the result will be that population growth in 2025 will be about 4/10ths of 1 per cent. That’s less than half of what the U.S. economy saw in 2024. The impact of slower immigration on labor force measures should be visible over time. For the moment though, there is enough noise in monthly payrolls and the unemployment rate to mask some of the labor force effects. But over three or six months, the impact of slower immigration should become clearer.In terms of economic growth, if immigration falls back to 1 million this year and 500,000 next year, this could reduce the rate of GDP growth by about a-half a percentage point this year and maybe even more next year, and put upward pressure on inflation, particularly in services, and to some extent overall wages. Slower immigration could pull short-run potential GDP growth down from the 2.5-3.0 per cent that we saw in recent years to 2 per cent this year, and 1-1.5 per cent next year. On the other hand, the unemployment rate might fall modestly as immigration controls reduce the number of households with high participation rates and low spending capacity. This could lead to tighter labor markets, moderately faster wage growth, and upward pressure on inflation. So we think we are looking at a two-speed labor market. Slower employment growth will feel soft and sluggish. But a low unemployment rate suggests the labour market itself is still tight. Given all of this, we think more restrictive immigration policies could lead to tighter monetary policy and keep the Fed on its currently restrictive stance for longer. All of this supports our expectation of just one cut this year and further rate cuts only next year after growth slows.Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

A shift to private destinations for cruise lines could affect both operators and guests by 2030. Our Europe Leisure & Travel analyst Jamie Rollo explains.----- Transcript -----Welcome to Thoughts on the Market. I’m Jamie Rollo, Morgan Stanley’s Europe Leisure & Travel Analyst. And today I’ll talk about an intriguing trend – the cruise lines’ accelerating expansion into private islands. It’s Tuesday, February the 25th, at 2 PM in London.Now the lure of a private island cruise is simple. You get almost exclusive access to a tropical retreat. You can lounge or snorkel on a pristine beach, you can enjoy a meal in a private cabana, you can even book a massage or a yoga class. The only other people around are fellow passengers on your vacation. So this isn't just the stuff of popular TV shows. It’s potentially the future of cruising. Cruise lines have actually been offering private islands for more than a decade. So it’s hardly a new phenomenon. In fact, in 2019, we estimate the majority of Caribbean cruise passengers visited a private island. As it happens, the Caribbean is the world's largest cruise destination. About saw 36 million cruise calls were there last year; that’s about 40 percent of global passenger capacity. And that’s surpassing the second largest region, the Mediterranean, at about 17 percent. Of course, the Caribbean’s proximity to North America and its year-round tropical climate make it a prime location for cruising. But despite these advantages, historically the Caribbean’s been seen as more of a lower-yielding market compared to regions like Europe or Alaska, which arguably have even more amazing scenery or historic sites. Interestingly, recent trends suggest that reputation might be changing. And new private islands over the last few years have reinvigorated the Caribbean cruise market. So what’s a private destinations or islands offer? For your guests, they get a seamless integration with the cruise experience. There’s no transfer required to a destination. There’s no external visitors coming into the resort. No-hassle, no-traffic, and very low crime. And for the cruise lines, well, they get greater control over the customer experience. They create superior customer satisfaction, which generates more repeat business. In addition, they can get that on-island spend that the guest would have spent with external vendors. And they can charge premium rates for exclusive areas. On top of that, many of these islands are quote close to the U.S. mainland, so you’re saving on fuel because the ship doesn’t have to steam so far; and on port fees. And then finally, proximity to the U.S. also can increase the short cruise duration market, which widens the addressable market for new-to-cruise passengers. And also can limit anti-tourism or anti-cruise sentiment because it moves guests out of congested areas and prevents unwanted visitors. All in all, the private island model offers a very high return on invested capital and may well be the future of the cruise line industry. In fact, if we add up the expansion plans of the biggest listed cruise lines, we think their private island guest count will double over the next few years. And that could add over 10 per cent to top line sales and 30 per cent earnings-per-share for the fastest growing cruise lines. So very considerable financials, but also it’s a private paradise within reach … and an idea we can all set sail to. Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Our CIO and Chief U.S. Equity Strategist Mike Wilson explains the challenges to growth for U.S. stocks and why some investors are looking to China and Europe.----- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today on the podcast I’ll be discussing new headwinds for growth and what that means for equities. It's Monday, Feb 24th at 11:30am in New York. So let’s get after it.  