Thoughts on the Market

Our Global Chief Economist and Head of Macro Strategy Seth Carpenter gives his midyear outlook, highlighting why AI investment and U.S. consumers remain key growth engines amid energy shocks.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 Head of Macro Research. Today, I want to talk about our mid-year outlook that was just published. It's Thursday, May 14th at 10am in New York. Oil, AI, and the consumer now sit at the center of our global economic outlook. With AI and the consumer driving economic momentum in the U.S., the key question is whether the energy shock stays manageable or changes the path for inflation, central banks, and recession risks. We have had and maintain a fundamentally constructive view on global growth, but the energy shock brings unusually high uncertainty. It boosts inflation, it weighs on growth, and it widens the range of outcomes. We forecast global real GDP growth at 3.2 percent in 2026 and 3.4 percent in 2027. That is relative to about 3.5 percent in 2025. So, in our baseline, growth slows modestly this year and then stabilizes and recovers. Writing a forecast is always hard but knowing what to assume about oil prices is even harder than ever now. Our base case assumes that crude returns to about $90 a barrel by the end of this year and declines further in 2027. If, and I do mean if, that happens, the global economy can likely absorb the shock. But if the current situation persists and we do not see a normalization of shipments of oil, it could spell recession. That scenario probably sees oil prices surge through $150 a barrel, but more importantly, we could shift from a price shock to a volume shock. The big risk is physical shortages and supply chain disruptions because it's not just energy, it's also petrochemical inputs to manufacturing and other items. Higher prices slow activity; shortages can stop it. Exposure to the energy shock differs sharply across regions. Among the major economies, China looks the least exposed. Europe is the most exposed, and the U.S. sits in between. China built up substantial stockpiles of oil, and part of why the global oil market has not seen higher oil prices so far is that China has cut back on those imports dramatically. Europe, on the other hand, typically faces faster energy passthrough, meaning energy prices show up much more quickly in household bills, business costs, and ultimately inflation. And Europe is a net importer of energy, so the consideration goes beyond oil to include natural gas. The U.S. is a net exporter of petroleum products, but U.S. consumers will feel the pinch at the gas pump. But even with that in mind, U.S. growth continues to support global growth, thanks largely to strong AI-related capital spending and consumer spending that's being buoyed by the top end of the wealth distribution. We expect that momentum to continue and then ultimately to broaden out. And so we forecast U.S. real GDP growth at about 2.25 in 2026 but rising to about 2.5 percent in 2027. Both of those are up from the 2.1 percent we saw last year. And AI CapEx sits at the center of this U.S. outlook. It includes data centers, power infrastructure, information processing equipment, software. Over time, we think this investment momentum is part of what allows a broadening out of business investment beyond AI. That said, the energy shock has triggered global inflation. We're looking for global headline inflation to rise notably almost to 3 percent in 2026 before coming back off in 2027. But while oil and gas prices are pushing headline inflation higher, the pass-through to core, depending on the economy, seems to remain mostly limited. By 2027, we look for those effects to fade. And combined with somewhat slower growth this year, underlying inflation should soften again. As inflation risks have moved higher, though, central banks have generally become less accommodative. We expect the Fed to now stay on hold all the way through 2026, and then if inflation really does come down, to be able to cut twice in the first half of 2027. We're looking for the ECB to hike twice this year as it grapples with this energy-led inflation, but then reverse course next year in 2027. The Bank of Japan, which had already been hiking policy, probably is set to continue that gradual hiking path. Looking forward to the second half of this year though, global growth still does have a foundation, and the U.S. is a big part of that. AI investment and consumer spending are all what's driving the economy for now. But the energy outlook will determine how bumpy that path gets. Thanks for listening. And if you enjoy this show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Our Head of Public Policy Research Ariana Salvatore goes through the main topics on the table during the meeting between Presidents Trump and Xi: Taiwan, tariffs and the Iran conflict.Read more insights from Morgan Stanley.----- Transcript -----Ariana Salvatore: Welcome to Thoughts on the Market. I'm Ariana Salvatore, Head of Public Policy Research for Morgan Stanley. Today, I'll be talking about expectations heading into the U.S.-China summit this week and what investors should be watching. It's Wednesday, May 13h at 11am in Copenhagen. Despite the importance of the upcoming summit, we think expectations for tangible progress should remain relatively modest. Reporting ahead of the meeting indicates that the discussions will focus on trade, Taiwan arms sales, and the U.S.-Iran conflict. Across the board, our base case remains an extension of the current truce with limited areas of relaxation. That's probably enough to support modest upside for risk assets in China, but likely short of the kind of breakthrough needed for a material re-rating in risk premia. Let's start with trade. We think the discussion here is likely to skew toward phase one style commitments rather than structural policy shifts. That could include additional Chinese purchases in sectors like agriculture and aerospace, or things like high-level trade and investment pledges. Or even limited tariff relief in key areas designed to demonstrate cooperation but without fundamentally changing the competitive dynamic between the two countries. What we don't expect is a meaningful unilateral tariff reduction from the U.S. side heading into the summit. Remember, China still faces an effective tariff rate of around 30 percent, and it benefited the most of all our trading partners when the Supreme Court struck down the IEEPA tariffs earlier this year. As we noted at the time, that lowered its effective rate by roughly 7 percentage points. Secondly, we think the administration continues to view higher tariff levels on China versus other trading partners as a strategic imperative. Said differently, the administration appears committed to maintaining some degree of structural separation between China and other trading allies like Europe, Japan, and South Korea. We think that means a large-scale tariff reset is unlikely in the wake of the summit or in the lead up. On Taiwan, we also see limited room for meaningful policy change. President Trump has publicly referenced Taiwan arms sales in recent comments, but we think a major concession from China would be needed for a meaningful departure from many years of U.S. policy precedent. The third issue on the agenda is the Iran conflict and the Strait of Hormuz. Reopening the strait is likely the area of greatest uncertainty heading into the summit. The extent to which the U.S. will ask for China's help on this front and whether or not that request will be granted remains a key unknown. But there's also a technology dimension here worth watching closely. While public reporting indicates that export controls are likely not formally part of the talks, we see a possibility that the discussion could occur, in particular in the context of rare earth relaxations from China's side. Concessions on rare earth controls likely require some corresponding U.S. flexibility on advanced semiconductor exports, given the chips for rare earths equilibrium that we think underpins the strategic bilateral relationship. We think that's largely what's disincentivized both sides from escalating in recent months. So, what should markets watch most closely? Aside from tangible trade arrangements or a formal extension of the truce, we think the tone will be crucial. Language around technology cooperation or an agreement to continue negotiating will be critical in assessing how both sides plan on managing the relationship moving forward. Remember, this event is one of several potential meetings this year, so symbolic commitments toward broader structural concessions in the future could matter. For now, we think the most likely outcome is continued stabilization rather than a transformational reset. That's still constructive for markets at the margin, but probably not enough to eliminate the geopolitical overhang that continues to shape investor positioning globally.Thanks for listening. As a reminder, if you enjoy Thoughts on the Market, please take a moment to rate and review us wherever you listen and share the podcast with a friend or colleague today.

Our U.S. Healthcare Analyst Erin Wright discusses how health tracking and preventive diagnostics could influence healthcare costs and different industries, from fitness to retail.Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I'm Erin Wright, Morgan Stanley's U.S. Healthcare Services Analyst. Today – the emergence of the self-directed patient and its implications. It's Tuesday, May 12th at 10am in New York. A blood test ordered from your phone. A wearable that tracks your sleep or nudges you to move, recover, hydrate, or rethink last night's dinner. Preventive health is moving out of the clinic and into everyday life. And that shift is becoming an investable theme. In essence, healthcare is moving from reactive to proactive. Instead of waiting for symptoms, more consumers are using lab tests, wearables, imaging, and digital tools to spot some these risks earlier. And this shift reaches well beyond healthcare. On our estimates, the U.S. spends about [$]3.4 trillion annually on chronic diseases, including lost economic productivity. About [$]1.4 trillion of 2024 spend was tied to preventable disease. So the big investment question is: can earlier detection and behavior change bend the cost curve? We think expanded preventive testing, screening, and monitoring can help avoid roughly [$]200 billion to [$]800 billion of U.S. healthcare spend by 2050. That assumes preventive testing reduces preventable disease costs by about 10% to 30% based on our analysis. Direct-to-consumer lab testing lets people order lab tests directly, often online, without starting with a traditional doctor visit. We see this as a roughly $4 billion U.S. market, which has more than doubled since 2021. And it's no longer niche. Our AlphaWise survey found that about 34% of respondents completed a voluntary wellness lab test in the past three years. Among users, the average was 3.2 tests, suggesting this is not just a one-time behavior. The most common test was a general health profile, used by about 45 percent of recent testers. Wearables are the other part of the story. Our survey found that 41 percent of respondents currently use a wearable or fitness device, while another 22 percent are interested in getting one. More importantly, people are acting on the data. 34 percent of wearable users today regularly change behaviors or decisions based on their device, and 52 percent even sometimes do so, based on our survey. That creates a feedback loop. A wearable might flag poor sleep. A lab test might show elevated glucose. A digital health tool might suggest changes to diet or exercise, or follow-up care. Over time, prevention starts to feel less like an annual event and more like a daily habit. The sector implications are broad. In healthcare, more testing may initially actually increase utilization as people follow up on results. But over time, earlier detection could obviously support lower-cost of care and better chronic disease management. That also aligns with value-based care, where providers and payers are rewarded for better outcomes and lower total costs, not just simply more services. In consumer sectors, better health tracking could shape food choices, reduce demand for some indulgent categories, and support products tied to hydration, lower sugar, protein, and functional benefits. Fitness may also benefit as gyms evolve from just workout destinations into broader wellness platforms, with recovery and coaching, and preventive health services layered in. Imaging is another emerging area, as screening shifts from reactive diagnostics toward earlier disease detection. Of course, there is some risk that these health tracking and consumer-driven diagnostics trends could still prove to be a wellness craze rather than the new normal. Out-of-pocket costs, privacy concerns, inconsistent interpretations, and limited repeat testing are all real issues. But consumers are clearly taking more control of their health and increasingly asking, “What can I learn before I get sick?” 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 Head of Fixed Income Research Andrew Sheets explains the economic theory behind the unwavering spending on AI infrastructure.Read more insights from Morgan Stanley.----- Transcript -----Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley.Today, a uniquely price insensitive development.It's Monday, May 11th at 2pm in London.Elasticity is one of the first concepts that they teach in economics, and for good reason.It's the idea that our sensitivity to the price of something differs from item to item. If the price of pizza goes up, for example, you may decide to go out for burgers. But if the price for something essential, like electricity, or deeply desired, like tickets to see your favorite artist perform; well, if those go up a lot, you're probably going to complain, but also end up paying anyway.This latter category is what we would call inelastic. The demand for these items holds up even as the price increases, and maybe if the price increases quite a bit. And that is becoming very relevant as we all debate the AI build-out.It's not an exaggeration that the investment in AI, chips, power, and datacenters is at the center of many market conversations. It's supporting U.S. growth despite a sharp slowdown in job creation. It's supporting stock market earnings, even as uncertainty over the Iran conflict continues to percolate.Part of this importance is just the sheer size of this build-out. We estimate about $800 billion of investment by large U.S. technology companies this year, almost double their spending last year and triple their spending in 2024. But it's not just the size, it's the idea that this investment may happen almost whatever the cost.Specifically, we're looking at a desire by multiple large companies to build out large AI infrastructure all at the same time, and that's increased the price of these components. The copper needed to wire together that data center? Well, it's up about 40 percent in the last year. A gas turbine to power it? Up 50 percent. The memory to run it? It's up 150 to 300 percent over the last year alone. And yet, despite these extremely large price increases, the demand to build in AI has been accelerating.Our forecasts for 2026 spending have been consistently revised higher. And that $800 billion that we think is spent this year is set to be dwarfed by $1.1 trillion of estimated spending in 2027, based on the view of my Morgan Stanley colleagues.This idea of inelasticity or price insensitivity extends even to the costs of financing the spending. Debt costs for these companies have increased this year, and yet they continue to issue at a record pace.A quick aside as to why all this spending may be price insensitive or inelastic. AI is seen by these companies as, without exaggeration, maybe the most important technology in a decade. These companies have financial resources and the patience to wait it out, and they see gains to those who can figure out AI technology, even if the winner is not yet clear.The inelastic nature of the AI theme is a classic good news, bad news story. To the positive, it suggests real commitment to this technology and that spending won't easily be shaken by outside events. That should help buttress overall growth and should also support earnings this year – a core view of Mike Wilson and our U.S. equity strategy team.But there are also risks. It remains to be seen what returns can be generated from all of this historic investment. Robust demand for items, even as their price goes up, may cause those prices to increase even further. That's inflation happening at a time when core inflation measures are already well above the Federal Reserve's target. And if companies are less sensitive to the cost of their borrowing to fund AI, well, other companies could find their cost dragged wider in sympathy.We continue to expect record supply and modest widening in the U.S. corporate bond market.Thank you, as always, for your time. If you find Thoughts on the Market useful, let us know by leaving a review wherever you listen. And tell a friend or colleague about us today.