Until this past Friday’s sharp sell off in stocks, the correlation between bond yields and stocks had been in negative territory since December. This inverse correlation strengthened further into year-end as the 10-year U.S. Treasury yield definitively breached 4.5 per cent on the upside for the first time since April of 2024. In November, we had identified this as an important yield threshold for stock valuations. This view was based on prior rate sensitivity equities showed in April of 2024 and the fall of 2023 as the 10-year yield pushed above this same level. In our view, the equity market has been signaling that yields above this point have a higher likelihood of weighing on growth. Supporting our view, interest rate sensitive companies like homebuilders have underperformed materially. This is why we have consistently recommended the quality factor and industries that are less vulnerable to these headwinds.In our year ahead outlook, we suggested the first half of 2025 would be choppier for stocks than what we experienced last fall. We cited several reasons including the upside in yields and a stronger U.S. dollar. Since rates broke above 4.5 per cent in mid-December, the S&P 500 has made no progress. Specifically, the 6,100 resistance level that we identified in the fall has proven to be formidable for the time being. In addition to higher rates, softer growth prospects alongside a less dovish Fed are also holding back many stocks. As we have also discussed, falling rates won’t help if it’s accompanied by falling growth expectations as Friday’s sharp selloff in the face of lower rates illustrated. Beyond rates and a stronger US dollar, there are several other reasons why growth expectations are coming down. First, the immediate policy changes from the new administration, led by immigration enforcement and tariffs, are likely to weigh on growth while providing little relief on inflation in the short term. Second, the Dept of Govt Efficiency, or DOGE, is off to an aggressive start and this is another headwind to growth, initially.Third, there appears to have been a modest pull-forward of goods demand at the end of last year ahead of the tariffs, and that impulse may now be fading. Fourth, consumers are still feeling the affordability pinch of higher rates and elevated price levels which weighed on last month's retail sales data. Finally, difficult comparisons, broader awareness of Deep Seek, and the debate around AI [CapEx] deceleration are weighing on the earnings revisions of some of the largest companies in the major indices.All of these items are causing some investors to consider cheaper foreign stocks for the first time in quite a while – with China and Europe doing the best. In the case of China, it’s mostly related to the news around DeepSeek and perhaps stimulus for the consumer finally arriving this year. The European rally is predicated on hopes for peace in Ukraine and the German election results that may lead to the loosening of fiscal constraints. Of the two, China appears to have more legs to the story, in my opinion. Our Equity Strategy in the U.S. remains the same. We see limited upside at the index level in the first half of the year but plenty of opportunity at the stock, sector and factor levels. We continue to favor Financials, Software over Semiconductors, Media/Entertainment and Consumer Services over Goods. We also maintain an overriding penchant for quality across all size cohorts.Thanks for listening. If you enjoy the podcast, leave us a review wherever you listen, and share Thoughts on the Market with a friend or colleague today.

Our Hong Kong/China Transportation & Infrastructure Analyst Qianlei Fan explores how a potential peace deal in Ukraine could reshape the global airline industry.----- Transcript -----Welcome to Thoughts on the Market. I’m Qianlei Fan, Morgan Stanley’s Hong Kong/China Transportation Analyst. Today’s topic is how a potential peace deal in Ukraine could affect global airlines. It’s Friday, February 21st, at 2pm in Hong Kong. The situation remains fluid, but we believe a potential peace deal in Ukraine could have broad implications for the global airline industry. From the reopening of Russian airspace to potential changes in fuel prices and flight routes, there are many variables at play. Russian airspace is currently off-limits due to the conflict, but a peace agreement could change that. The reopening of Russian airspace would be a significant catalyst for global airlines, reducing travel times and fuel consumption on routes between Europe, North America, and Asia. Fuel prices account for 20-40 per cent of airlines' costs, so any changes can have a significant impact on their bottom line. We believe a peace deal could lead to a moderate fall in fuel prices, benefiting all airlines, but particularly those with high-cost exposure and low margins. There could also be specific regional implications. The European air travel market could benefit significantly from an end to the Ukraine conflict. The reopening of Russian airspace would improve European airlines’ competitiveness on Asian routes, while a fall in fuel prices would reduce their operating costs. There would also be lower congestion in the intra-European market. Asian airlines, particularly Chinese ones, could experience a mixed impact. On the one hand, they could see an increase in wide-body utilization and passenger numbers if more direct flights to the U.S. are introduced. On the other hand, losing their advantage over European airlines of flying through Russian airspace would be negative. But, at the same time, Chinese airlines should remain competitive on pricing given meaningfully lower labor costs. U.S. airlines could also benefit in two significant ways. They could see a boost in revenues from adding back profitable routes such as U.S. to India or U.S. to South Korea that may have been suspended. Being able to fly directly over Russia would mean shorter, more direct flight paths resulting in less fuel burn and lower costs. U.S. airlines could also see a cost decrease from a moderate fall in jet fuel prices. Finally, Latin American carriers could also benefit from a peace deal. If global carriers reallocate capacity to China, it could tighten the market even further, creating an attractive capacity environment for the LatAm region. We’ll continue to bring you relevant updates on this evolving situation. Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Our Global Chief Economist Seth Carpenter explains the potential domino effect that President Trump’s reciprocal tariffs could have on the U.S. and global economies.