As real estate values reset and cap rates widen, net lease is back in focus—but the approach has changed. Ron Kamdem and Hank D'Alessandro explain.Read more insights from Morgan Stanley.----- Transcript -----Ron Kamdem: Welcome to Thoughts on the Market. I'm Ron Kamdem, Head of U.S. REITs and Commercial Real Estate Research. Hank D'Alessandro: And I'm Hank D'Alessandro, Managing Director on Morgan Stanley's Real Estate Investing Team and Vice Chairman of Private Credit. Ron Kamdem: Today: a part of real estate that's changing fast and drawing fresh attention from investors. Net lease investing. It's Friday, May 8th at 10am in New York. You might not think you invest in net leases. But there's a good chance you do, especially if you have money in a pension fund or another income generating vehicle. Net leases are the kinds of long-term lease assets that can help generate steady, predictable income. They are no longer a sleepy corner of the real estate market. In fact, they're changing in some really interesting ways. Ron Kamdem: So, Hank, for listeners who know the term but may not know the structure, what exactly is net lease investing? And why does it tend to come up more often when markets get more uncertain? Hank D'Alessandro: At a high level, net lease investing is typically associated with long-term leases that can offer durable income streams; typically growing streams, which is why it's often seen as a more defensive part of real estate investing. We see that when investors are thinking more carefully about geopolitical risks, market volatility or say portfolio resilience, this durable cash flow derived from mission critical assets and long lease durations with fixed annual rent bumps can become especially attractive to investors. Also, with higher inflation likely, net leases are generally insulated from increases in expenses given these are the responsibility of tenants. But what's important today is the net lease is broader than many people realize, both in terms of the property types involved and the range of investors participating in the space. Ron Kamdem: Let's stay on that idea of a broader market for a moment, because one of the biggest shifts has been the growing role of private capital in the space. What are you seeing there and why does it matter? Hank D'Alessandro: Well, listen, Ron, there's no question. The role of private capital has grown substantially, including through joint ventures and public real estate vehicles. That matters because it tells you that the sector is attracting a wider range of investors than it has in the past, such as pension funds, insurance companies, sovereign wealth funds. And retail investors are increasingly investing either through traditional locked up funds or through semi-liquid funds. But it can also change the competitive landscape and can influence how capital gets allocated across the opportunity set. Thus, one's approach going forward from an analysis perspective will need to evolve. More broadly, it's a sign that net lease is being viewed as highly relevant in today's market, not just as a legacy category within real estate. Ron Kamdem: And that's an important distinction that you make right there, because not all investors are approaching these assets the same way. So, when private capital comes into the space, what separates their underwriting approach from another? And we hear all the time about private credit. How does that play into this? Hank D'Alessandro: Well, Ron, you know, as we discussed previously, the competitive landscape is changing and therefore underwriting is absolutely critical in this part of the cycle. And so, we believe underwriting both tenant credit, of course, is very important. But we equally analyze the real estate underwriting because we believe that real estate can be a real differentiator over time – both in terms of returns and risk profile. We think that strong real estate underwriting with strong tenant credit underwriting, both enhances returns over time and reduces risks. So, therefore, that matters a lot. We also believe that by focusing equally on the real estate underwriting, you get a fuller picture of the risk and value, especially as net lease expands into newer property types. It is an easy nuance to miss, but we believe this distinction is becoming much more important differentiator in how investors assess opportunities in the sector today. And I believe that the most successful managers will do a good job underwriting both tenant credit and real estate.So, Ron, for a long time, many investors thought of net lease primarily as a retail story. How much has that changed? Ron Kamdem: Well, that's changed quite a bit. If I take you back 20 to 30 years ago when you thought of net lease, you thought of a convenience store that's, you know, 5,000 to 10,000 square feet. But today, that opportunity has expanded well beyond retail and there's much more attention now on industrial assets. And even increasing discussions around areas like data centers. I'll give you an example. Realty income made its entry into the data center vertical in November 2023 with a $200 million build to suit JV. That shift matters because it shows net lease evolving alongside where demand and capital are moving. It also means the sector is becoming more connected to larger structural trends in the economy, rather than being viewed through one traditional lens. At the same time as the mix broadened, investors have to be selective because not every new category will have the same long-term profile that we're used to.So, as investors look at some of these newer areas, where do you see the best opportunities, Hank? And where would you be more cautious? Hank D'Alessandro: So first, opportunities. The industrial segment has clearly become a major area of focus. This sector benefits from growing e-commerce penetration fueled by AI, reshoring of manufacturing, and increased defense spending. The ability to acquire mission critical distribution centers in top tier logistics markets or advanced manufacturing assets in innovation clusters is particularly appealing in today's macro backdrop. Another area that we find very compelling is medical outpatient buildings where the aging demographics can support long-term demand. So, we have great conviction on both of those. Now, turning to area where we're more cautious. There's been a lot of attention on data centers, you know, as you previously mentioned. But that's an area where investors really need to think carefully about long-term durability. Questions around obsolescence, technological change and whether certain assets fit a true buy and hold strategy are very relevant and need to be considered carefully by investors. So, maybe to sum up, the opportunity set is definitely broadening, but selectivity in terms of location, asset type and asset specifications remain essential. So, Ron, the idea of linking property types back to long-term trends feels especially important right now. How do you connect this conversation to the key secular themes Morgan Stanley research is tracking this year. AI and tech diffusion. The future of energy, the multipolar world, and societal impacts. And can you offer a few examples? Ron Kamdem: There's a couple ways that net lease connects to these broader themes. The first, which is probably the most obvious, is technology diffusion and the future of energy comes through in areas such as datacenters, and that's been a key focus for public investors. When you think about societal change – that's relevant for sectors tied to demographics like medical outpatient buildings, where you know people go get different services. And multipolar world theme matters because deglobalization and geopolitical fragmentation. Or influencing how investors think about resilience, location, and portfolio construction, which is driving incremental demand for industrial real estate linked to supply chain shifts and defense spending. So, this is no longer just a sector evolving on its own, it's becoming more closely tied to these macro issues, shaping investment decisions more broadly. And once you widen the lens to that macro backdrop, the conversation naturally becomes more global. In fact, we saw realty income now generates 19 percent of rents across nine European countries with more than $15 billion invested since 2019. Given this, Hank, how should investors think about net lease and adjacent opportunities outside of the U.S.? Hank D'Alessandro: The global angle is clearly becoming more relevant. There's growing interest in Europe and the U.K. And one area that comes to mind in this context is retail parks, where rents have reset, yields are wider, and tenant resilience has improved. Thinking more broadly, international markets can give investors a wider set of ways to think about real estate opportunities tied to the same themes that we've discussed. And add to diversification, as macro drivers continue to diverge and geopolitical risks remain elevated. Even when structures or sector exposures differ from the U.S., which undoubtedly they will, the bigger point is that investors are increasingly valuing opportunities through a global lens. Ron Kamdem: So, if we pull all this together, what looks like a simple-income oriented category is actually becoming much more nuanced. As we wrap up, Hank, what's the main message you want investors to take away about net lease today? Hank D'Alessandro: You know, I believe the main takeaway is that net lease remains relevant because of its defensive qualities, and predictable contractual cash flows derived from long-term leases. But the story is becoming more nuanced, requiring a granular focus on the credit, and importantly, the underlying real estate. With real estate values down 20 to 25 percent from peak levels, replacement cost has elevated, which is keeping supply muted and net lease cap rates wide relative to the last 10 years. This is a very attractive entry point for investors. Private capital is playing a bigger role, no question. The asset mix is shifting beyond retail, towards areas like industrial. Investors are actively debating the long-term role of newer categories such as advanced manufacturing and data centers. There are selective opportunities to think more globally, which is exciting. Ron Kamdem: Great. That's very helpful. Hank, thanks for taking the time to talk. Hank D'Alessandro: Great speaking with you, Ron. Ron Kamdem: And thanks for listening. If you enjoy Thoughts on the Market, please leave us a review wherever you listen. And share the podcast with a friend or colleague today.

Original Release Date: April 28, 2026Tom Wigg and Stephen Byrd discuss the accelerating pace of AI breakthroughs, the forces driving them and why the next phase of development may look very different from anything we've seen so far.Read more insights from Morgan Stanley.----- Transcript -----Tom Wigg: Welcome to Thoughts on the Market. I'm Tom Wigg, Head of Specialty Sales in the Americas at Morgan Stanley, and a sector specialist in Technology, Media and Telecom.We wake up every day to new AI product releases, so it's easy to lose sight of the unprecedented non-linear improvement in AI capabilities. But things are about to get weird.It's Tuesday, April 28th at 8am in New York.The market has been thinking about AI in linear terms. But we need to reframe that assumption of only incremental improvement and think about exponential improvement.That was my takeaway from a conversation with Stephen Byrd, Global Head of Thematic and Sustainability Research at Morgan Stanley. In our conversation, we zeroed in on Stephen's bull case for broader AI model improvements.Tom Wigg: First, I want to talk about one obsession that you've been writing about for the last several months – is this idea that we're going to see nonlinear improvements in the frontier models coming out this spring.Stephen Byrd: Yes.Tom Wigg: There's been, you know, some big headlines around new models, benchmarks coming out publicly. Is this, you know, your bull case playing out on these models? And what are the implications?Stephen Byrd: Yes! Absolutely, Tom. So we have, to your point, we are obsessed. And I know I'm not shy about that – with the nonlinear rate of AI improvement. It is the most important impact to so many stocks that I can think of in the sense that it can impact all industries, all business models. So, what we've been saying for some time is, if you look back over the last couple of years at the relationship between the amount of compute used to train these LLMs and the capabilities, we have a very clear scaling law.And approximately the law is, if you increase the training compute by 10x, the capabilities of the models go up by 2x. Now, as you and I've talked about this a lot; just meditate on that for a moment. I think things are about to get weird in the sense that on the positive side, we're going to see all kinds of underappreciated capabilities across many industries. So this disruption discussion, I think, is going to spread, but it's also going to require investors to, kind of, be more thoughtful about what they do with that concept. Meaning you can't sell everything. In the sense that AI will disrupt some businesses.I actually think this is healthy in some ways because now it forces investors to really look at each business model and assess which is going to get disrupted, which can get supported and enabled by AI, which are immune. Because there are some business models that actually are immune.But essentially from here, Tom, I'd say we are expecting through the spring and summer to see multiple models that are able to perform a much greater percentage of the economy at better levels of accuracy at incredibly low cost. Which I know you and I have talked a lot about the cost of actually doing this work from the LLMs.This is massive. This is going to impact so many industries. I think this is all to the good for the AI infrastructure plays because it shows the importance of getting more intelligence out into the world.Tom Wigg: So, you mentioned the constraints we're seeing across compute, memory and power. It seems like most of the CEOs of the labs and hyperscalers are talking about this. Investors are bullish in terms of the ownership in, you know, memory, optical, semi-cap, et cetera. But the question I'm getting more recently is around what's the ROI on all this spending. And does the market action in these hyperscalers, which have been pretty bearish year-to-date, force a cut on CapEx? So, maybe if you can marry that with what you're picking up on the ground in terms of compute spend and whether the frenzy still continues, you know, versus the ROI? And, like, what could happen?Stephen Byrd: Yeah. The short answer – I'm going to go through detail – is I think the bullishness is going to get more bullish over the coming months. And let me walk you through a couple of the mathematics and then just what I'm seeing on the ground to your point, Tom.So the mathematics. We have a token economics model that looks from the perspective of a hyperscaler or an LLM developer in terms of – if they sell their token at a certain price and you fully load the cost of a data center and all associated costs, financing, you name it – in what are the returns? And the bottom line is the returns are excellent.The other element we spend a lot of work on, and you and I talk a lot about, is the demand for compute. In this world where the LLMs are increasing in capability and the token usage goes way up with agentic AI, video world models, all that stuff, we think that there is a massive shortage of compute. So, if you're lucky enough to be a hyperscaler with the compute, with the power, we think that they will have a lot of pricing power on the tokens.Let me explain why we see price power on the tokens. Now I'm going to flip to the perspective of an adopter. Let me give you just rough mathematics. There was a study last year from one of the big labs showing that on average, an enterprise user using an LLM might be able to replace work that would take about one and a half hours from a human. That would save about $55 of cost. A million tokens, depends on whether you're looking at input or output – but let's just call it $5 for a million tokens.The average usage case today for a fairly complex agentic task in an enterprise setting is in the tens of thousands of tokens. Okay? So let's just do that math again. $55 of savings. A million tokens cost $5, and a typical agentic usage is far less than the million tokens today, though that will accelerate. The economics are a home run for adopters.So, we're in a situation where compute is very scarce. I see pricing power all over the place for those who have the compute and have the power.Tom Wigg: So, when you put it like that, Stephen, it seems so inevitable and obvious. But I wonder why the hyperscalers are trading the way they are? And when do they see the revenue inflection you're talking about? Is this like a stay tuned kinda 2026 event? Is this something we have to wait for for 2027-2028?Like, how do you think this flows through to the extent that the market will get more comfortable that all this free cash flow pressure is worth it on the other side?Stephen Byrd: Yeah. This is, in short, I think this is a 2026 event. But let me dive into that because what you just asked is so important for so many stocks.So, let's talk through this. The capabilities of the models are advancing so fast that the average corporate user is not yet keeping up. There is this gap. But that will happen quickly, and we're seeing signs from these labs of revenue at the lab level that is accelerating. So that's a good sign.What we're seeing, though, among fast adopters is those adopters who really understand the capabilities are quickly realizing just how economically beneficial there is. An example, one of my best friends founded a software company many years ago. Last month was – that was the last month in which his programmers wrote code. They're done with writing code.The efficiency benefits for his business are absolutely massive. But he feels like he's just scratching the surface, and he's about as technically capable as anyone I know. He has two PhDs in the subject matter. He's very, very good.So long way to say that we're living in almost two worlds where the fast adopters will show what's possible. The average utilization for enterprises will still take some time. But I do think that the market will react to what they see from the fast adopters in the sense of – the tangible economic benefits are so big.Now, on the ground, what I'm seeing on the infrastructure side, my friends in power tell me that a couple months ago is when they saw the sense of urgency from the AI community go up a couple of notches for them to get the infrastructure they need. So they saw this explosion in compute coming. In the last two months, the weekly usage of tokens according to OpenRadar is up a couple hundred percent in a couple months.So, I do think we're seeing this. So, this is; it's happening quickly. What I would say is the market will have these signposts in every industry of early adopters showing this benefit. I think that's enough for us to start to get bullish. We also… I just think when you look at the demand for compute, the compute numbers need to go up. And with that, you know, everything in the AI value chain, infrastructure value chain, the volumes need to go up.Tom Wigg: One bear case that I wanted to interrogate was – there's one view that, yes, there's a token explosion right now. But it's because the first use case is coding. Which is inherently, you know, very developer-friendly and token-intensive relative to other knowledge work.Can you talk about, you know, whether you subscribe to that? Or whether the token intensity will be as high or lower as this expands to other areas of knowledge work in the next several years?Stephen Byrd: Yeah, it's a great question. The short version is that, yes, it's true that software usage is more token intensive. However, what we're going to be seeing – we're starting to see it – is in almost every knowledge-based job, we're going to move to agentic AI. And when we do that, you tend to see an explosion in compute.Let me walk you through the numbers. There are a couple studies that show essentially when you go from a query-based usage of LLMs to an agentic use for any occupation, you see about a 10x increase in token usage per use of those models. And you can see why.I've anecdotes of some of my friends who are newer to this – who set their agents loose overnight to do non-coding work. And in the morning they get some pretty amazing results. But they also used a lot more tokens than they'd expected … (laughs)Tom Wigg: And a five grand credit card bill?Stephen Byrd: Exactly. It's like maybe next time you put a few parameters around that. But long way to say, it's agentic across every workflow that I can think of that will still result in an explosion in token demand.Tom Wigg: It's definitely a good idea to put some parameters around your agentic workflow.My thanks to Stephen for that conversation. And thank you for listening. Let us know what you think of the show by leaving us a review where you listen. And if you find Thoughts on the Market worthwhile, tell a friend or a colleague about us today.

Despite the historical energy disruption from the Iran conflict, stocks are back to record highs. Our Global Head of Fixed Income Research Andrew Sheets and our Head of Commodity Research Martijn Rats discuss different views and fundamentals driving markets.Read more insights from Morgan Stanley.----- Transcript -----Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley.Martijn Rats: I'm Martijn Rats, Head of Commodity Research at Morgan Stanley.Andrew Sheets: Today: oil, oil inventories, and the price at the pump.It's Wednesday, May 6th, at 2pm in London.Martijn, it's great to talk to you. We remain in this very unique market where on the one hand, the energy market is severely disrupted. On the other hand, we're making new all-time highs in the stock market. And part of this debate is a creeping sense that maybe the energy market is just a lot more resilient than many people initially thought.So, let's just jump right into it. As you look at the current state of the world, the state of things, how are you seeing the energy market at the moment?Martijn Rats: There are definitely two views in the market. I would say commodity specialists, oil traders, people that trade oil and gas equities for a living, tend to focus on the size of the supply shock. And it is neither hyperbole nor disputed that the size of the supply shock is the largest in the history of the oil market. We have the statistical data to back that up. That is not a controversial statement.But at the same time, the other view in the market, generally held by your generalist investors who invest across many markets. They tend to focus on the likelihood or possibility that this supply shock might also be uniquely short. It was there all of a sudden, from one day to the next, the strait was closed. It felt a bit man-made, so to say. It was an outcome of a political decision, and that can also be undecided. And so, this is – the to-ing and fro-ing in the market is; on the one hand, this shock is very, very large. But the other hand it may also be very, very short.Now we went into this supply shock, arguably well-prepared. In the sense that during the course of like late 2024, all of 2025, and the very early part of 2026, we were telling a story of oversupply surplus. And on top of that, given the military buildup was going on in January and February, a lot of countries in the Arabian Gulf – Saudi Arabia, the UAE, Kuwait – visibly put out a lot of oil at sea.So, in the oversupply of 2025, we put oil in storage in lots of places that we can't always see. But that seems very likely. Oil in the water was very, very high. So, we have been living off these buffers, and that has helped. And then, yeah, at any point in time, there were good enough reasons to assume that on a timeframe of a couple of weeks, this would largely be resolved. We would eat into these buffers, draw some inventory.And it has been hard for the market then to really capitalize the size of the supply shock and say, "Yeah, really oil prices need to spike very, very high." And in that sense, we're left with this significant supply shock, but we haven't taken out the highs that we saw in 2022, for example.Andrew Sheets: So maybe a way to think about this, right, is that if we imagined all of that oil as sitting in a big tank. We've kind of stopped a lot of the flow into the top of the tank as the Strait of Hormuz has remained closed. But oil's still able to drain out of the bottom, kind of, like normal because that tank is being drained. Those inventories have been drawn down. Maybe that's a quite a crude analogy, to forgive the pun.But how long can that last? I mean, if we think about these inventories, if we think about the speed of which they're being drawn down; and I think that's an important point that you mentioned, that these inventories were unusually high going in. But they're obviously not unlimited.Where does that stand? And I guess, you know, what is the limit of that? How long can those inventory draws last?Martijn Rats: Yeah, yeah. To say that this is the billion-dollar question would be understating it, Andrew. It's also a unusually complicated question to answer in the sense that it depends very heavily on the region, on the product that you're looking at. Jet fuel in Europe, NAFTA in Asia, you might see something sooner. But other products in other regions, you know, might take longer.We often don't really know where the operational limitations of inventories are. Globally, we see something like 8 billion barrels of oil in some form of storage. That is an enormous amount. We can't draw that down to zero because a lot of that is there for operational, like working capital type reasons. Just to facilitate the operations of the industry. Is the floor seven? Is the floor six? These things are hard to answer.Andrew Sheets: You've got to have some oil in the pipeline to make the pipeline flow…Martijn Rats: Exactly, exactly. You can't operate a refinery if you don't have at least some storage right next to it. It just doesn't work. So, these things are hard to know. But I would say that we are eating through these buffers very, very re-rapidly now. Oil on water has largely normalized and is no longer elevated.We are seeing very large inventory draws across every data point that we have on refined products. Refined products are universally drawing. On crude, the data is more patchy. But we are seeing large inventory draws now coming through in the United States. I would say – and this is partly having worked with this data for a long time and sort of developing some market feel rather than very analytical spreadsheets, so to say. But I would say that if the flow of oil through the Strait of Hormuz does not resume on the sort of next four to six weeks, we will get very, very tight by June, early summer.And, well, look, I mean, from there, it's simply… You know, if you then were to forecast. You know, project forward from there on. It would be getting tight by August, September. But of course, that's done under the assumption that the flow remains impaired over that period, which I would say most market participants would not assume at the moment.Andrew Sheets: And another point that comes up sometimes, at least in my conversations, is, ‘Oh, but, you know, maybe Venezuelan oil is going to be coming online.' There's more investment. The U.S. seems very focused on increasing oil output in Venezuela. You know, can that match in any sense the scale of what we've had disrupted here?Martijn Rats: No, that is a complicated issue in the sense that, you know, growing oil production takes time. It takes capital, it takes equipment, it takes a lot of people. Venezuela at the moment, produces a bit more than a million barrels a day. I'd have to say, like, relative to the size of Venezuela's production, the last two monthly data points have actually come in better than expected. But you're talking about 100,000 barrels a day, 200,000 barrels a day, that sort of thing. Relative to a supply shock that is 13-14 million barrels a day.The fastest ever single amount of production growth of any country in any year was 2018. U.S. shale with natural gas liquids included grew 2 million barrels a day in a single year. But yeah, even that…Andrew Sheets: So, 2 million barrels relative to 14 million barrels lost is…Martijn Rats: Yeah, exactly.Andrew Sheets A drop in the bucket. Martijn Rats: And that had a huge run-up of several years of putting the infrastructure in place to do that. I mean, it…. You don't turn it on a dime either. So no, that remains difficult.Andrew Sheets: So, you know, maybe a dynamic to close with is actually another way that I think people care about the oil price, you know, besides their portfolio – which is they drive.And, you know, you had a great stat in your report that one out of every 11 barrels of oil that's produced ends up in an American car. And the U.S. is a big producer. Its inventories have been drawing down. There are clear signs that the U.S. is exporting a lot of energy, and as a result, gas prices are also going up in the U.S.So, you know, what… If you could just talk a little bit about the move in gasoline and maybe, you know, I think this could be a good segue into this idea of distillates into, kind of, parts of refined product. And how those prices can deviate or not from the barrel of oil we often talk about. And then even just more generally, kind of what is the price at the pump that people might need to think about as you head into the summer – assuming, you know, this conflict is still somewhat uncertain.Martijn Rats: Yeah. So, the United States is very interesting at the moment. In the sense that the regular discourse about the United States is that the United States is energy independent because it is a net oil producer. And at the most aggregate level, that is correct. But that doesn't mean that the United States is not connected to the rest of the world from an oil market perspective. I would say actually it's the opposite.The U.S. oil market is deeply connected to the rest of the world. It is a net exporter because there are very large imports, and there are very large exports, and it just happens so that the exports are a little bit bigger than the imports. So, it's a net exporter.But flows in both directions exist for every product – for crude, for diesel, for gasoline. So, the U.S. should be the last place to have physical disruptions because the supply is close to home. But in the end, it's so connected; that in the end, there's only one global oil price – and we all pay it, including in the United States.Now, because of the deficits at the moment, in Asia, to [an] extent in Europe, there is a very large pool on oil from the United States, and we're seeing that across the board. Crude oil exports were 4 million barrels a day, at the start of the year. They're now running sort of 5.5, even 6 million barrels a day. So, there's a lot of crude being pulled out of the United States. That is partly also the SBR release, the release from the Strategic Petroleum Reserve. But the export's very, very large.Another product where that is also happening is in gasoline. Now, the gasoline market in the United States has a degree of complexity to it in the sense that the U.S. is a big importer of gasoline in the East Coast and the West Coast, but then a big exporter from the Gulf Coast.Andrew Sheets: Hunh! Okay. Yeah.Martijn Rats: Net-net, it's an exporter, but in the East Coast and the West Coast, big, big importer. Now, in Europe, for example, we are normally long gasoline, short diesel. We export our surplus to the U.S. East Coast. But, at the moment, it's tight in Europe, so we're not exporting that much gasoline. So, imports in the United States have dropped a lot.At the same time, Asian customers, Brazilian customers, Mexican customers [are] pulling a lot of gasoline out of the Gulf Coast. And as a result, the net exports are unusually high for this time of the year. On top of that, the Strait of Hormuz issue has tightened the diesel market so much relative to the gasoline market that it is favorable for refineries to maximize their diesel output over their gasoline output.Andrew Sheets: Hmm. And these are decisions you can make in terms of how you crack that barrel in a refinery and split it up.Martijn Rats: Yeah, exactly. Within a relatively narrow window, but you can make tweaks that are significant. Now, normally, we're going into this summer driving season, refineries switch from what we call max diesel to max gasoline. At the moment, they are not doing that.Andrew Sheets: Mm.Martijn Rats: So, you have low gasoline production, and you have large net exports of gasoline. Over the last 11 weeks already, we have seen a very significant, very significant decline in gasoline inventories in the United States. And prices have risen at the pump. The nation's average is now $4.50 per barrel, as of reports this morning.The summer driving season has yet to start. That can become $4.70, $4.80. That can become $5. Above $5 is historically a point where people get, yeah, worried about demand destruction. And it has a real impact.Andrew Sheets: Well, Martijn, I think this remains such an important and interesting story. And even if, you know, it can seem sometimes like the market has moved on to other things, clearly there are a lot of other factors driving the equity market. It remains pretty historic, pretty significant, and pretty complicated. Also, something that I think, you know, affects the day-to-day spending and lives of a lot of people out there.So, Martijn, again, thank you for taking the time to talk.Martijn Rats: Thank you.Andrew Sheets: And thank you, as always, for your time. If you find Thoughts on the Market useful, let us know by leaving a review wherever you listen. And also tell a friend or colleague about us today.

Our Head of Europe and Asia Technology Research Shawn Kim discusses AI's move from passive chatbots to active agents—and how this influences tech supply chains.Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I'm Shawn Kim, Head of Morgan Stanley's Europe and Asia Technology Team. Today: A foundational shift in the development of AI and its broad market implications. It's Tuesday, May 5th, at 3pm in London. Think about the last time you asked a chatbot to write a summary or a draft. Or maybe answer a query. It was probably useful. But you were also still driving the interaction: asking, refining, copying, checking, and moving the work forward. Now imagine a system that does not just respond, but acts. It remembers what you asked last week, understands your preferences, works across digital tools, plans a workflow, and adapts as circumstances change. That is the shift from GenAI to agentic AI: from AI that helps with thinking to AI that helps with doing. GenAI is mostly passive. It takes a prompt and produces an answer. Agentic AI is active – less a copilot for one task but an autopilot for multi-step workflows. The distinction is key because computing requirements are changing. In GenAI, large language models and GPUs handle much of the thinking. GPUs, or graphics processing units, process many calculations in parallel, making them central to modern AI models. In agentic AI, CPU becomes more important. CPUs, or central processing units, coordinate tasks and connect systems to the broader digital infrastructure. Agentic AI also depends on three stacks: the brain, or the large language model; orchestration, where the CPU manages the doing; and knowledge, which is memory.Memory may be the most important layer. An agent that knows your preferences, documents, tone, and task history becomes more useful over time. That creates a context flywheel. The more context it collects, the more personalized it becomes, and the harder it is to leave. Typically, in computing, we think of memory as storage, mainly. We need to rethink this. Memory is also continuity. When an AI system can use past experiences, memory becomes a long-term state, shared knowledge, and behavioral grounding. And that matters because LLMs have fixed context windows. Once a conversation exceeds that window, older content falls off. For simple questions, that may be fine. But for a coding agent working across a large codebase over days or weeks, it is a major limitation. Serious work requires persistent memory, short-term orientation, and active retrieval – remembering prior decisions, understanding changed files, and finding relevant codes without the user pointing to every dependency. For investors, the implication is clear – agentic AI changes the bottlenecks. We see CPUs as the new bottleneck, with memory seeing the highest content increase. We estimate as much as 60 percent, or $60 billion of incremental CPU total addressable market by 2030, within a total CPU market of more than $100 billion. We also estimate up to 70 percent of incremental DRAM bit shipment tied to this theme. That makes us more positive on supply chains including memory, foundry, substrates, CPU and memory interface, and capacitors and CPU sockets. These areas benefit from content growth, pricing power, and capacity constraints into 2027. As AI moves from answering questions to taking actions, investors should watch the infrastructure behind the shift. Because in the agentic era, the next big AI leap may be less about the prompt, but more about the processor. 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.

Introducing a recent episode of Hard Lessons, featuring Rick Rieder, BlackRock's CIO for Global Fixed Income and Head of the Global Allocation Investment Team, in conversation with Seth Carpenter, Global Chief Economist and Head of Macro Research at Morgan Stanley. Watch and listen on your favorite podcast platform.

Our CIO and Chief U.S. Equity Strategist Mike Wilson explains the factors behind stock gains across sectors.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 why earnings remain the most important variable for equity markets.It's Monday, May 4th at 2pm in New York. So, let's get after it.The more I think about what's been driving this market, and the more time I spend with the data, the more I keep coming back to the same conclusion: it's earnings. Not the headlines, not even the Fed. Earnings are doing the heavy lifting right now.When I look at this reporting season, what stands out isn't just resilience, it's strength that's broader than most people appreciate. The typical company in the S&P 500 is growing earnings at about 16 percent, and the median earnings surprise is running around 6 percent. That's the strongest we've seen in four years.What's really interesting to me is that this strength is no longer confined to just the biggest tech names. Yes, hyper scalers and semiconductors are still playing a leading role, but the story is expanding. We're seeing earnings revisions move higher across Financials, Industrials, and Consumer Cyclicals, in particular. That kind of breadth tells me this isn't just a narrow leadership story; it's something more sustainable.At the same time, many investors are focused on the geopolitical backdrop, particularly the Iran conflict and what it means for oil, inflation, and supply chains. To be fair, companies are feeling some of that pressure. When you listen to earnings calls, you hear about rising freight costs, tighter supply chains, and higher input prices across industries like chemicals and machinery.But here's the nuance: those impacts are uneven. They're not hitting the entire market in the same way. In fact, at the index level, they're being offset. Energy has become a positive contributor to earnings growth, and the higher-end consumer remains relatively strong. Even with higher fuel costs, we're not seeing a meaningful pullback in overall consumption – at least not yet. That tells me that we're not dealing with a classic demand shock. We're dealing with a redistribution of pressure, and companies are adapting. In many cases, they're passing through higher costs. Revenue surprises are running above historical norms, which suggests pricing power is improving.Now, of course, earnings aren't the only piece of the puzzle. Policy still matters, and the shift in rate expectations this year has been meaningful. The Fed has clearly become more concerned about inflation, and the market has repriced expectations to fewer cuts, and maybe even a higher probability of hikes. That repricing is a big reason why valuations corrected so sharply over the past six months.It's notable that even with that headwind, equities have managed to stabilize, thanks to earnings. When earnings are growing at an above-trend pace, equities can deliver solid returns regardless of whether the Fed is cutting or not.That said, I do think that there's one area of risk that deserves further attention, and that's liquidity. We've seen periods of funding stress over the past six months, and those moments have coincided with pressure on valuations. The Fed and the Treasury have stepped in at times to stabilize these conditions, helping to reduce bond volatility and support equity multiples.Bottom line, we have already had a meaningful correction in valuations this year with price earnings multiples falling 18 percent from their peak last fall. That adjustment occurred as the market digested the many risks that we have been highlighting. Meanwhile, earnings are not only holding up, they're accelerating and broadening across sectors. The risks that we've all all focused on – geopolitics, oil, supply chains – are real. But they're being absorbed at the company level. As a result, the price declines were much more modest than the compression in valuations. Meanwhile, monetary policy is providing some headwinds, but it's not overwhelming the earnings story. Equity markets move on two things: earnings and liquidity. Right now, earnings are more than offsetting the lingering liquidity concerns. In short, earnings growth is greater than the valuation reset. This is classic bull market behavior and as long as that continues, I think the U.S. equity market will grind higher for the rest of the year with intermittent bouts of volatility. Thanks for tuning in; I hope you found it informative and useful. Let us know what you think by leaving us a review. And if you find Thoughts on the Market worthwhile, tell a friend or colleague to try it out!

Our Global Chief Economist and Head of Macro Research Seth Carpenter discusses whether the economy can adapt fast enough to turn AI into a productivity boom rather than a labor market shock.Read more insights from Morgan Stanley.----- Transcript -----Seth Carpenter: Welcome to Thoughts in the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist and Head of Macro Research. Today we're going to try to look past the hype and the anxiety around AI and ask what will be the effect on the labor market. It's Friday, May 1st at 10am in New York. Now, odds are that you've used AI to draft an email or summarize a document, maybe learn about a new topic, help plan a trip. The new technology is clearly lowering the cost of certain tasks. And I think the research shows that there are plenty and an increasing number of tasks that AI can do better than most humans. But that's not really the question. What I hear all the time is, ‘Well, if we can get the same amount of output with less labor, then surely millions of people will lose their job.' I think the same logic also implies that we can just get a lot more output from the economy using all the labor that we have. And the difference between those two views really is at the heart of the debate. So far, I would say the data allow for some cautious optimism. Despite rapid advances in AI capability and evidence that adoption is spreading, the broad labor market indicators still show remarkably little disruption. Economic growth is holding in there. The unemployment rate is not rising rapidly. If anything, it's ticked down recently. Job openings are not soaring, and separations do not suggest that there's systematic weakness in AI exposed industries. Now, productivity data are beginning to show perhaps a bit of AI's positive effects, but they don't show the mass displacement that many people fear. According to our research, industries with higher AI exposures have recorded stronger labor productivity gains, driven mainly by faster output growth rather than fewer hours worked. And that distinction for me is critical. So far, the evidence looks like workers are producing more than firms are cutting back on labor. There's also a physical constraint. AI adoption depends – and will continue to depend – on infrastructure that is still being built. Of the more than $3 trillion in expected data center and related infrastructure CapEx from 2025 through 2028, only about a quarter of that has been deployed so far. The future remains opaque. No two ways about it. The biggest productivity gains from my perspective are likely still ahead of us, and some job losses are likely unavoidable. Earlier, innovation waves unfolded over decades, and AI is moving much faster, compressing the adjustment period. And that does create the central risk to the labor market; that job destruction happens faster than new job creation happens. And so, what our research has been doing is to try to look beyond the immediate effects. Yes, some jobs and tasks will likely be disrupted. But higher productivity can also mean higher incomes. Higher wealth. With higher income and higher wealth can also mean higher spending, which, in turn, drives the economy faster. Inside corporations, new tasks and new roles will likely emerge giving some of the displaced workers somewhere else to go. And even if employment does slow down for a while – and that could put downward pressure on inflation and maybe upward pressure on the unemployment rate – I don't really think policy makers are simply going to sit back on the sidelines. Central banks can respond by trying to stimulate the economy and bring it back towards full employment. This is something that economists call General Equilibrium. We can't look simply at one side of the equation. We have to think about the system as a whole. And I have to say, if monetary policy runs out of room, fiscal policy makers can get into the game as well. Between automatic stabilizers like unemployment benefits and directed targeted government action, there's another way in which the economy could be pushed back to full employment. So, the bigger point is this, AI clearly has a chance to create some labor market disruption, but the economy has all sorts of other systems and levers in place that can pull us back to full employment. And with those buffers in place, any rise in the unemployment rate from AI is probably going to end up being smaller, shorter, and easier to manage – at least for the next couple of years than maybe some of the first pass analysis that I've seen suggests. AI's labor market impact is not predetermined. The debate will almost certainly come down to speed. How fast is AI adoption relative to the economy's ability to adapt? History suggests that productivity ultimately wins. The economy gets bigger and people stay employed. History also tells us that not everyone benefits equally. And more importantly, not every transition is smooth. So, what does that mean? Should we be just blithely optimistic? Absolutely not. For now, the early evidence is reassuring, but the story is still being written. Thanks for listening, and if you enjoy this show, please leave us a review wherever you listen. And share Thoughts on the Market with a friend or a colleague today.