----- Transcript -----Seth Carpenter: Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist, and today I'm going to talk about downside risks to the U.S. economy, especially from tariffs.It's Thursday, February 20th at 10am in New York.Once again, tariffs are dominating headlines. The prospect of reciprocal tariffs is yet one more risk to our baseline forecast for the year. We have consistently said that the inflationary risk of tariffs gets its due attention in markets but the adverse growth implications that's an underappreciated risk.But we, like many other forecasters, were surprised to the upside in 2023 and 2024. So maybe we should ask, are there some upside risks that we're missing?The obvious upside risk to growth is a gain in productivity, and frequent readers of Morgan Stanley Research will know that we are bullish on AI. Indeed, the level of productivity is higher now than it was pre-COVID, and there is some tentative estimate that could point to faster growth for productivity as well.Of course, a cyclically tight labor market probably contributes and there could be some measurement error. But gains from AI do appear to be happening faster than in prior tech cycles. So, we can't rule very much out. In our year ahead outlook, we penciled in about a-tenth percentage point of extra productivity growth this year from AI. And there is also a bit of a boost to GDP from AI CapEx spending.Other upside risks, though, they're less clear. We don't have any boost in our GDP forecast from deregulation. And that view, I will say, is contrary to a lot of views in the market. Deregulation will likely boost profits for some sectors but probably will do very little to boost overall growth. Put differently, it helps the bottom line far more than it helps the top line. A notable exception here is probably the energy sector, especially natural gas.Our baseline view on tariffs has been that tariffs on China will ramp up substantially over the year, while other tariffs will either not happen or be fleeting, being part of, say, broader negotiations. The news flow so far this year can't reject that baseline, but recently the discussion of broad reciprocal tariffs means that the risk is clearly rising.But even in our baseline, we think the growth effects are underestimated. Somewhere in the neighborhood of two-thirds of imports from China are capital goods or inputs into U.S. manufacturing. The tariffs imposed before on China led to a sharp deterioration in industrial production. That slump went through the second half of 2018 and into and all the way through 2019 as a drag on the broader economy. Just as important, there was not a subsequent resurgence in industrial output.Part of the undergraduate textbook argument for tariffs is to have more produced at home. That channel works in a two-economy model. But it doesn't work in the real world.Now, the prospect of reciprocal tariffs broadens this downside risk. Free trade has divided production functions around the world, but it's also driven large trade imbalances, and it is precisely these imbalances that are at the center of the new administration's focus on tariffs. China, Canada, Mexico – they do stand out because of their imbalances in terms of trade with the U.S., but the underlying driving force is quite varied. More importantly, those imbalances were built over decades, so undoing them quickly is going to be disruptive, at least in the short run.The prospect of reciprocity globally forces us as well to widen the lens. The risks aren't just for the U.S., but around the world. For Latin America and Asia in particular, key economies have higher tariff supply to U.S. goods than vice versa.So, we can't ignore the potential global effects of a reciprocal tariff.Ultimately, though, we are retaining our baseline view that only tariffs on China will prove to be durable and that the delayed implementation we've seen so far is consistent with that view. Nevertheless, the broad risks are clear.Thanks for listening. And if you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Our co-heads of Securitized Products Research, James Egan and Jay Bacow, explain how the increase in home prices, a tight market supply and steady mortgage rates are affecting home sales.----- Transcript -----James Egan: Welcome to Thoughts on the Market. I'm Jim Egan, co-head of Securitized Products Research at Morgan Stanley.Jay Bacow: And I'm Jay Bacow, the other co-head of Securitized Products Research at Morgan Stanley.Today, a look at the latest trends in the mortgage and housing market.It's Wednesday, February 19th, at 11am in New York.Now, Jim, there's been a lot of headlines to kick off the year. How is the housing market looking here? Mortgage rates are about 80 basis points higher than the local lows in September. That can't be helping affordability very much.James Egan: No, it is not helping affordability. But let's zoom out a little bit here when talking about affordability. The monthly payment on the medium-priced home had fallen about $225 from the fourth quarter of 2023 to local troughs in September. About a 10 percent decrease. Since that low, the payment has increased about $150; so, it's given back most of its gains.Importantly, affordability is a three-pronged equation. It's not just that payment. Home prices, mortgage rates, and incomes. And incomes are up about 5 percent over the past year. So, affordability has improved more than those numbers would suggest, but those improvements have certainly been muted as a result of this recent rate move. Jay Bacow: Alright. Affordability is up, then it’s down. It’s wrong, then it’s right. It sounds like a Katy Perry song. So, how have home sales evolved through this rollercoaster?James Egan: Well, you and I came on this podcast several times last year to talk about the fact that home sales volumes weren't really increasing despite the improvement in affordability. One point that we made over and over again was that it normally takes 9 to 12 months for sales volumes to increase when you get this kind of affordability improvement. And that would make the fourth quarter of 2024 the potential inflection point that we were looking for. And despite this move in mortgage rates, that does appear to have been the case. Existing home sales had a very strong finish to last year. And in the fourth quarter, they were up 8 percent versus the fourth quarter of 2023. That's the first year-over-year increase since the second quarter of 2021.Jay Bacow: All