Capital spending usually signals how a company is positioning itself for the future. Our Global Head of Fixed Income Research Andrew Sheets explains why this metric is getting more attention from investors.Read more insights from Morgan Stanley.----- Transcript -----Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley. Today: Why capital expenditure is rapidly becoming one of the most important numbers in earning season across asset classes.It's Thursday, April 30th at 2pm in London. This is a high-risk episode in the sense that it may already be obsolete by the time that you hear it. But then again, maybe that's fitting for a discussion of record capital spending on cutting edge technology.We are in the middle of the busiest part of earning season, and yesterday four of the largest companies in the world reported numbers. These companies – Alphabet, Amazon, Microsoft, and Meta – have a combined market cap of nearly $12 trillion. Yet, while the focus of earning season is traditionally about earnings, another line item is rapidly rising in importance. Capital spending on AI infrastructure – the chips, power cooling, and connections that are required to build and run AI models is soaring. And the companies that reported yesterday are at the leading edge of this trend. The first thing about all this spending is simply the scale. For this year alone, Morgan Stanley estimates that it will amount to over $600 billion across the largest U.S. hyperscalers. To put that in perspective, that means just a handful of U.S. tech companies are now set to spend almost as much on capital and equipment this year as every non-technology company in the S&P 500 did in 2025. And as big as that spending is, it's been accelerating. That over 600 billion spending number that we forecast for 2026? Well, a year ago we thought it would be roughly half that, and that estimate was well above consensus at the time. U.S. companies have repeatedly guided their spending higher as they seek to capture the AI opportunity. And we think that continues. By 2028, my Morgan Stanley colleagues estimate that this U.S. hyperscaler capital spending could hit an annual rate of $1 trillion. In other words, as big as these numbers may seem, much of the spending story still lies ahead. All of that investment, both recently and in the future, has big implications. First, one company's spending is another company's revenue, and many of the stock markets recent winners have been directly tied to this historic buildout. As of this recording, U.S. semiconductor stocks have risen over 30 percent this month alone. Second, while these large U.S. tech companies have enormous financial resources, this spending is at a scale that still requires significant borrowing. Our credit strategy teams expect record bond issuance this year, with U.S. tech borrowing a big part of that. And so far, it's playing out. The first quarter was the busiest quarter for U.S. investment grade bond issuance on record. Which brings us back to these recent earnings – and a dilemma that seems negatively skewed for credit relative to equities. If these companies continue to sound confident about their capital spending plans or even raise expectations further, that could support AI suppliers and the broader equity market. But it would mean even more borrowing needs to be absorbed by the corporate bond market, a credit negative. The results we got yesterday certainly hint at a continuation of this trend. On the other hand, if capital spending is guided down, that could undermine a key pillar of recent market strength and broader risk appetite, which could drag credit wider by association. In the near term, the risk reward seems better in other parts of fixed income, such as mortgage-backed securities. The implications of yesterday's results may also extend to the Federal Reserve. As we discussed last week, Kevin Warsh, nominee to be the next Fed Chair, believes that large levels of investment can boost productivity, lowering inflation, and thus justifying lower interest rates. And so, what these large spenders do, how confident they feel about the future, and what all of this spending can ultimately deliver – well, the implications of that may extend even into the monetary policy story. Thank you as always, for your time. If you find Thoughts of the Market useful, let us know by leaving a review wherever you listen. And also tell a friend or colleague about us today.

Still six months out, the U.S. midterm elections are likely to influence government initiatives to deal with higher energy costs. Our Head of Public Policy Research Ariana Salvatore and Global Chief Economist Seth Carpenter discuss how the Congress and the Fed might react.Read more insights from Morgan Stanley.----- Transcript -----Ariana Salvatore: Welcome to Thoughts on the Market. I'm Ariana Salvatore, Head of Public Policy Research for Morgan Stanley.Seth Carpenter: And I'm Seth Carpenter, the firm's Global Chief Economist and Head of Macro Research.Ariana Salvatore: Today we're discussing the run up to the midterm elections and what it could mean for the macro outlook and policy response.It's Wednesday, April 29th at 10am in New York.Last week, Mike Zezas and I talked through the midterm elections and their potential consequences for the economy and markets. This week we figured it might be helpful to talk about the setup into November, especially as we're both increasingly being asked about the macro outlook and potential for targeted stimulus to offset the oil shock.So, Seth, let's start there. we know cost of living is a key issue in elections, and we've seen a pretty meaningful oil shock feed through markets. How are you thinking about that in the context of the broader economy?Seth Carpenter: Our U.S. economics team has estimated that the higher gas prices that we have now and likely to have for the rest of the year are going to be more than enough to offset any boost to consumer spending from the higher tax refunds this year. So, I think that's the first point.If you're expecting a boost to come through that channel, you probably want to unwind that. And In fact, overall, what we've done is lowered our forecast for U.S. growth by about three or four tenths of percentage point worth of growth this year because of the higher energy prices. So, it's a drag on spending, I think, no matter how you cut it.Ariana Salvatore: And that's not happening in isolation, right?Seth Carpenter: No, that's exactly right. That's exactly right. We've also got at least somewhat restrictive monetary policy layered on top. So, financial conditions are already a little bit tight and the oil price shock sort of amplifies that tightening by weighing on spending. That's going to be really important.I think an extra complication then is what does it do to inflation? For now, we don't think it's going to be that big of a deal. History says at least looking at the data that when energy prices go up, when oil prices go up, gasoline prices go up. It does boost headline inflation for sure, but the pass through to core inflation is pretty limited, and the effects tend to go away on their own without too much time.So, I think the real hit here is going to be from the higher costs acting like a drag on consumer spending.Ariana Salvatore: Right. And importantly, it's a very visible shock. Gasoline prices feed directly into how consumers and voters perceive the economy, which brings us into the political overlay as we approach the midterms…Seth Carpenter: Yeah, I think that's exactly right. And whenever we economists are thinking about inflation and prices and consumers, we think about exactly that – what we call salience, just how visible are these prices. And gasoline prices tend to be some of those prices that stick out in people's minds.So, if people are seeing it. And people are reacting to it, give me some idea of what the Congress can realistically do between now and the midterm elections.Ariana Salvatore: Well, I would say in theory there's a range of options. Direct stimulus, targeted transfers. We tend to frame affordability policies across five vectors: energy, healthcare, housing, consumer credit and trade policy. But in practice, the constraints are pretty binding right now and as we've been saying, tariff policy is really the only lever the president can pull easily to have a real impact on voters.Seth Carpenter: All right. So, you said constraints and constraints for the Congress. Can you walk us through what those constraints are?Ariana Salvatore: Sure. So, the first and most obvious is deficits. We're already running large fiscal deficits in the U.S., and I would say there's limited political appetite to expand them meaningfully from here in the near term, especially heading into an election.The second is procedure. If you want to pass something sizable, you're either looking at reconciliation, which requires political alignment in a number of procedural hurdles. Or bipartisan cooperation to get around the filibuster. Both seem difficult to us in this environment.Seth Carpenter: So my experience in Washington for a couple decades of working on policy is that when things are difficult, they tend to take more time. So how does the timing component of all of this matter, and how does it fit into the way that you're thinking about it?Ariana Salvatore: Timing is the third constraint. The legislative calendar in particular. What we see is as you get closer to midterms – really any election – the window for passing major legislation narrows pretty quickly. That's because lawmakers shift their focus toward campaigning, and the agenda itself just becomes more limited.And then to finish off the constraints, the fourth I would say is implementation. Even if something were to pass, there's a lag between legislation and the actual economic impact. Getting funds out the door, whether it's checks or programmatic spending, tends to take time.Seth Carpenter: Yeah, even well targeted policy might not hit the economy in time to have the desired effect before the election.Would you agree with that?Ariana Salvatore: Yeah, but for argument's sake, let's say we're wrong on that and Congress does manage to pass something. Maybe not a broad-based stimulus package, but let's say some form of targeted relief.From a macro perspective, what do you think would matter most? Is it the size of the package, how quickly it gets implemented, or which consumers are targeted?Seth Carpenter: Yeah, I'm going to have to say a little bit of all of the above. I mean, economic analysis really tends to show that tax cuts tend to simulate less than increased spending and transfers matter. But it matters to whom those transfers happen.So, I do think if we're aiming at the lower end of the income distribution, probably has a higher propensity to spend; and so, you're more likely to see more of those dollars getting spent and faster – if that's where it's going. The size of the package has to matter as well, because more money out probably means more money getting spent. But I will add, there are two caveats this time around that we probably need to take into consideration.First, with the increase in tax refunds that we've seen this year, survey suggests that households are using that money to pay down outstanding debt more than they would historically. And so, we might be in a situation because of the past couple of years of affordability issues where households are going to try to get ahead of things and pay down some of that debt. And as a result, maybe there's a more muted effect on spending.And second, we are living in a world right now where inflation is well above the Fed's target. So, if the extra stimulus leads to extra spending at a time when prices are already high, well, there's a chance we might give an extra boost to inflation and then the Fed would have to reconsider what it's doing on monetary policy.But you said Congress is probably constrained. So, let's shift then and ask, is there something that the president could do unilaterally with executive authority? And in particular, sometimes I get this question from clients, even if there's not clear, well-defined legal authority. We've seen something like that before with the tariff policy under the IEEPA authority. It was imposed and then later it was pulled back when it was judged by courts not to be the right authority.So, why wouldn't we think – the argument goes; why wouldn't we think that some sort of large scale maybe rebates or direct payments, could get deployed quickly, even if the, let's say, legal authority is a little bit murky?Ariana Salvatore: Yes, it's an interesting question, but I think there are a few important distinctions that make something like the administration sending out checks, for example, very different from tariff policy. First, fiscal transfers are much more clearly tied to congressional authority, legally speaking.Spending power, as you know, resides in Congress, and that's a pretty firm constitutional boundary. And importantly, even something like tax refunds, which can look like direct payments aren't discretionary. They're preauthorized in the tax code, and Treasury is just returning overpayments under a standing appropriation. So, there isn't really a comparable mechanism the administration could use to send out broad-based checks, for example, without new legislation.Now, trade authorities by contrast, have historically allowed for more executive flexibility, even if contested, like we saw with the IEEPA tariffs. Direct fiscal outlays are different. You generally need explicit appropriation. And then second, there's the operational side to all of this. Even if you were to set aside the legal questions, there isn't a standing mechanism for distributing very large sums of money quickly without legislative backing.Seth Carpenter: Fair enough. And if we stay in this totally hypothetical world, what would you imagine would be the timing of any legal challenges if they did happen?Ariana Salvatore: In a scenario like this, you'd likely see challenges fairly quickly and courts could intervene early in the process, potentially before funds are even fully dispersed. So, Seth, the idea that you could deploy something on a massive scale and only deal with the legal consequences much later is all the more uncertain.But Seth, let's stay with the upside risk scenario for a moment. If Congress did pass something targeted instead, where would you expect policymakers to focus? Can we talk through maybe energy rebates, child tax credits, SNAP or nutrition support… Or do you think something else aimed at the most rate sensitive or cost of living sensitive households might make more sense?Seth Carpenter: Yeah, I think you've laid out there a pretty rational strategy for trying to make things targeted for the people who are going to be feeling this affordability crunch the most. And so, the SNAP benefits, like you said, are nutrition support. That's lower income households, families with children, people who really are living paycheck to paycheck and noticing these higher prices.Energy subsidies or some sort of tax rebate – again, trying to target where the pain is most acute; the higher electricity prices, the higher gasoline prices that people are noticing, that people are feeling. I think all of that seems very plausible.I just want to flag though, that there is this possible hidden effect, which is the more these policies mask the higher cost, the economic pain from the higher energy prices – the more it allows people to keep spending despite the higher prices. And that spending with higher prices, well, that could easily lead to a tick up in inflation.That could lead to a change in the Fed's reaction function. And if it was strong enough, if growth picked up enough and inflation picked up from here, you could easily see the Fed hiking rates instead of cutting.Ariana Salvatore: So, in other words, even if the policy surprise is maybe good news for consumers in the near term, markets would still need to think through whether it extends the inflation problem or changes the expected rate path.Seth Carpenter: I think that is exactly right. I think this is very much a case where good news could be good news, but there are going to be lots of details.So maybe if we take a step back, we've got a constrained Congress, maybe limited scope for unilateral action and a macro backdrop because of inflation that's probably already under some pressure.Ariana Salvatore: Which means the key drivers heading into the midterms later this year are likely to remain the ones that are already in place: energy prices, monetary policy, and underlying growth dynamics rather than potential new fiscal stimulus.Seth Carpenter: And so that means for markets, focus needs to stay on the fundamentals.Ariana Salvatore: Exactly. Elections can shape the policy path at the margin, but the macro cycle is doing most of the heavy lifting here. And we think that's the case following the midterms as well. If you'd like more detail there, please go ahead and listen to our podcast from last week on this topic.Seth, thanks for taking the time to talk.Seth Carpenter: Ariana, thank you for inviting me. And for the listeners, thank you for listening. If you enjoy Thoughts on the Market, please share it with a friend or colleague today. And leave a review wherever you listen to podcasts.

Tom Wigg and Stephen Byrd discuss the accelerating pace of AI breakthroughs, the forces driving them and why the next phase of development may look very different from anything we've seen so far. Read more insights from Morgan Stanley.----- Transcript ----- Tom Wigg: Welcome to Thoughts on the Market. I'm Tom Wigg, Head of Specialty Sales in the Americas at Morgan Stanley, and a sector specialist in Technology, Media and Telecom.We wake up every day to new AI product releases, so it's easy to lose sight of the unprecedented non-linear improvement in AI capabilities. But things are about to get weird. It's Tuesday, April 28th at 8am in New York. The market has been thinking about AI in linear terms. But we need to reframe that assumption of only incremental improvement and think about exponential improvement.That was my takeaway from a conversation with Stephen Byrd, Global Head of Thematic and Sustainability Research at Morgan Stanley. In our conversation, we zeroed in on Stephen's bull case for broader AI model improvements. Tom Wigg: First, I want to talk about one obsession that you've been writing about for the last several months – is this idea that we're going to see nonlinear improvements in the frontier models coming out this spring.Stephen Byrd: Yes.Tom Wigg: There's been, you know, some big headlines around new models, benchmarks coming out publicly. Is this, you know, your bull case playing out on these models? And what are the implications?Stephen Byrd: Yes! Absolutely, Tom. So we have, to your point, we are obsessed. And I know I'm not shy about that – with the nonlinear rate of AI improvement. It is the most important impact to so many stocks that I can think of in the sense that it can impact all industries, all business models. So, what we've been saying for some time is, if you look back over the last couple of years at the relationship between the amount of compute used to train these LLMs and the capabilities, we have a very clear scaling law.And approximately the law is, if you increase the training compute by 10x, the capabilities of the models go up by 2x. Now, as you and I've talked about this a lot; just meditate on that for a moment. I think things are about to get weird in the sense that on the positive side, we're going to see all kinds of underappreciated capabilities across many industries. So this disruption discussion, I think, is going to spread, but it's also going to require investors to, kind of, be more thoughtful about what they do with that concept. Meaning you can't sell everything. In the sense that AI will disrupt some businesses.I actually think this is healthy in some ways because now it forces investors to really look at each business model and assess which is going to get disrupted, which can get supported and enabled by AI, which are immune. Because there are some business models that actually are immune.But essentially from here, Tom, I'd say we are expecting through the spring and summer to see multiple models that are able to perform a much greater percentage of the economy at better levels of accuracy at incredibly low cost. Which I know you and I have talked a lot about the cost of actually doing this work from the LLMs.This is massive. This is going to impact so many industries. I think this is all to the good for the AI infrastructure plays because it shows the importance of getting more intelligence out into the world.Tom Wigg: So, you mentioned the constraints we're seeing across compute, memory and power. It seems like most of the CEOs of the labs and hyperscalers are talking about this. Investors are bullish in terms of the ownership in, you know, memory, optical, semi-cap, et cetera. But the question I'm getting more recently is around what's the ROI on all this spending. And does the market action in these hyperscalers, which have been pretty bearish year-to-date, force a cut on CapEx? So, maybe if you can marry that with what you're picking up on the ground in terms of compute spend and whether the frenzy still continues, you know, versus the ROI? And, like, what could happen?Stephen Byrd: Yeah. The short answer – I'm going to go through detail – is I think the bullishness is going to get more bullish over the coming months. And let me walk you through a couple of the mathematics and then just what I'm seeing on the ground to your point, Tom.So the mathematics. We have a token economics model that looks from the perspective of a hyperscaler or an LLM developer in terms of – if they sell their token at a certain price and you fully load the cost of a data center and all associated costs, financing, you name it – in what are the returns? And the bottom line is the returns are excellent.The other element we spend a lot of work on, and you and I talk a lot about, is the demand for compute. In this world where the LLMs are increasing in capability and the token usage goes way up with agentic AI, video world models, all that stuff, we think that there is a massive shortage of compute. So, if you're lucky enough to be a hyperscaler with the compute, with the power, we think that they will have a lot of pricing power on the tokens.Let me explain why we see price power on the tokens. Now I'm going to flip to the perspective of an adopter. Let me give you just rough mathematics. There was a study last year from one of the big labs showing that on average, an enterprise user using an LLM might be able to replace work that would take about one and a half hours from a human. That would save about $55 of cost. A million tokens, depends on whether you're looking at input or output – but let's just call it $5 for a million tokens.The average usage case today for a fairly complex agentic task in an enterprise setting is in the tens of thousands of tokens. Okay? So let's just do that math again. $55 of savings. A million tokens cost $5, and a typical agentic usage is far less than the million tokens today, though that will accelerate. The economics are a home run for adopters.So, we're in a situation where compute is very scarce. I see pricing power all over the place for those who have the compute and have the power.Tom Wigg: So, when you put it like that, Stephen, it seems so inevitable and obvious. But I wonder why the hyperscalers are trading the way they are? And when do they see the revenue inflection you're talking about? Is this like a stay tuned kinda 2026 event? Is this something we have to wait for for 2027-2028?Like, how do you think this flows through to the extent that the market will get more comfortable that all this free cash flow pressure is worth it on the other side?Stephen Byrd: Yeah. This is, in short, I think this is a 2026 event. But let me dive into that because what you just asked is so important for so many stocks.So, let's talk through this. The capabilities of the models are advancing so fast that the average corporate user is not yet keeping up. There is this gap. But that will happen quickly, and we're seeing signs from these labs of revenue at the lab level that is accelerating. So that's a good sign.What we're seeing, though, among fast adopters is those adopters who really understand the capabilities are quickly realizing just how economically beneficial there is. An example, one of my best friends founded a software company many years ago. Last month was – that was the last month in which his programmers wrote code. They're done with writing code.The efficiency benefits for his business are absolutely massive. But he feels like he's just scratching the surface, and he's about as technically capable as anyone I know. He has two PhDs in the subject matter. He's very, very good.So long way to say that we're living in almost two worlds where the fast adopters will show what's possible. The average utilization for enterprises will still take some time. But I do think that the market will react to what they see from the fast adopters in the sense of – the tangible economic benefits are so big.Now, on the ground, what I'm seeing on the infrastructure side, my friends in power tell me that a couple months ago is when they saw the sense of urgency from the AI community go up a couple of notches for them to get the infrastructure they need. So they saw this explosion in compute coming. In the last two months, the weekly usage of tokens according to OpenRadar is up a couple hundred percent in a couple months.So, I do think we're seeing this. So, this is; it's happening quickly. What I would say is the market will have these signposts in every industry of early adopters showing this benefit. I think that's enough for us to start to get bullish. We also… I just think when you look at the demand for compute, the compute numbers need to go up. And with that, you know, everything in the AI value chain, infrastructure value chain, the volumes need to go up.Tom Wigg: One bear case that I wanted to interrogate was – there's one view that, yes, there's a token explosion right now. But it's because the first use case is coding. Which is inherently, you know, very developer-friendly and token-intensive relative to other knowledge work.Can you talk about, you know, whether you subscribe to that? Or whether the token intensity will be as high or lower as this expands to other areas of knowledge work in the next several years?Stephen Byrd: Yeah, it's a great question. The short version is that, yes, it's true that software usage is more token intensive. However, what we're going to be seeing – we're starting to see it – is in almost every knowledge-based job, we're going to move to agentic AI. And when we do that, you tend to see an explosion in compute.Let me walk you through the numbers. There are a couple studies that show essentially when you go from a query-based usage of LLMs to an agentic use for any occupation, you see about a 10x increase in token usage per use of those models. And you can see why.I've anecdotes of some of my friends who are newer to this – who set their agents loose overnight to do non-coding work. And in the morning they get some pretty amazing results. But they also used a lot more tokens than they'd expected … (laughs)Tom Wigg: And a five grand credit card bill?Stephen Byrd: Exactly. It's like maybe next time you put a few parameters around that. But long way to say, it's agentic across every workflow that I can think of that will still result in an explosion in token demand.Tom Wigg: It's definitely a good idea to put some parameters around your agentic workflow.My thanks to Stephen for that conversation. And thank you for listening. Let us know what you think of the show by leaving us a review where you listen. And if you find Thoughts on the Market worthwhile, tell a friend or a colleague about us today.

Major U.S. stock indexes have rebounded sharply in recent weeks. Our CIO and Chief U.S. Equity Strategist Mike Wilson discusses the fundamentals that could support the continuation of the bull market.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 why I remain bullish even after such a strong run in stocks. It's Monday, April 27th at 11:30am in New York. So, let's get after it. The U.S. equity market just experienced one of the most dramatic bounces in history from a technical standpoint. It went from oversold to overbought territory in just 12 days. Based on our conversations, the speed of this move has led some to express caution about the near-term path of equities – but that's the way it usually works. The market waits for no one once it decides to move on. From our perspective, this feels like last year. Many investors are contemplating the lagging impacts of higher commodity prices on inflation just like they were thinking through the effects of higher tariff rates a year ago. Many companies will feel the downstream impacts on a lagging basis. But we believe equity indices and many subgroups already suffered enough damage to account for these concerns. In other words, the equity market isn't simply looking past the risks, it already priced them. Take into consideration that the earnings picture is much stronger today with forward 12-month earnings growth approaching 25 percent versus just 9 percent a year ago. As well, we still hear many commentators suggesting that growth is only coming from a handful of stocks. While mathematically that is a fair point for the top-heavy S&P 500, it doesn't acknowledge that forward earnings growth for the median company and for small caps is also well into the double digits. This cadence is very different from the prior three to four years when the economy was experiencing a rolling recession. It also supports our rolling recovery and broadening thesis we laid out a year ago. So far, the first quarter earnings season has delivered a 10 percent beat rate in aggregate. This is two times the long-term average. More importantly, second quarter and forward 12-month company guidance have increased by an additional 2 to 3 percent. Besides earnings beat rates and guidance, we are also watching capex guidance and signs of pricing power. We entered 2026 with a view that the capex cycle was gaining momentum, thanks to three tailwinds: First, strong earnings and cash flow, which tend to correlate with capex. Second, tax incentives from the BBB; and third, strong demand for the AI buildout and reshoring of manufacturing. Early indications on this front are supportive with median stock capex growth running almost 10 percent, and our factor work continuing to show that the market is rewarding high capex. It's important to see these trends continue as the quarter progresses, especially this week when the hyperscalers are scheduled to report. Another point; given potential downstream cost headwinds from the Iran war, we want to see pricing power and top line durability persist. Early indications here are also supportive with sales surprises for the S&P 500 running well above average and close to 2 percent. Finally, as noted in prior podcasts, one of the last hurdles for the market to overcome was the Fed's recent hawkish pivot on higher oil prices and the transition of its leadership from Jay Powell to Fed Chair nominee Kevin Warsh. This past week, Kevin Warsh appeared in front of the Senate. He signaled some caution on near-term rate cuts, noting that inflation risks are not resolved. He also reiterated his well-established criticism of the Fed's historic willingness to intervene in markets and the economy too aggressively with its balance sheet. Every Fed Chair transition typically requires a learning period for the markets where they test the new chair's resolve and figure out how to interpret his or her communication style. This time should be no different and could lead to some corrective price action in the near-term caused by short spikes in bond volatility or stress in funding markets. In my view, the Treasury and Fed will be able to manage these risks in the end leaving the bull market intact. Thanks for tuning in; I hope you found it informative and useful. Let us know what you think by leaving us a review. And if you find Thoughts on the Market worthwhile, tell a friend or colleague to try it out!

Kevin Warsh, President Trump's nominee for the next Fed Chair, testified in front of the Senate earlier this week. Our Global Head of Fixed Income Research Andrew Sheets presents key takeaways from the two-and-half-hour testimony.Read more insights from Morgan Stanley.----- Transcript -----Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley. Today on the program, a first look at potentially the next Fed chair. It's Friday, April 24th at 9am in New York. Financial markets can often struggle to keep track of more than one story at a time – and at present, we're really pushing the limit. At one end, the Iran conflict continues to create a historic disruption in global energy markets. At the other, signs of corporate animal spirits and activity hint at the potential for an even larger boom if this disruption ends. Merger activity, capital spending, loan growth and earnings growth are all strong and accelerating. And so, into this mix enters a third story, the Federal Reserve. Indeed, both Iran and the investment boom introduce real questions as to how a central bank should react to these factors. For example, if oil prices spike further, should the central bank raise interest rates to counter the inflation that would follow? Or should it lower them because that increase in oil prices could potentially hit growth? And what about corporate aggression? As that aggression increases, should the Fed look to raise interest rates and take away the punch bowl, so to speak, to avoid an even larger overheating in the economy? Or maybe all of this investment will create abundance – actually lower prices and warrant interest rate cuts. These questions will weigh on the Fed and, in particular, Kevin Warsh, who has been nominated by President Trump to be the next chair of the Federal Reserve. This week saw Warsh testify in front of the Senate as part of that process, giving us the most detailed insight into his current thinking that we've had so far. Two things really stood out. First, Warsh believes that this historic boom in AI and technology investment really is likely to boost productivity. A productivity boost, all else equal, should mean a greater supply of goods and services into the economy from the same number of workers; and thanks to that greater supply, relatively lower prices and less inflation. This belief in investment driven productivity underpins why he thinks interest rates can be lower even if current inflation is elevated. Second, Warsh was critical of the Fed, stating that it had “lost its way,” from expanding its balance sheet too much to being too slow to reign in inflation following COVID. He outlined a sweeping agenda for change, including how the Fed could forecast inflation, manage its assets, and communicate its policy. But another challenge that's going to be facing the next Fed chair will be personal as much as it's economic. Fed decisions are made by a majority vote. And while Warsh may feel strongly that the historic investment cycle that we're seeing in technology will bring down inflation, can he convince others of this as well – especially at a time when current inflation readings are somewhat elevated? And will his criticism of how the Fed has conducted action over the last several years make it harder to gain the support of colleagues, some of whom were there for those measures? Or will it be welcomed as a breath of fresh air and a chance for the Fed to have a new start? The uncertain timing of the handover and the fact that policy is still up to committee means that we think markets will likely stay focused on other factors in the near term and expect relatively modest shifts in Fed policy for now. But it's still worth watching. Since 1979, only five individuals have occupied this important seat leading the U.S. Central Bank. We may be about to get the sixth. Thank you as always for your time. If you find Thoughts of the Market useful, let us know by leaving a review wherever you listen. And also tell a friend or colleague about us today.

Our Global Chief Economist and Head of Macro Research Seth Carpenter asks Mayank Phadke, a member of his team, to give up an update on tariffs and their real cost to the U.S. economy.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 Head of Macro Research. And I'm joined by Mayank Phadke, a member of my global economics team. And today we're going to talk about tariffs. I bet that was a surprise. It is Thursday, April 23rd at 10am in New York. I have to say, for the past couple of months, the focus on energy markets, energy supply, energy prices – that has dominated everything that we've been talking to clients about around the world. And so, everyone would be forgiven if they had forgotten that we were talking about tariffs much the same way, nonstop last year. Now, tariffs kind of seem like an afterthought. But part of the stated motivation for tariffs when they were imposed was to boost reshoring. That is to have more production of goods in the United States that had been imported. So, tariffs still matter. They matter for CapEx, in that regard, they matter for domestic production. And because of all of that, presumably they matter for markets and for the Federal Reserve. But for the narrow question of reshoring, the data so far, I would argue, suggests that there's been very little net effect. There will be more tariff news arriving in coming months. So Mayank, I am going to pull you into this conversation because you have been one of the key people on the team, doing of analysis on the data work on tariffs, trade and reshoring. So, could you tell us a little bit about what's been happening to the effective tariff rate for the United States recently? And where we think that's likely to go? Mayank Phadke: Tariff levels have declined steadily in recent months, falling to 8.5 percent as of February, with the decline having accelerated after the Supreme Court ruling. The decision on IEEPA forced a shift in underlying tariff authorities with country level IEEPA tariffs temporarily reconstituted under Section 122. We have long argued, even before the 2025 tariffs that the legal basis for durable tariffs would need to be anchored in section 232 and section 301 based authorities rather than in IEEPA. The current Section 122 tariffs are due to expire on the 24th of July. And after that, we expect more durable authorities to kick in. The shifts that we will see as IEEPA tariffs are replaced by new section 301 and 232 tariffs means that there will be some differences. But from a macro perspective, we expect the level to be roughly similar to where it stood at the end of 2025. An aggregate effective rate of around 10 percent. Two sets of Section 301 investigations were announced by the administration in March, covering virtually all major trading partners. These investigations are likely to run on a faster timeline than prior efforts. Those took around nine months. The comments were requested by the 15th of April, with hearings scheduled for early May. We're inclined to expect completed section 301 investigations over the summer while section 232 tariffs will likely arrive in waves as sector-based investigations proceed. Seth Carpenter: Got it. Okay. So, I'm going to summarize that to say tariffs are not going away. Tariffs are here. In the aggregate for macro economists like us, probably about the same level it's been. But that escapes the question about the individual industries, and it brings us right back to this question of reshoring. Is that what's going to happen? And so, when I think about it, we do have all these negotiations. But the reshoring question forces you to wonder about manufacturing, manufacturing growth and with it CapEx. And like I said at the top, it's non-AI CapEx that's really on the soft side of things. So, you've spent a lot of time looking at the data. I would say one industry that tends to stand out in all these conversations is steel. So, if we look at what's happened with the steel industry, with tariffs, with changes in imports and that sort of things, what's happened? Do we see clear evidence that there's this big reshoring push? Mayank Phadke: The case of steel is certainly very interesting. It helps frame why tariff uncertainty matters. And the supply chain for steel is relatively compact, which makes it easier to observe how the sector responds to tariffs. Domestic production has risen as imports have fallen consistent with the idea of reshoring. But when we look at the total supply of steel to the domestic economy, it hasn't risen. More importantly, U.S. steel prices have materially diverged from global peers. And the risk of more aggressive sector tariffs across the economy, in our view is higher prices. An outcome which is consistent with our expectations from a year ago – and with economic theory. Seth Carpenter: As an economist, I'm always happy when the reality matches what I was expecting in theory. So, that's super helpful. Now, that is one specific industry, and I know that you have spent a bunch of time looking at the data across industries. The point that you made though, about the higher prices, the higher domestic prices for steel means, to me as an economist, that we have to try to maybe separate out the effects of the nominal versus the real. Which is to say, if we're measuring how much output there is, how much that increase is coming from just prices going up versus how much is coming from, total quantity. So, if I asked you, when you look across industries, when you look at the data, what evidence do you see in terms of lots of reshoring. That is to say a diversion of trade, a reduction of imports, and with it an increase in domestic production. Is that there broadly in the data? Mayank Phadke: When we look at production and imports across industries and goods and identify the industries both with and without reduced imports, we see that the increase in domestic production has come largely in nominal terms. Which means that the price has risen, but very little of that increase is actually higher output. The evidence for meaningful reassuring here is quite limited. Seth Carpenter: Alright. So that's super helpful to me because when I think about the implications of tariffs, the economist in me says it reduces the overall productive capacity of the economy. It raises cost for the economy. The counter argument has been we're going to make more in the United States and that's going to boost the U.S. economy. As far as I can tell, when we look at the data themselves, there's not a lot of evidence for the upside. But there is clear evidence that we're raising costs for the U.S. economy. Alright, well Mayank, thank you so much for joining me. And thank you to the listeners. If you enjoy this show, please leave us a review; and share Thoughts on the Market with a friend or a colleague today.