right. So that's pretty meaningful. And if looking backward, home sales seem to be inflecting, what does that mean for 2025?James Egan: So, there's a number of different considerations there. For one thing, supply – the number of homes that are actually for sale – is still very tight, but it is increasing. It may sound a little too simplistic, but there do need to be homes for sale for homes to sell, and listings have reacted faster than sales. That strong fourth quarter in existing home sales that I just mentioned, that brought total sales volumes for the year to 1 percent above their 2023 levels. For sale inventory finished the year up 14 percent.Jay Bacow: Alright, that makes sense. So, more people are willing to sell their home, which means there's a little bit more transaction volume. But is that good for home prices?James Egan: Not exactly. And it is those higher listings and our expectation that listings are going to continue to climb that's been the main factor behind our call for home price growth to continue to slow. Ultimately, we think that you see home sales up in the context of about 5 percent in 2025 versus 2024.Our leading indicators of demand have softened, a little, in December and January, which may be a result of this sharp increase in rates. But ultimately, when we look at turnover in the housing market, and we're talking about existing sales as a share of the outstanding homes in the U.S. housing market, we think that we're kind of at the basement right now. If we're wrong in our sales volume call, I would think it's more likely that there are more sales than we think. Not less.Jay Bacow: Let me ask you another easy question. How far would rates have to fall to really incentivize more supply and/or demand in the housing market?James Egan: That's the $45 trillion question. We think the current housing market presents a fascinating case study in behavioral economics. Even if mortgage rates were to decline to 4.5 percent, only 35 percent of people would be in the money. And that's still over 200 basis points from where we are today.That being said, we think it's unlikely that mortgage rates need to fall all the way to that level to unlock the housing market. While the lack of any historical precedent makes it difficult for us to identify a specific threshold at which activity could increase meaningfully, we recently turned to Morgan Stanley's AlphaWise to conduct a consumer pulse survey to get a better sense of how people were feelin

Our CIO and Chief U.S. Equity Strategy Mike Wilson suggests that stock, factor and sector selection remain key to portfolio performance.----- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief US Equity Strategist. Today on the podcast I’ll be discussing equities in the context of higher rates and weaker earnings revisions. It's Tuesday, Feb 18th at 11:30am in New York. So let’s get after it.Since early December, the S&P 500 has made little headway. The almost unimpeded run from the summer was halted by a few things but none as important as the rise in 10-year Treasury yields, in my view. In December, we cited 4 to 4.5 percent as the sweet spot for equity multiples assuming growth and earnings remained on track. We viewed 4.5 percent as a key level for equity valuations. And sure enough, when the Fed leaned less dovish at its December meeting, yields crossed that 4.5 percent threshold; and correlations between stocks and yields settled firmly in negative territory, where they remain. In other words, yields are no longer supportive of higher valuations—a key driver of returns the past few years. Instead, earnings are now the primary driver of returns and that is likely to remain the case for the foreseeable future. While the Fed was already increasingly less dovish, the uncertainty on tariffs and last week’s inflation data could further that shift with the bond market moving to just one cut for the rest of the year. Our official call is in line with that view with our economists now just looking for just one cut–in June. It depends on how the inflation and growth data roll in. Our strategy has shifted, too. With the S&P 500 reaching our tactical target of 6100 in December and earnings revision breadth now rolling over for the index, we have been more focused on sectors and factors. In particular, we’ve favored areas of the market showing strong earnings revisions on an absolute or relative basis.Financials, Media and Entertainment, Software over Semiconductors and Consumer Services over Goods continue to fit that bill. Within Defensives, we have favored Utilities over Staples, REITs and Healthcare. While we’ve seen outperformance in all these trades, we are sticking with them, for now. We maintain an overriding preference for Large-cap quality unless 10-year Treasury yields fall sustainably below 4.5 percent without a meaningful degradation in growth. The key component of 10-year yields to watch for equity valuations remains the term premium – which has come down, but is still elevated compared to the past few years. Other macro developments driving stock prices include the very active policy announcements from the White House including tariffs, immigration enforcement, and cost cutting efforts by the Department of Government Efficiency, also known as DOGE. For tariffs, we believe they will be more of an idiosyncratic event for equity markets. However, if tariffs were to be imposed and maintained on China, Mexico and Canada through 2026, the impact to earnings-per-share would be roughly 5-7 percent for the S&P 500. That’s not an insignificant reduction and likely one of the reasons why guidance this past quarter was more muted than fourth quarter results. Industries facing greater headwinds from China tariffs include consumer discretionary goods and electronics. Lower immigration flow and stock is more likely to affect aggregate demand than to be a wage cost headwind, at least for public companies. Finally, skepticism remains high as it relates to DOGE’s ability to cut Federal spending meaningfully. I remain more optimistic on that front, but realize greater success also presents a headwind to growth before it provides a tailwind via lower fiscal deficits and less crowding out of the private economy—things that could lead to more Fed cuts and lower long-term interest rates as term premium falls. Bottom line, higher backend rates and growth headwinds from the stronger dollar and the initial policy changes suggest equity multiples are capped for now. That means stock, factor and sector selection remains key to performance rather than simply adding beta to one’s portfolio. On that score, we continue to favor earnings revision breadth, quality, and size factors alongside financials, software, media/entertainment and consumer services at the industry level.  Thanks for listening. If you enjoy the podcast, leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Our Global Head of Fixed Income and Public Policy Research, Michael Zezas, joins our Chief U.S. Economist, Michael Gapen, to discuss the possible outcomes for President Trump’s immigration policies and their effect on the U.S. economy.----- Transcript -----Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Public Policy Research.Michael Gapen: And I'm Michael Gapen, Chief U.S. Economist for Morgan Stanley.Michael Zezas: Our topic today: President Trump's immigration policy and its economic ramifications.It's Friday, February 14th at 10am in New York.Michael, migration has always been considered an important feature of the global economy. In fact, you believe that strong immigration flows were an important element in the supply side rebound that set the stage for a U.S. soft landing. If we think back to the time before President Trump took office almost a month ago, how would you categorize immigration trends then?Michael Gapen: So, we saw a very sharp increase in immigration coming out of the pandemic. I would say, if you look at longer term averages, say the 20 years leading up to the pandemic, normally we'd get about a million and a half immigrants, per year into the United States. A lot of variation around that number, but that was the long-term average.In 2022 through 2024, we saw immigration surge to about 3 million per year. So about twice as fast as we saw normally. And that happened at a very important time. It allowed for very significant and rapid growth in the labor force, just at a time when the economy was emerging from the pandemic and demand for labor was quite high.So, it filled that labor demand. It allowed the economy to grow rapidly, while at the same time helping to keep wages lower and inflation starting to come down. So, I do think it was a major underpinning force in the ability of the U.S. economy to soft land after several years of above target inflation.Michael Zezas: Got it. And so now, with a second President Trump term, are we set up for a reversal of this immigration driven boost to the economy?Michael Gapen: Yeah, I think that's the key question for the outlook, and our answer is yes. That if we are going to significantly restrict immigration flows, the risk here is that we reverse the trends that we've just seen in the previous year.So, I certainly believe one of the main goals of the Trump administration is to harden the border and initiate greater deportations. And these steps in my mind come on the back of steps that the Biden administration already took around the middle of last year that began to slow immigration flows.So yes, I do think we should look for a reversal of the immigration driven boost to the economy. But Mike, I would actually throw this question back to you and say on the first day of his presidency, Trump issued a series of executive orders pertaining to immigration. Where are we now in that process after these initial announcements? And what do you expect in terms of policy implementation?Michael Zezas: Well, I think you hit on it. There's two levers here. There's stepped up deportations and removals and there's working with Mexico on border enforcement. Things like the remain in Mexico policy where Mexico agrees to keep those seeking asylum on their side of the border; and to facilitate that, they've stepped up their military presence to do that.Those are really kind of the two levers that the U.S. is pushing on to try and reduce the flow of migrants coming into the U.S. Still to be determined how much these actually have an impact, but I think that's the direction of policy travel.Michael Gapen: And are there any catalysts specifically that you're watching for? I mean, recently the administration proposed tariffs on Mexico and Canada around border control, but those have been delayed. Is there anything on the horizon we should look for this time around?Michael Zezas: Yeah. So obviously the president tied the potential for tariffs on Mexico and Canada to the idea that there should be some improvement on border enforcement. It's going to be difficult for investors, I think, to assess in real time how much progress has been made there. Mostly it's a data challenge here. There are official government statistics which have a good amount of detail about removals and folks stopped at the border and demographics in terms of age and, and whether or not they were working. That might really kind of help us piece together the story in terms of whether or not there's going to be future tariffs – and Michael, probably for you, to what extent there's an impact on the economy if folks are already in the labor force.But that data is on a lag, it'll be really difficult to tell what's happening now for at least several months. Maybe we're going to get some hints about what's going on for comments coming in earnings calls, for example, from companies that deal i