Although the conflict in Iran keeps dominating the news cycle, investors have an eye on the upcoming U.S. midterm elections. Our Deputy Global Head of Research Michael Zezas and Head of Public Policy Research Ariana Salvatore consider policy implications – from healthcare and consumer to AI.Read more insights from Morgan Stanley.----- Transcript -----Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Deputy Global Head of Research for Morgan Stanley.Ariana Salvatore: And I'm Ariana Salvatore, Head of Public Policy Research.Michael Zezas: Today we're discussing the midterm elections and their implications for U.S. markets.It's Wednesday, April 22nd at 10am in New York.All right, so Ariana, midterm elections are coming up. And I feel like every cycle we hear the same question. How much do elections actually matter for markets?Ariana Salvatore: Yeah, I would say, you know, we're still six months out and obviously a lot of the market's focus has been on the U.S.-Iran conflict. But it does keep coming up in our conversations with investors.And to your question, our view is these elections probably matter a little bit less than people think, at least from a macro perspective.Michael Zezas: Okay, so that seems a bit counterintuitive, right? Because policy has felt like a huge driver of markets recently. Tariffs. Geopolitics. Really all the above.Ariana Salvatore: Exactly. But there's some nuance here. So, policy does matter, but the big takeaway is that the direction of policy doesn't really change based on the midterms. That's because some of the key policy variables that you mentioned – trade, geopolitics, also deregulation – those are all likely to keep going regardless of who wins.At the same time, it's worth noting upfront that the race itself is still pretty fluid. A lot of the indicators that investors are watching – polling prediction markets, the president's approval rating, even things like domestic gasoline prices and consumer sentiment – they're somewhat giving mixed signals right now. There's a growing narrative around a potential democratic sweep. But when you actually look in more detail at the Senate map, we think the path there is still pretty challenging.So, I think it's important to emphasize there's much more uncertainty in the outcome than the headlines right now might suggest.Michael Zezas: So, if those indicators end up being right and we do in fact see a divided government, what do you think investors should be paying attention to?Ariana Salvatore: There are some incremental shifts that will be worth watching. In particular as they pertain to fiscal policy. So, for example, things like SNAP and Medicaid, those are the real swing factors depending on the election outcome.If you recall last year, the One Big Beautiful Bill Act legislated some changes to those programs that are meant to start taking effect in 2027 and 2028. Things like shifting more of the cost burden onto states and tightening eligibility requirements to offset some of the deficit impact from tax cuts.And where elections come in is around whether or not those changes actually get implemented or delayed or softened. In our view, the most likely way you can get meaningful adjustments is in some form of divided government where there actually might be an incentive to negotiate around those fiscal cliffs.But crucially, we think that can only happen if you have what we call a robust rather than a fragile majority.Michael Zezas: Okay. Can you explain the difference between those two things?Ariana Salvatore: Yeah. So, the question is not just who controls Congress, it's how unified they are. If you get a robust majority, that means the party can agree internally on what their core policy objectives are. And then use their leverage in a cohesive way to extract political concessions from the opposing party.So, to put it in simpler terms. If Democrats have a large enough majority or are able to coalesce around some of the key policy asks – for example, delaying some of these cuts – we think they can tie those two, some must pass bills. Think appropriations bills or debt ceiling extensions, for example, that they will need to be consulted on in a split government scenario.Now conversely, if it's a fragile majority, you probably see more internal disagreement, less coordination, and a lot more political noise with less actual policy getting done.Michael Zezas: Okay, so a lot of good insights there. Can you boil it down to a few key takeaways for investors?Ariana Salvatore: Yeah, so one I would say is that fiscal policy is really where the midterm elections might matter the most. But even there, we think the impact is more micro than macro. Another is that divided government doesn't necessarily mean less policy activity. It just changes the form that it takes. And then of course there's AI, which is a topic that we've been getting a lot of questions about.Michael Zezas: Yeah, so let's dig in a bit more there because there's obviously a lot of interest in the intersection between public policy and the development of artificial intelligence.Ariana Salvatore: Yeah. This was the key focus of our policy symposium that we hosted in New York last week. AI is increasingly viewed as a strategic priority across both parties. So, unlike some of these fiscal debates, we think that AI policy is likely to take shape regardless of the election outcome. What could change is the approach.So, think about things like how quickly infrastructure gets built, how permitting is handled, how energy constraints are addressed. We're seeing growing recognition across the aisle that the bottleneck for AI isn't just on the innovation front, it's the physical infrastructure – power, data centers and supply chains.Now at the same time, there's also emerging pushback from communities and from policy makers around things like energy usage and cost of living. We've done a lot of research on this front, and it's actually a really critical factor in some of these off-cycle elections that we've seen even back to last year.So, you end up with this dynamic where AI investment probably continues both in a more constrained and increasingly regulated environment in the split government scenarios.Michael Zezas: So, direction's the same, but the pace and the friction points may vary. And that has implications in particular for a few key sectors like power and data center REITs, while consumer and healthcare sectors are more exposed to those SNAP and Medicaid changes we mentioned earlier. Obviously the more unified Democrats are, the more they're able to extend or push off those shifts. Meaning the downside impact on the consumer could be limited versus current expectations.But aside from these policies we're watching. You'll probably see noise around debt ceiling fights, government shutdowns. And those things don't usually derail growth. But they can create volatility and short-term uncertainty, especially around funding deadlines.Ariana Salvatore: Right. And that's important for the macro-outlook. So, in short, our economists think that the growth outcomes are only going to vary modestly across the scenarios while the broader business cycle should stay intact.Now, following from that, our rate strategists see episodic risk, to your point around funding fights, which could drive risk off rallies in notes and bonds. And then you have to weigh that against cooling expectations for growth and inflation in both the divided government scenarios. Similarly, our FX strategists see opposing forces between yields, fiscal policy and the broader policy uncertainty variable driving dispersion across currencies more than a clear dollar direction.Michael Zezas: Got it. So, a lot to pay attention to ahead of the midterms and we'll obviously keep people updated here about what we're seeing.Ariana Salvatore: Sounds good.Michael Zezas: Ariana, thanks for taking the time to talk.Ariana Salvatore: Great speaking with you, Mike.Michael Zezas: And as a reminder, if you enjoy Thoughts on the Market please take a moment to rate and review us wherever you listen. And share Thoughts on the Market with a friend or colleague today.

Back from the IMF Spring Meetings in Washington, Simon Waever and Seth Carpenter unpack what policy makers and investors could be underpricing: the growth hit from higher energy costs, the risk of too much tightening by central banks and why emerging markets still look resilient.Read more insights from Morgan Stanley.----- Transcript -----Simon Waever: Welcome to Thoughts on the Market. I'm Simon Waever, Morgan Stanley's Global Head of Emerging Markets Sovereign Credit and LatAm Fixed Income Strategy. Seth Carpenter: And I'm Seth Carpenter, Global Chief Economist and Head of Macro Research. Simon Waever: Today: The key takeaways for investors from the International Monetary Fund spring meetings in Washington, D.C. It's Tuesday, April 21st at 10am in New York. Every six months, the IMF meetings in D.C. bring policy makers and investors together to take stock of the global economy. And we were both there as part of our IMF policy pulse conference. This time, continuing a pattern of recent years, the backdrop was a bit more complicated. Investors are weighing the economic fallout from the Iran conflict, potentially more persistent inflation pressures, and, as always, rising concerns around global debt and fiscal sustainability. So, the key question coming out of Washington is how do these risks reshape the outlook, and what should investors be paying attention to now. Let's start with the growth outlook, Seth. When you think about the Iran conflict, what's the single biggest channel through which it could hit global growth? And is that risk underpriced by markets today? Seth Carpenter: I think it really is underpriced, and not just by markets. I would say I had conversations with investors, but also with policy makers down in Washington. And I would say relative to my views on things, both markets and policy makers are under appreciating how much of a hit to growth this could be. Where is it going to happen? What's the channel? Well, that actually – that differs depending on which economy that you're looking at. I would say here in the U.S., it's primarily the middle- and lower-end of the income distribution. Higher energy prices, gasoline prices going up, taking away at discretionary income, especially in what we've been calling this K-shaped economy where the bottom half is already struggling. So, a bit of a hit primarily to consumption spending. I'd say in other parts of the world, it's broader. Asia – we are already starting to see rationing being imposed for production, for public transportation in lots of ways that really are going to crimp spending both by households and businesses. And then of course Europe. Well, they're still in some ways reeling and adapting from the energy price shock. When Russia invaded Ukraine, natural gas prices went up a lot more then. But I think there's still an adjustment process going on. So, I think the potential hit to growth is real. I think it has spread across economies around the world, but each different economy, each different country has its own sort of nuance and flavor to it. Simon Waever: And what about the central banks? I know you met with quite a few of them as well. Are they at risk of being behind the curve on inflation or is actually the bigger mistake now look like over-tightening? Seth Carpenter: Yeah, I really think the over-tightening is the bigger risk here. It's funny, being behind the curve. That's a phrase that I did hear a lot, especially among some of the European policy makers. And people are feeling scarred, I guess you could say, from the surge in inflation that we got coming out of COVID. But history suggests that these sorts of surges in energy prices tend to be: one, more focused in headline inflation rather than core; and second, they do tend to revert on time and go away, over time. And I would say the bigger the hit to growth, the more likely it is that the inflationary impulse will start to fade on its own. And so, I do think there's too much reliance maybe on the inflation side of things, maybe not quite enough on the growth. And so, when I weigh the pros and cons, I would say the risk is probably too much tightening rather than not enough. But you know, Simon, I tend to spend more of my time in Washington talking to policymakers and investors who are focused on the developed market economy. So, I talked to people about the Fed, talked to people about the ECB. Morgan Stanley's real strong suit, when we do these conferences of the meeting though, is our EM focus. And I know you and the rest of the team have really over the years ramped up our engagement. So, when you think about the conversations that you had with investors and with officials, what do you think has, sort of, shifted most in recent months? And maybe what's shifted over the past week because the news flow has been going back and forth. What's going on in emerging markets that investors need to know about? Simon Waever: Right. I would say the first, and by far the biggest focus throughout the week was the disconnect between the very positive market sentiment versus actual developments in the Iran conflict. I think many participants believe the mood would be much worse and that the decision coming out of the meetings would be whether to buy into a challenging backdrop or just stay away. But instead, I think they came away thinking that the mood was actually fairly upbeat. But also that markets are pricing in a substantial probability of a resolution already. And that brings me to my second takeaways, and that's around EM resilience. EM has faced multiple macro shocks in recent years. And I think it's fair to say that EM policymakers, including central banks, have built up their credibility when it comes to responding to such events and the volatility they bring. Several of the EM central banks we met were positively surprised by the resilience of FX markets but also noted that they would still err on the side of caution. EM fundamentals also help in this aspect, which has seen contained external imbalances versus the past and mechanisms to deal with the energy price shock.Of course, with everything else impacted by the war, duration matters – especially as fiscal buffers are not equal across EM. But I would say in general it reaffirms our view that EM is in a good place to absorb and deal with the uncertainty. And that would actually be my third and final point. That the year as a whole should be good for EM assets, assuming that trajectory remains one of de-escalation. And I think that does extend to FX as well, where the market may quickly return to trading U.S. dollar weakness, particularly if the market's priced more of the Fed cuts that you expect. Seth Carpenter: Got it. So, you did say, assuming we return to a theme of de-escalation, and I guess we have that built into our forecast. The last four or five, six days has seen lots of back and forth. But if we do assume we end up de-escalating the current crisis in the Middle East, looking across EM [be]cause it really is a differentiated, subtly nuanced, broad part of the world. If I had to push you a little bit and say, where do you see the clearest winners? What would you point at? Simon Waever: Sure. I mean, to me, LatAm remains a key winner. We've had this call since the start of the year, but if anything, the Iran conflict and my discussions at the IMF only reinforce this. The region is obviously physically removed from the Middle East, but there are also many large commodity exporters. And a lot of the discussions were around the political realignment with the U.S. and there are several examples. Just to give a few: Argentina as usual, was a key part of the discussions. And compared to the meeting six months ago, they were much more positive given what's been accomplished since, both in terms of the structural reforms and the FX purchases here to date. And I have to mention Venezuela given it was during the meetings last week that the IMF resumed dealing with them, which had been a key positive catalyst that we've been looking for. Brazil is obviously the biggest economy, and I would say sentiment was pretty positive. But also there's an acknowledgement that the elections in October are just too close to call. And that is likely to bring some uncertainty closer to the time. Seth Carpenter: Yeah, those are all super compelling examples [be]cause they mix the economics, the markets with the politics. Obviously you mentioned the elections coming up in Brazil; and then for Argentina it was this real huge landslide shift in what was going on because of an election there a couple years ago. And we're seeing how that's coming out. Alright, so let's go in the opposite direction. And not everything can be rosy, and even if as a class we're pretty optimistic and pretty constructive on EM… Do you think there are some key vulnerabilities across the space that you cover that maybe could surprise us to the downside? Or maybe that markets really aren't appreciating now and might have to rethink? Simon Waever: Yeah, I think to start with, we move outside of LatAm and in all those discussions it was much more about the extent of vulnerability to the conflict and in particular the energy exposure. And I would say in general, an oil price of eighties is a sweet spot for EM, sovereign dollar bonds. But differentiation should pick up a lot. I would say the obvious view would be that energy exporters should outperform importers. But what I would highlight is actually more around the differentiation within all the importers [be]cause that's where policy space can differ significantly. And even just within Central America and Caribbean, I would call out countries like Costa Rica and Guatemala as having more policy space than say, El Salvador or Dominican Republic. And within Africa, it really comes down to the energy balance and whether you have alternative financing sources. Seth Carpenter: Got it. Got it. That's really helpful. I will say every day, every week, every month we get new headlines about what's going on. I think you and I are both going to have to be glued to our screens to, sort of, follow what's going on and see how it affects markets. But I guess for here maybe we will call it quits. I really learned a lot from my time down in Washington. It sounds like you had some really good engagement too. Simon Waever: Yep. I agree. Thanks for taking the time to talk. Seth Carpenter: It's always good to talk to you, Simon. Simon Waever: As a reminder, if you enjoy Thoughts on the Market, please take a moment to rate and review us and share the podcast with a friend or colleague today.