Our Head of Foreign Exchange & Emerging Markets Strategy James Lord discusses how much tariff-driven volatility investors can expect in currency markets this year.----- Transcript -----Welcome to Thoughts on the Market. I’m James Lord, Morgan Stanley’s Head of Foreign Exchange & Emerging Markets Strategy. Today – the implications of tariffs for volatility on foreign exchange markets. It’s Thursday, February 13th, at 3pm in London. Foreign exchange markets are following President Trump’s tariff proposals with bated breath. A little over a week ago investors faced significant uncertainty over proposed tariffs on Mexico, Canada, and China. In the end, the U.S. reached a deal with Canada and Mexico, but a 10 per cent tariff on Chinese imports went into effect. Currencies experienced heightened volatility during the negotiations, but the net impacts at the end of the negotiations were small. Announced tariffs on steel and aluminum have had a muted impact too, but the prospect of reciprocal tariffs are keeping investors on edge. We believe there are three key lessons investors can take away from this recent period of tariff tension. First of all, we need to distinguish between two different types of tariffs. The first type is proposed with the intention to negotiate; to reach a deal with affected countries on key issues. The second type of tariff serves a broader purpose. Imposing them might reduce the U.S. trade deficit or protect key domestic industries.There may also be examples where these two distinct approaches to tariffs meld, such as the reciprocal tariffs that President Trump has also discussed. The market impacts of these different tariffs vary significantly. In cases where the ultimate objective is to make a deal on a separate issue, any currency volatility experienced during the tariff negotiations will very likely reverse – if a deal is made. However, if the tariffs are part of a broader economic strategy, then investors should consider more seriously whether currency impacts are going to be more long-lasting. For instance, we believe that tariffs on imports from China should be considered in this context. As a result, we do see sustained dollar/renminbi upside, with that currency pair likely to hit 7.6 in the second half of 2025. A second key issue for investors is going to be the timing of tariffs. April 1st is very likely going to be a key date for Foreign Exchange markets as more details around the America First Trade Policy are likely revealed. We could see the U.S. dollar strengthen in the days leading up to this date, and investors are likely to consider where subsequently there will be a more significant push to enact tariffs. A final question for investors to ponder is going to be whether foreign exchange volatility would move to a structurally higher plane, or simply rise episodically. Many investors currently assume that FX volatility will be higher this year, thanks to the uncertainty created by trade policy. However, so far, the evidence doesn’t really support this conclusion. Indicators that track the level of uncertainty around global trade policy did rise during President Trump's first term, specifically around the period of escalating tariffs on China. And while this was associated with a stronger [U.S.] dollar, it did not lead to rising levels of FX volatility. We can see again, at the start of Trump's second term, that rising uncertainty over trade policy has been consistent with a stronger U.S. dollar. And while FX volatility has increased a bit, so far the impact has been relatively muted – and implied volatility is still well below the highs that we’ve seen in the past ten years. FX volatility is likely to rise around key dates and periods of escalation; and while structurally higher levels of FX volatility could still occur, the odds of that happening would increase if tariffs resulted in more substantial macro economic consequences for the U.S. economy.Thanks for listening. If you enjoy the show, leave us a review wherever you listen. And share Thoughts on the Market with a friend or a colleague today.

The down-to-the-deadline nature of Trump’s trade policy has created market uncertainty. Our Head of Corporate Credit Research Andrew Sheets points out a silver lining. ----- Transcript -----Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley. Today I’m going to talk about a potential silver lining to the significant uptick in uncertainty around U.S. trade policy. It's Wednesday, February 12th at 2pm in London. One of the nuances of our market view is that we think credit spreads remain tight despite rising levels of corporate confidence and activity. We think these things can co-exist, at least temporarily, because the level of corporate activity is still so low, and so it could rise quite a bit and still only be in-line with the long-term trend. And so while more corporate activity and aggression is usually a negative for lenders and drives credit spreads wider, we don’t think it’s quite one yet. But maybe there is even less tension in these views than we initially thought. The first four weeks of the new U.S. Administration have seen a flurry of policy announcements on tariffs. This has meant a lot for investors to digest and discuss, but it’s meant a lot less to actual market prices. Since the inauguration, U.S. stocks and yields are roughly unchanged. That muted reaction may be because investors assume that, in many cases, these policies will be delayed, reversed or modified. For example, announced tariffs on Mexico and Canada have been delayed. A key provision concerning smaller shipments from China has been paused. So far, this pattern actually looks very consistent with the framework laid out by my colleagues Michael Zezas and Ariana Salvatore from the Morgan Stanley Public Policy team: fast announcements of action, but then much slower ultimate implementation. Yet while markets may be dismissing these headlines for now, there are signs that businesses are taking them more seriously. Per news reports, U.S. Merger and Acquisition activity in January just suffered its lowest level of activity since 2015. Many factors could be at play. But it seems at least plausible that the “will they, won’t they” down-to-the-deadline nature of trade policy has increased uncertainty, something businesses generally don’t like when they’re contemplating big transformative action. And for lenders maybe that’s the silver lining. We’ve been thinking that credit in 2025 would be a story of timing this steadily rising wave of corporate aggression. But if that wave is delayed, debt levels could end up being lower, bond issuance could be lower, and spread levels – all else equal – could be a bit tighter. Corporate caution isn’t everywhere. In sectors that are seen as multi-year secular trends, such as AI data centers, investment plans continue to rise rapidly, with our colleagues in Equity Research tracking over $320bn of investment in 2025. But for activity that is more economically sensitive, uncertainty around trade policy may be putting companies on the back foot. That isn’t great for business; but, temporarily, it could mean a better supply/demand balance for those that lend to them. Thanks for listening. If you enjoy the podcast, leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Our Chief Asia Economist Chetan Ahya discusses the potential impact of reciprocal U.S. tariffs on Asian economies, highlighting the key markets at risk.