Our Global Head of Thematic and Sustainability Research Stephen Byrd unpacks how major investment themes for 2026 are increasingly interconnected, generating gains for investors.Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I'm Stephen Byrd, Morgan Stanley's Global Head of Thematic and Sustainability Research. Today – how our 10 big thematic predictions are playing out and driving global markets. It's Monday, April 20th at 11:30am in New York. Back in January, we laid out four key themes – AI & Tech Diffusion, the Future of Energy, a Multipolar World, and Societal Shifts. And we laid out 10 specific thematic predictions about forces shaping 2026. It is really striking to me how quickly the landscape has shifted and how significant these trends have become in just a short period of time. Even more striking is how these mega secular themes are converging. AI is driving unprecedented demand for compute and energy. Energy is becoming a strategic priority for nations. And geopolitics is shaping access to both. So, let's start with the most important development: the acceleration of AI. Now we expected strong progress in terms of large language model development, but what we're seeing is really a step-change upward in capability. And this is driving an extraordinary surge in demand for compute. Global AI usage has jumped sharply with weekly usage; and we measure weekly usage in terms of how many tokens are used. Tokens are really a measure of small units of text. It's a fairly standard measure of demand for compute. That token usage has risen by about 250 percent just since early January, from 6.4 trillion tokens a week to 22.7 trillion; pushing us into a world where compute demand exceeds supply. This is one of the defining investment stories of 2026, and I see a lot of alpha generation, around this opportunity. Now, at the same time, AI is reshaping the labor market. We estimate that automation or augmentation will impact 90 percent of occupations; so almost every job will be affected. But the effect is not binary. So we recently assessed the impacts to employment in five sectors where we believe the impact of AI adoption could be the biggest. And on net we see a 4 percent job loss, driven by 11 percent of outright elimination of jobs. 12 percent of jobs that were not backfilled, partially offset by 18 percent of new hires. So the real story is transformation. AI is changing how work gets done, reshaping roles rather than simply replacing them. But AI does not operate in a vacuum. It runs on energy. And that's the second major shift since January. We now estimate global data center power demand could increase by nearly 130 gigawatts by 2028, with the U.S. potentially facing a 10–20 percent shortfall in power availability needed to support that growth. That's why the Future of Energy is such a central theme. AI growth is directly tied to energy availability, cost, and infrastructure, and increasingly, to national policy. And that brings us to the third major development: geopolitics. We certainly did not anticipate the Iran conflict, but it has had a significant impact on energy markets, including supply disruptions that have rippled across global energy systems. And more broadly, we're seeing a global push towards national self-sufficiency; this is a big driver for many years to come – in energy, critical minerals, and technology. And this clearly aligns with our Multipolar World theme, where countries are prioritizing control over key economic inputs. This shift is likely to be a major driver of markets not just this year, but well beyond. These big structural forces are already showing up in performance. The thematic categories that we developed that are aligned with our key themes were up 38 percent on average in 2025, outperforming the S&P 500 by 27 percentage points. And year-to-date in 2026, they're still ahead by 12 points. The strongest areas reflect exactly these dynamics: AI infrastructure, energy security, defense, healthcare, and emerging areas like humanoid robotics. So what's the takeaway from revisiting our predictions? The biggest changes in 2026 are not happening in isolation, but at the intersections of our key themes. AI, energy, and geopolitics are no longer separate stories. They are now deeply interconnected forces shaping the global economy. And understanding those intersections may be the key to understanding markets and generating alpha for years to come.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 Head of U.S. Pharma and Biotech Terence Flynn discusses how the rapid pace of adoption of weight management treatments could have far-reaching implications across healthcare, consumer behavior and global markets.Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I'm Terence Flynn, Morgan Stanley's Head of U.S. Pharma and Biotech Research. Today: the next phase of growth in obesity medicines – the GLP-1 unlock.It's Friday, April 17th, at 2pm in New York.There are moments in healthcare where innovation, policy, and patient demand all converge. And when they do, the impact can extend far beyond medicine. Now we believe GLP-1 therapies are at one of those moments. We estimate that the obesity medications market could reach around $190 billion at peak across obesity and diabetes. Now, that's a meaningful step up from prior expectations – and it reflects a shift from early adoption to a much broader, more scalable opportunity.Despite the surge in attention to GLP-1s in the last couple of years, penetration actually remains relatively low today. Only about 6 percent of eligible obesity patients in the U.S. are currently using GLP-1 therapies, and just 2 percent outside the U.S. So, while the growth has been significant, the reality is that we're still early. And that's what makes this moment so important.So, we see five drivers that are pushing the next phase of adoption.The first is a shift of oral medications. These therapies have historically been injectables, which limits adoption. But newer oral options are changing that. Notably, just under 80 percent of oral GLP-1 users are new to the category. And this signals real market expansion.Second, expanding access through Medicare. A new U.S. framework is opening these drugs to millions of older patients, with out-of-pocket costs potentially around $50 per month. Now, that's a meaningful shift, and one that could significantly broaden utilization.Third is lower costs and broader insurance coverage. We're already seeing progress here. Average monthly out-of-pocket costs have declined to about $120, down from $170 last year. Now, at the same time, employer coverage for obesity treatments is expected to rise from just under 50 percent last year to around 65 percent by 2027.Fourth is global expansion. Outside the U.S., adoption is more price-sensitive, but the opportunity is large. As costs come down and access improves, especially in markets like China and Brazil, we expect uptake to accelerate.And fifth is innovation beyond weight loss. These therapies are increasingly being studied across a range of conditions: from cardiovascular and kidney disease to inflammation and neurological disorders. And that has the potential to further expand the addressable market over time.So how big could the GLP-1 market get? Well globally, we estimate there are about 1.3 billion people eligible for these therapies. Now our base case assumes roughly 12 percent of that population is treated by 2035, including about 30 percent penetration in the U.S. Now, even at those levels, we're looking at a $190 billion market – with a potential bull case of around $240 billion.But this story doesn't stop at healthcare. We estimate GLP-1 adoption could reduce U.S. calorie consumption by about 1.6 percent by 2035. Now, that may sound modest, but at scale it has real implications, with ripple effects across consumer behavior and industries like food, retail, and healthcare services.So, stepping back, this is what defines the GLP-1 unlock. We're approaching a key inflection point that's driven by oral therapies, broader access, and ongoing innovation. With adoption still low relative to the eligible population, the growth runway remains significant. At its core, this is a long-term structural shift in how chronic disease is treated, and how that reshapes markets.Thanks so much 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 Head of Fixed Income Research Andrew Sheets breaks down how Péter Magyar's win in Hungary's election could smooth relations with the EU and lower the risk premium in the country's assets.Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley. Today on the program, how we're thinking about the market implications of a recent election. It's Thursday, April 16th at 2pm in London. Hungary has about the same population as New Jersey. And yet its elections last weekend commanded global attention. The contest pitted the party of Viktor Orbán, who had served as Prime Minister since 2010, against a former protégé turned rival, Péter Magyar. As a sign of the global importance and as a referendum on the future of Hungary and its place in Europe, this vote was seen as significantly important that the U.S. Vice President flew in to campaign on Orbán's behalf. Among the issues at stake were Hungary's relationship with Europe's broader political and economic architecture. Hungary has been a member of the European Union since 2004, but has frequently clashed with the bloc under Orbán's tenure. This has European-wide implications, as a number of key EU procedures – including the levying of sanctions, defence policy, and enlargement – require unanimous approval among member states. A single dissenting vote, from Hungary or anywhere else, can prove highly disruptive. This month the European Commission President proposed moving forward with changing the voting system and linking it more closely to population. But there's a wrinkle… This change would still need to pass by unanimous vote. So back to the election. The result was a landslide win for the opposition, with Péter Magyar's party securing 138 out of 199 seats in the National Assembly. The shift in leadership, the first since 2010, and the scale of the majority, have meaningful geopolitical implications for Europe. But since this is a markets-focused podcast … we'll focus on the markets. First, new leadership in Hungary may mean warmer relations with the European Union. And that could mean money. Unfreezing access to EU funds, one of the new government's policy goals, could result in 1 to 1.5 percent higher potential GDP growth for Hungary, per Morgan Stanley economists. And the new government has also proposed taking steps to adopt the Euro as its official currency. Both of these developments could help reduce the risk premium embedded in Hungarian assets. While Hungarian interest rates fell and its currency appreciated following the vote, our strategists think that both could move further – with interest rates falling a further 0.5 to 1 percent, and the currency appreciating a further 2 to 4 percent. And while Hungary is a pretty small equity market in global terms, it is one that our strategists like, and are overweight.Hungary's recent election attracted global focus. While much remains to be seen, the prospect for smoother relations with the rest of Europe is a positive for both Hungary's assets and the Bloc as a whole. For different reasons related to Energy uncertainty, relative earnings, and relative monetary policy, we do continue to prefer U.S. equities and government bonds over their European counterparts. But as a longer-term story in Europe that's important to watch, we think this definitely qualifies. Thank you, as always, for your time. If you find Thoughts on the Market useful, let us know by leaving a review wherever you listen. Also tell a friend or colleague about us today.

Our Global Chief Economist Seth Carpenter concludes the two-part discussion with chief regional economists Michael Gapen, Jens Eisenschmidt and Chetan Ahya on the second order effects of the energy shock from tensions in the Middle East.Read more insights from Morgan Stanley.----- Transcript -----Seth Carpenter: Welcome to Thoughts in the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist and Head of Macro Research. And once again, I am joined by Morgan Stanley's chief regional economists: Michael Gapen, Chief U.S. Economist, Chetan Ahya, the Chief Asia Economist, and Jens Eisenschmidt, our Chief Europe Economist. Yesterday we focused on the immediate impact of the Iran conflict, how the energy shock is feeding through into inflation, and, as a result, shaping central bank decisions across the U.S., Europe, and Asia.Today we're going to go a level deeper and talk about some structural issues in the global economy. It's Wednesday, April 15th at 10am in New York. Jens Eisenschmidt: And 3pm in London. Chetan Ahya: And 10pm in Hong Kong. Seth Carpenter: So, even as we're waiting to see whether or not oil prices stabilize following a temporary ceasefire – or not – the broader effects are still working their way through the global economy. Labor markets, supply chains, and then, of course, back to the more longer-term structural themes like AI driven growth. So, the question, I think, has to be: what does this shock mean, if anything, for the next phase of global growth? And does it reshape it? Does it change it, or do we just wait for things to go through? Mike, let me come to you first. One risk that we've been focusing on is whether this kind of shock really changes some of the structural positives in the U.S. economy. The U.S. has been, I would say, outperforming in lots of ways. We've had this AI driven CapEx cycle. We've had rising productivity; we've had strong consumer spending. What are you seeing in the data about those more structural trends? Michael Gapen: I think what we're seeing in the data right now is evidence that oil is not disrupting the positive structural trends in the U.S. I think AI CapEx spending is largely orthogonal to what we've seen so far. It doesn't mean that we can't see negative effects, particularly if oil rises to say $150 a barrel or more where we think you might see significant demand destruction. But with oil where it is right now, I would say the evidence is it will probably weigh on consumption. Gasoline prices are higher. It's going to squeeze lower- and middle-income households that way. But so far, the labor market appears to be holding up. And business spending around CapEx seems to be holding up. And the productivity story remains in place. So right now, I'd say this is more of a break on consumer spending, maybe a modest headwind. But not an outright hard stop. And I think those positive structural elements and AI-related CapEx spending are going to stay with us in 2026. Seth Carpenter: I hear in your answer part of what for me is always the most uncomfortable part of these conversations. Where I have to come back to say, ‘But of course it depends on how things evolve…' Michael Gapen: Of course, It depends… Seth Carpenter: So, then let me push you on AI specifically. You and your team have published a few pieces recently about AI. How AI is affecting the labor market, and maybe some hints as to how AI is likely to affect the labor market. So how should we think about that? Michael Gapen: While it's still too early, I think, to draw firm conclusions, Seth, we do find that there's some evidence that AI is pushing unemployment rates higher in specific occupations that are exposed to task replacement. So, what we did do is we broke down the data by occupation, and it's clear that the unemployment rate has been rising. But that's just a general feature of the economy at this point in time. Over the last 18 to 24 months, the unemployment rate has gone higher. So, what we did is a second-round effort at kind of controlling for cyclicality. And when you control for those, we do find evidence that the unemployment rate for occupations that have high exposure to AI is higher than you would expect, given the cyclical performance of the economy. But the effect is really small. It's maybe about 1/10th on the unemployment rate. So, I don't want to be too Pollyannish and say, ‘Oh, there's no evidence here that AI is disrupting the labor market.' We'd say that there is some evidence there. But, so far, it's mild and it's modest. It's a little more micro than it is macro. So, we'll see how this evolves. But that would be our initial conclusion so far. Seth Carpenter: So, Mike, that's super helpful. When I think about the AI investment cycle, though, I have to come back to Asia because a lot of the AI supply chain is there in Asia, especially with semiconductors and others. But there's lots of supply chain around the world. So, Chetan, if I think about different supply chains, different industries in Asia that are at risk, potentially being disrupted by the current shock, where do you focus? And then take a step further and tell me if you see a risk that there's a structural dislocation going on here in any of these sectors? Chetan Ahya: So, Seth, there are two relevant points here from Asia supply chain perspective, particularly the tech sector. Number one, there are some concerns on the supply side issues in the context of helium and sulfur. But from what we see as of today, these companies who need that helium and sulfur are able to pay up. As you would appreciate, this is a sector which is, you know, making a lot of money for those economies, i.e. Korea and Taiwan. And they are able to bid up on gas prices, sulfur, and helium, and still managing their production lines. So, we don't see a supply constraint as of now for their production, but there will be an implication for them if you do see damage on U.S. growth, which is quite meaningful. At the end of the day, these sectors are deep cyclical sectors. But if you do see that, you know, scenario of $150 of oil price and it brings global economy to near recession, then there will be implication for these companies and sectors in Asia as well. Seth Carpenter: All right, so Jens, let me bring it to you then. Because when I think about Europe, I think about a couple things. One, kind of, the intersection of energy vulnerability now markets pricing in tighter policy, industrial exposure, which has been going on for a long time. Takes us back in lots of ways to the energy price shock that started in 2021 and went through all of 2022, where we did see, I think, a hit to European manufacturing that had kind of a long tail to it. So, when you think about the current situation, what do you think this shock means for the medium term? How much of an effect do you think this energy price shock could have on the European economy going out a couple of years?Jens Eisenschmidt: Yeah, I mean, just listening to you guys, I mean, really makes me a little bit more depressed still, in terms of being European economist here. Because I mean, it seems America, well, they have the same energy shock, but at least they have AI. In Asia while they have the same energy shock, but at least they have something to deliver into AI. Europe just has the shock, right? So, in some sense there could be one summary.No, but I mean, going back to the comparison and the question. Of course, we have downgraded, as I said yesterday, our growth outlook. And that's predominantly on simply inflation high that is not great for consumption. Consumption is 50 percent of GDP. So, you want to take down a little bit your forecast and your optimism. And then – to your point – where does this leave Europe? We do have already less energy intense manufacturing than before. So, not sure if you'll see much more, or much further downward pressure on this sector. But, of course, it is an uphill battle from here to get back. To get this industrial renaissance back that to some extent the Germans at least are hoping for. In our growth outlook and our growth revisions, we looked into differentiated impacts. And, of course, one of these impacts is through trade. And again, the backdrop here probably globally is not great for trade – as at least you would not want to be super optimistic in that current backdrop. And that will hurt again Europe. So, to your question, we have an outlook, which is still positive growth; but much more muted than say, a month ago or two. Seth Carpenter: Can I push you then a little bit and say that this shock to the European economy then isn't just a cyclical hit. There's probably an additional sort of structural headwind that might get introduced on the heels of, say, the earlier 2021-2022 energy shock? Jens Eisenschmidt: I would say it's the same thing. It's just a reminder that this is still there, right? Europe needs to, kind of, find ways… I think it's best exemplified by the German economy, who was exporting to the rest of the world. And now it looks like as if China has taken over that role. And so, you have to find a new business model, simply speaking, because the ice cream shop next door is just better than you. And so, this is something, what the European economy has just gotten another reminder, and it came through energy, in particular. So, this is where the similarities are. So that was a [20]22 shock. In the meantime, oil prices had nicely retraced, gas prices had nicely retraced. We have new contracts with different suppliers. But still, I mean, the high energy prices expose us here. Because we are already a continent with very high electricity prices, which are derived from the fossil fuels. And so that is not going to end. And so, the continent really urgently has to address that weakness, that structural weakness. And so yeah, in that sense it's structural. Seth Carpenter: Let me pull this together for maybe a final question for each of you. And I'd love it if you could just answer really quickly. Quick fire answers here. We've got a baseline scenario where energy prices are high. Oil is back up a little bit over $100 a barrel. But I think we, and most of the market, are assuming oil prices gradually come down later this year. Mike, what's the prognosis for the U.S. economy? If instead oil prices skyrocket, say they go through $150 a barrel for a couple of months in a row. Michael Gapen: So, the risk there, Seth, is that you do get significant demand destruction. It's not just a gasoline price story for the consumer. It's about weak asset markets. It's about a pullback in hiring. So, at $150 a barrel or more, I would be afraid about recession risk in the U.S. The U.S. is well positioned to handle an oil price shock, but it also has limits. Seth Carpenter: Got it. Jens, suppose instead we had a rapid de-escalation and all of a sudden in the next two months, oil prices are backed down to say $80 a barrel or so. How much of the damage that you envision for the European economy is already baked in the cake? And how much of it goes away if oil prices retrace over the next two months? Jens Eisenschmidt: I would say a lot for this year is baked in the cake to use your words. While next year, we would be basically back to where we had been before in numbers. 1.2 instead of the 0.9 we are seeing currently. And importantly, the ECB could stay. It would not have to hike into that crisis. Seth Carpenter: So, Chetan, , let me come back to you then to wrap up this whole conversation. We've talked about energy mostly in terms of price, but as we've discussed there is the quantity side of things. So, do you think there's a non-linearity? Is there something that's going to just fundamentally change if instead of the rationing being done by price, we get to a point where there's just simply no supply coming to Asia? Chetan Ahya: Yeah, I think that's a very real risk, and that's particularly more important for Asia because there's a lot of dependence on Middle East, and both gas and oil coming in through the Strait of Hormuz. So yeah, I think there is a risk of non-linearity on Asia's growth dynamics if you see supply shortages. Seth Carpenter: Super helpful. I think that's a great place to leave it. What started as a geopolitical shock is now evolving into something broader, touching everything from inflation, interest rates, possibly productivity and technology investment, and clearly global trade. So, Mike, Chetan, Jens, thank you all for coming to help connect these dots. And to the listener, thank you for listening. If you enjoy the show, please leave us a review wherever you listen to podcasts and share Thoughts on the Market with a friend or a colleague today.