----- Transcript -----Welcome to Thoughts on the Market. I’m Chetan Ahya, Morgan Stanley’s Chief Asia Economist. Today: the possibilities of reciprocal tariffs between the U.S. and Asian economies. It’s Tuesday, February 11, at 2pm in Singapore.President Trump’s recent tariff actions have already been far more aggressive than in 2018 and 2019. And this time around, multiple trade partners are simultaneously facing broad-based tariffs, and tariffs are coming at a much faster pace. The risk of trade tensions escalating has risen, and the latest developments may have kicked that risk up another notch. The U.S. president is pushing a sweeping tariff of 25 per cent on all foreign steel and aluminum products. Trump has also indicated that he would propose reciprocal tariffs on multiple countries – to match the tariffs levied by each country on U.S. imports. This potential reciprocal tariff proposal suggests that Asia ex China may be more exposed to possible tariff hikes. As of now, Asia’s tariffs on US imports are, for the most part, slightly higher than US tariffs on Asian imports. And based on [the] latest available data, six economies in Asia do impose [a] higher weighted average tariff on the U.S. than the U.S. does on individual Asia economies. The tariff differentials are most pronounced for India, Thailand, and Korea. These three economies may face a risk of a hike in tariffs by 4 to 6 percentage points on a weighted average basis, if the U.S. imposes reciprocal tariffs. Individual products may yet face higher tariffs rates but we think [the] overall impact from steel, aluminum and reciprocal tariffs will be manageable. But look, trade tensions may still rise further given that 7 out of 10 economies with the largest trade surplus with the U.S. are in Asia. Against this backdrop, policy makers may have to look for ways to address the demands from the U.S. administration. For instance, Japan’s Prime Minister Ishiba has committed to increasing investment in the U.S. and is looking to raise energy imports from the U.S. This is seen as a positive step to reduce the U.S. trade deficit with Japan. Meanwhile, ahead of the meeting between President Trump and India’s Prime Minister Modi later this week, India has already taken steps to lower tariffs on the U.S., and may propose [an] increase in imports of oil and gas, defense equipments and aircrafts to narrow its trade surplus with the U.S. However, as regards China is concerned, the wide scope of issues in the bilateral relationship suggests that [the] U.S. administration would cite a variety of reasons for expanding tariffs. As things stand, China has been the only economy so far where tariff hikes have stayed in place. Indeed, the recent 10 percent increase in tariffs has already matched the increase in the weighted average tariffs that transpired in 2018 and 2019. And we still expect that tariffs on imports from China will continue to rise over the course of 2025. To sum it up, there has been a constant stream of tariff threats from the U.S. administration. While the direct effects of [the] tariffs appear manageable, the bigger concern for us has been that this policy uncertainty will potentially weigh on corporate sector confidence, CapEx and growth cycle.Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Global Head of Fixed Income and Public Policy Research Michael Zezas and Head of Global Evaluation, Accounting and Tax Todd Castagno discuss the market and economic implications of proposed tax extensions and tax cuts.----- Transcript -----Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income Research and Public Policy Strategy.Todd Castagno: And I'm Todd Castagno, Head of Global Evaluation, Accounting and Tax.Michael Zezas: Today, we'll focus on taxes under the new Trump administration.It's Monday, February 10th, at 10am in New York.Recently, at the annual meeting of the World Economic Forum in Davos, President Trump stated his administration will pass the largest tax cut in American history, including substantial tax cuts for workers and families. He was short on the details, but tax policies were a significant focus of his election campaign.Todd, can you give us a better sense of the tax cuts that Trump's been vocal about so far?Todd Castagno: Well, there's tax cuts and tax extensions. So, I think that's an important place to set the baseline. The Tax Cuts and Jobs Act (TCJA), under his first administration, starts to expire in 2025. And so, what we view is, the most likelihood is, an extension of those policies going forward. However, there's some new ideas, some new contours as well. So, for instance, a lower corporate rate that gets you in the 15 per cent ballpark can be through domestic tax credits, new incentives.I think there's other items on the individual side of the code that could be explored as well. But we also have to kind of step back and creating new policy is very challenging. So again, that baseline is an extension of kind of the tax world we live in today.So, Michael, looking at the broader macro picture and from conversations with our economist, how would these tax cuts impact GDP and macro in general?Michael Zezas: Well, if you're talking about extension of current policy, which is most of our expectation about what happens with taxes at the end of the year, the way our economists have been looking at this is to say that there's no net new impulse for households or companies to behave differently.That might be true on a sector-by-sector basis, but in the aggregate for the economy, there's no reason to look at this policy and think that it is going to provide a definitive uplift to the growth forecast that they have for 2026. Now, there may be some other provisions that could add in there that are incremental that we'd have to consider.But still, they would probably take time to play out or their measurable impact would be very hard to define. Things like raising the cap on the state and local tax deduction, that tends to impact higher income households who already aren't constrained from a spending perspective. And things like a domestic manufacturing tax credit for companies, that could take several years to play out before it actually manifests into spending.Todd Castagno: And you’re kind of seeing that with the prior administration's tax law, the Inflation Reduction Act. A lot of this takes years in order to actually play through the economy. So that's something that investors should consider.Michael Zezas: Yeah, these things certainly take time; and you know back in 2018 it had been a long ambition, particularly of Republican lawmakers, to reduce the corporate tax rate. They succeeded in doing that, getting it down to 21 per cent in Trump's first term. Now, Trump's talked about getting corporate tax rates lower again here. If he's able to do that, how do you think he would do that? And would that affect how you're thinking about investment and hiring?Todd Castagno: So, there's the corporate rate itself, and it's at 21 per cent currently. There is a view to change that rate, lower it. However, there's other ways you can reduce that effective tax burden through what we've just discussed. So enhanced corporate deductions, timing differences, companies can benefit from a tax system that ultimately gets them a lower effective rate, even if the corporate rate doesn't move much.Michael Zezas: And so, what sorts of companies and what sorts of sectors of the market would benefit the most from that type of reduction in the corporate tax burden?Todd Castagno: So, if you think they're mosaic of all these items, it's going to accrue to domestic companies. That might sound kind of obvious, but if you look at our economy, we have large multinationals and we have domestic companies and we have small businesses. The policies that are being articulated, I think, mostly orient towards domestic companies, industrials, for instance, R&D incentives, again powering our AI plants, energy, et cetera.Michael Zezas: Got it. And is there any read through on if a company does better under this policy – if they're big relative to being small?Todd Castagno: There are a lot of small bu

Our Chief Fixed Income Strategist Vishy Tirupattur thinks that efficiency gains from Chinese AI startup DeepSeek may drive incremental demand for AI.----- Transcript -----Welcome to Thoughts on the Market. I’m Vishy Tirupattur, Morgan Stanley’s Chief Fixed Income Strategist. Today I’ll be talking about the macro implications of the DeepSeek development.It's Friday February 7th at 9 am, and I’m on the road in Riyadh, Saudi Arabia.Recently we learned that DeepSeek, a Chinese AI startup, has developed two open-source large language models – LLMs – that can perform at levels comparable to models from American counterparts at a substantially lower cost. This news set off shockwaves in the equity markets that wiped out nearly a trillion dollars in the market cap of listed US technology companies on January 27. While the market has recouped some of these losses, their magnitude raises questions for investors about AI. My equity research colleagues have addressed a range of stock-specific issues in their work. Today we step back and consider the broader implications for the economy in terms of productivity growth and investment spending on AI infrastructure.First thing. While this is an important milestone and a significant development in the evolution of LLMs, it doesn’t come entirely as a shock. The history of computing is replete with examples of dramatic efficiency gains. The DeepSeek development is precisely that – a dramatic efficiency improvement which, in our view, drives incremental demand for AI. Rapid declines in the cost of computing during the 1990s provide a useful parallel to what we are seeing now. As Michael Gapen, our US chief economist, has noted, the investment boom during the 1990s was really driven by the pace at which firms replaced depreciated capital and a sharp and persistent decline in the price of computing capital relative to the price of output. If efficiency gains from DeepSeek reflect a similar phenomenon, we may be seeing early signs [that] the cost of AI capital is coming down – and coming down rapidly. In turn, that should support the outlook for business spending pertaining to AI.In the last few weeks, we have heard a lot of reference to the Jevons paradox – which really dates from 1865 – and it states that as technological advancements reduce the cost of using a resource, the overall demand for the resource increases, causing the total resource consumption to rise. In other words, cheaper and more ubiquitous technology will increase its consumption. This enables AI to transition from innovators to more generalized adoption and opens the door for faster LLM-enabled product innovation. That means wider and faster consumer and enterprise adoption. Over time, this should result in greater increases in productivity and faster realization of AI’s transformational promise.From a micro perspective, our equity research colleagues, who are experts in covering stocks in these sectors, come to a very similar conclusion. They think it’s unlikely that the DeepSeek development will meaningfully reduce CapEx related to AI infrastructure. From a macroeconomic perspective, there is a good case to be made for higher business spending related to AI, as well as productivity growth from AI.Obviously, it is still early days, and we will see leaders and laggards at the stock level. But the economy as a whole we think will emerge as a winner. DeepSeek illustrates the potential for efficiency gains, which in turn foster greater competition and drive wider adoption of AI. With that premise, we remain constructive on AI’s transformational promise.Thanks for listening. If you enjoy the podcast, leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.DISCLAIMERIn the last few weeks… (Laughs) It’s almost like the birds are waiting for me to start speaking.