In this first of a two-part discussion, our Global Chief Economist Seth Carpenter leads a discussion with chief regional economists Michael Gapen, Jens Eisenschmidt and Chetan Ahya on impacts of the conflict in Iran and how central banks are responding.Read more insights from Morgan Stanley.----- Transcript -----Seth Carpenter: Welcome to Thoughts in the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist and Head of Macro Research. And today we're going to kick off our quarterly economic roundtable. And this is where we try to step back a little bit from the headlines and the day-to-day changes in markets and try to put the global picture together and frame it for you. In the first of this two-part discussion, we're going to cover the implications of the oil price shock for energy, inflation, and for central bank policy. As always, I'm joined by the Chief Regional Economists here at Morgan Stanley. I've got Michael Gapen, our Chief U.S. Economist, Chetan Ahya, our Chief Asia Economist, and Jens Eisenschmidt, our Chief Europe Economist. It's Tuesday, April 14th at 10am in New York. Jens Eisenschmidt: And 3pm in London. Chetan Ahya: And 10pm in Hong Kong. Seth Carpenter: So, let's just jump right into this. Over the past several weeks, global markets have been dominated by one story. The escalation, de-escalation, the news flow back and forth about the conflict in Iran and the ripple across energy markets, inflation, and growth. Our view has been that even if we don't see another huge leg up in the price of energy and another surge in volatility across financial markets, the persistence of the shock in terms of disrupted supply will be at least as important, if not more so for markets. So, let me start here in the U.S., Mike. You and I have each had lots of conversations with clients about how the Fed's going to react. Market pricing moved a lot before, has retraced, and now is kind of looking at no change in policy for this year, give or take. Your baseline remains that the Fed will have an easing bias and that we'll end up with a couple of cuts later this year. Can you walk us through that thinking, and also where the debate is with clients? Michael Gapen: Sure. So, the evidence in the data… This goes back, let's call it several decades now – that oil price shocks in the U.S. do tend to push headline inflation higher by definition. But they have very limited second round effects on core inflation. And the higher oil prices go, the more likely it is that you get some demand destruction, some weakness in spending, maybe even some weakness in hiring. So, there is a bit of a non-linearity here. In our baseline where oil is elevated, but let's say not excessively high, I can completely buy the argument that the Fed is on hold assessing the evolution of the data and wondering are there second round effects on inflation? Or is this weakening demand? So, Seth, our view is that the Fed is right in its assessment that tariff passed through to goods prices will eventually moderate. And that the oil price effect on headline will diminish. And later this year, core inflation moderates. That should open the door for the Fed to cut two times this year. I do think that the wrong thing to do in this situation is to raise rates into this… Seth Carpenter: I agree with you. Michael Gapen: Yeah. So, I think it's… The Fed's on hold or their cutting. If we're right on where inflation goes, that can open the door to cuts. But to your point, where is the investor debate right now? I think the knee jerk reaction from markets is – the Fed's on the sideline, for, let's call it the foreseeable future. Which as you noted in this market is day-to-day headline to headline. And the Fed will assess where to go later this year. We think they can cut. But I think in general, the Fed is either on hold or cutting. I think the wrong thing to do right now is raise rates. Jens Eisenschmidt: Yeah, let me jump in maybe here from Europe where in theory it's the same problem. Just that the answer that the central bank is likely to give in Europe is slightly different from the one in the U.S. So, the debate we have with clients is not so much about whether or not the ECB is going to hike rates. It's more about how much it will do or have to do this. I mean, again, it has a lot to do with the way oil prices in the end, end up trading. It will be a lot more inflation or less. But it has also to do with the way the mandates are constructed. So, the ECB really has a single inflation mandate and not a dual mandate like the Fed in the case of the U.S. So, there's much more attention on inflation. Next to that, we have stronger second round effects. Historically, we know that from the data. So, it's clear and understandable why ECB policy makers all came out cautioning against that inflation coming, and sort of mulling what had to be done there. We had some leaks out of the governing council meeting in March that maybe [in] April, you've already seen rate hikes. We pushed strongly back against that notion. Since then, we had other policy makers coming out agreeing to that. Yet we likely have a discussion in the June meeting that may lead to a rate hike. We currently forecast a rate hike in June and one in September. Seth Carpenter: What about the growth risks to the euro area? Is that part of why you think the hikes might come later? Is that part of why the ECB might only hike two times this year? How do you think about the growth risks for the euro area in addition to the inflation risks? Jens Eisenschmidt: Yeah, no, I think that's a fair question. We have just updated our growth outlook for this year. Next, we've downgraded growth, obviously. Again, all of that is dependent on the scenario in the end we are in. For now, we assume a scenario of elevated oil prices for this year, but then they will retrace. Now the ECB will look at that in a very similar fashion. So first of all, they will have their new projections. They will see whether there is any hope, reasonable hope that we go back to close to target inflation. Mind you, we were below target, started the year on a very good footing here. And now are projecting we will more or less come out at above 3 percent this year and 2.4 next. Both are above the 2 percent target. That already factors in a mild hit to growth. And I think here is really the crux of the matter. If the ECB has to see a more dramatic downward revision of its growth outlook, they may as well hold a little bit more back with rate hikes. At the same time, for now, all the indications are that the hit to growth will be relatively mild and herein lies if you want the basis for the rate hikes. It's a bit of a signaling device. It's a bit of lowering growth, but not really as much. It's not – we see a central bank leaning strongly against inflation. We are seeing them mildly leaning against it in a bid to stabilize inflation expectations mainly.Seth Carpenter: Alright, that's super helpful. Chetan, I'm going to come to you because we've talked with Mike and with Jens about the inflationary side of things and the growth side of things. But when I think about energy and Asia, I think of Asia as being a bit more exposed than other big economies, definitely relative to the United States. And I think about a lot of sensitivity, not just to the consumer, but also to manufacturing. So how are you thinking about the exposure across your region, across Asia to this energy shock? Where are the biggest risks? Chetan Ahya: So, Seth, first of all, I agree with you. I think Asia is the most exposed region. The best metric for assessing that is how much is the net oil imports of each of the regions in the world. And Asia is at around 2 percent of GDP. Europe is around 1.5 percent of GDP and U.S. is actually a minor surplus. Now in terms of the transmission of this shock to growth, there are two elements to be considered. One is the price of oil and gas, and second is the supply shortages. And in fact, all my life when I have been doing this work of modeling on oil shocks to growth transmission, we've never had to really think about supply shortages. We've always been considering oil price increase and its impact. But in this cycle, we have to also consider the supply shortages. So, when you consider both these factors, we think that there will be a meaningful growth damage to Asia from the evidence of oil price increase and gas supply shortages that we have seen so far. And we have just reduced our growth estimates for the region from 4.8 percent to 4.4 percent. Mind you, first quarter was fine. So, this is all on account of the last three-quarters growth damage. And we are assuming that there will some kind of normalcy that we see in ships transiting through the Strait of Hormuz. And we are resuming oil prices average around $110 in second quarter and then come down to $90. So, in that sense, our base case is still expecting some kind of a resolution very soon. But if that doesn't materialize and you see oil prices rising up to $150, then we think region will take a much bigger hit and growth will come down to 3.9 percent in 2026. Seth Carpenter: So, Chetan, you've made a couple of really good points there. One I want to highlight is the difference between the quantities and the prices. I would say as economists, as people in markets, we're used to thinking about oil shocks as just about the price of oil and how that transmits through.But I do think there's a real risk now, given the virtual shutdown of traffic through the Strait of Hormuz that we see physical shortages. And across different Asian economies, we have seen rationing already come into place. So, when you look across the region, how would you rank the specific economies that are most exposed? Especially if we have to think about physical shortages. Chetan Ahya: Yeah, right. Seth. So, we've considered both the aspects, price effect as well as the supply shortages. And on that basis, we rank India, Taiwan, Thailand, Korea and Philippines are the ones which are most exposed. And on the other hand, China and Malaysia are least exposed. Japan and Australia are moderately exposed. Seth Carpenter: Yeah, and that makes a lot of sense. But I can't let you get away from the discussion on Asia without thinking about China. What are you thinking specifically about China? How exposed is it? What's going to happen with growth there? And you know, one of the themes, you and Robin Xing, our Chief China Economist, had been talking about now for over a year is the deflationary cycle in China. So how should we think about the effects in China? Chetan Ahya: So, I think, yeah, China is uniquely positioned in this cycle. We are expecting China's growth to be down by just 10 basis points. So, it almost is as if there is not much damage to China's growth estimates that we have made. And the reason why we see little damage in China's growth numbers is because of two reasons. Number one is that their net oil imports are relatively low. And second is that they have a lot of control on their supply chain. So, for example, they have coal gasification facility. So, when crude oil prices rise above $100, they can activate this coal gasification facility and use that for all the areas where you can use fuel. And they are also quite good in terms of their own electricity distribution management. They have a lot of surplus thermal power capacity. They have a lot of surplus solar electricity capacity. So, they're able to toggle between gas-based electricity supply into coal and solar. So that gives them a lot of leeway to manage the shock and not have much growth damage. Onto your second point on the impact on its deflationary situation. We think that there will be a rise in prices in China because of the input price increase. We still won't call that as winning this deflation challenge that China has been going through over the last three years. For us, if you want to have true sustainable reflation, you should see consumption demand picking up. At the same time, you should see improvement in corporate margins. And neither of those will happen when you have a rise in inflation because of rise in input prices.Seth Carpenter: Yeah, that makes a lot of sense. As always China is an interesting but complicated story. So maybe this is a good place to stop for today.We focused on the immediate effects of the shock, higher energy prices, central bank reaction. Tomorrow, I think we'll be able to dig in deeper into some of the second order effects, and then also ask the question, where are we going from here? What's going to happen to labor markets productivity – the more structural questions. So, Mike Chetan, Jens, thank you so much for joining today. And to the listener, thank you for listening. And be sure to tune in tomorrow for part two of our conversation. And if you enjoy this show, please leave us a review wherever you listen to podcasts and share Thoughts on the Market with a friend or a colleague today.

Our CIO and Chief U.S. Equity Strategist Mike Wilson shares his perspective on why investors should position for a stock market recovery despite ongoing uncertainty.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 why equity investors – sometimes – need to look away from the headlines.It's Monday, April 13th at 11:30am in New York.So, let's get after it.Today I want to talk about something I think a lot of investors are struggling with right now – and that's timing. When I talk to people, markets still feel fragile to most. There's uncertainty around geopolitics, central banks, oil… You name it. But when I look at what the market is actually doing; not what it feels like, but what it's telling us – I come away with a very different conclusion. The market is further along than most people think in this correction.In fact, over the past couple of weeks, we've seen the S&P 500 bounce meaningfully. Almost 7 percent from the lows after holding that critical 6300 to 6500 range that we've been focused on. To me, that's not random. That's the market carving out a low ahead of an all-clear signal. And stepping back, my broader view hasn't changed.I still think we're in a new bull market that began last April, coming out of that rolling recession between 2022 and 2025. This correction is part of that cycle; not the end of it. And importantly, a lot of the heavy lifting has already been done.Valuations have compressed significantly. Forward price/earnings multiples have fallen about 18 percent from top to bottom. And beneath the surface, more than half of stocks are down 20 percent or more. That's a market that has already discounted a lot of risk – whether it's the war, private credit concerns, or AI disruption.At the same time, earnings are moving in the opposite direction. Trailing earnings growth is running around 15 percent, and forward earnings growth is up over 20 percent. That combination of falling multiples and rising earnings is a classic bull market correction behavior. Not a bear market. And that's why I think many are misreading this environment.One area where I think that's especially clear is energy. If you look at the price action, energy stocks appear to have already peaked in relative terms. That's often a signal that the underlying commodity – in this case oil – may also be peaking. Or at least it's stabilizing.Which brings me to what I think is really driving volatility now: rates.We're back in a regime where stocks and yields are negatively correlated. That means higher rates are a headwind for equities again, and the recent hawkish tone from central banks that's focused on inflation is creating tighter financial conditions. In my view, that's the final hurdle. Not the war. Not oil. But monetary policy. And here's the interesting part. Tightening financial conditions are also what ultimately force central banks to pivot. So the very thing creating anxiety today may be what sets up relief tomorrow.Now, if we're in the later stages of this correction, the next question is positioning. For me, it's still about a barbell. On one side, I like cyclicals like Financials, Industrials, and Consumer Discretionary – where the earnings remain strong and valuations have reset. On the other side is quality growth. In particularly the hyperscalers; where sentiment has been washed out, but fundamentals remain intact. That combination has worked well off the lows so far, and I think it continues to make sense here.When I zoom out even further, there's a bigger theme developing as well. And that's the rebalancing of the economy, a core theme we discussed in our 2026 outlook back in November. We're starting to see hard evidence that growth is shifting, from the public to the private economy. Private payrolls are strengthening, capital investment is picking up, and companies are behaving as if the current uncertainty is temporary – not structural. This is the rolling recovery on track.At the same time, AI is acting more as a margin tailwind than a disruption, at least in the near term. And this supports operating leverage across many industries. All of that reinforces my view that the recovery is real. And still has room to run.So when I put it all together, here's where I land:The market has already discounted a lot of bad news. It's adjusted valuations, reset positioning, and absorbed market risks. What risk remains is policy, and how long rates and liquidity stay restrictive. But markets don't wait for clarity on that. They move ahead of it.So, here's my advice. Take advantage of any further worries and put capital to work before it's obvious. Because the market waits for no one.Thanks for tuning in; I hope you found it informative and useful. Let us know what you think by leaving us a review. And if you find Thoughts on the Market worthwhile, tell a friend or colleague to try it out!

Despite a historic disruption to global energy markets, the stock market remains resilient. Our Global Head of Fixed Income Research Andrew Sheets suggests U.S. markets may offer a steady course in the near term.Read more insights from Morgan Stanley.----- Transcript -----Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley.Today on the program: Trying to square conflicting market signals.It's Friday, April 10th at 2pm in London.At one level, it is all still very serious. The world remains in the midst of – and this is not an exaggeration – the worst disruption to global energy markets in history. One-sixth of global oil production remains trapped behind the Strait of Hormuz. And the price of so-called ‘Dated Brent,' the price that you pay to get oil delivered in the near term, is over $130 a barrel. More than double its price at the start of the year.But markets? Well, year-to-date, U.S. stocks and bonds are roughly unchanged. Both have seen large swings only to return to about where they've started. An investor who only occasionally checks the markets could be forgiven for looking at their portfolio this weekend, assuming a pretty dull 2026, and going back to watching the Masters tournament.How do we square this? For stocks, two dynamics are important. First, despite oil prices, earnings estimates, especially in the United States, continue to move higher. Those estimates may prove wrong. But analysts have been incrementally more optimistic, particularly as technological investment continues at pace.Stocks are also fundamentally about the future. Current prices should reflect the discounted value of earnings between now and, well, forever. And so mathematically, if the longer-term outlook can hold up, a weak three-month period in the near term, say, due to energy disruption, simply doesn't have to matter as much – mathematically.Bonds, in contrast, are currently stuck between two pretty strong opposing forces. Higher inflation driven by tariffs and oil is typically bond negative. But bonds also tend to do well if there are higher risk to growth.And so, the key question is whether a prolonged energy shock finally forces central banks to prioritize these growth risks over currently elevated inflation. So far, 2026 has been anything but easy despite the lower headline changes in markets. Morgan Stanley data suggests that March was the second worst month for equity hedge funds in the last decade. And so, with some humility, we'd focus on three points.First, we think U.S. stocks and bonds have an advantage at the moment over their global peers. U.S. earnings growth is stronger. The U.S. economy is less energy sensitive. And the U.S. central bank, the Federal Reserve, we think is more likely to cut rates faster if there's more weakness in growth.Second, we think the bond markets ultimately resolve their tensions at lower levels of yield. A quicker resolution would reduce inflation risks while a more prolonged disruption is going to weigh seriously on growth. The bond unfriendly middle ground, where we are now, simply seems unlikely to persist.Third, amidst the volatility, relative valuation still matters, and there are still interesting things. For example, credit spreads in Asia look extremely tight given the region's exposure to high oil prices. And by contrast, as my colleague Mike Wilson has commented on this program earlier, large cap technology stocks have derated significantly – and now trade at similar valuations to the consumer staple sector, despite having roughly three times the earnings growth as well as low energy exposure.We are once again heading into an uncertain weekend. But preferring U.S. markets, expecting lower yields, and trying to stay focused on relative value are a few of the ways we're trying to navigate it.Thank you as always, for your time. If you find Thoughts on the Market useful, let us know by leaving a review wherever you listen. And also tell a friend or colleague about us today.

Our U.S. Thematic and Equity Strategist Michelle Weaver breaks down the results of a new survey on U.S. consumer spending and confidence.Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I'm Michelle Weaver, Morgan Stanley's U.S. Thematic and Equity Strategist. Today, we're bringing you an update on the U.S. consumer as we try and understand the outlook for the economy.It's Thursday, April 9, at 10 AM in New York.You've probably noticed shopping these days feels like a mixed bag. You spend money on your everyday staples like groceries, personal care or clothes. But you might be second-guessing those big ticket items like a new piece of furniture or a new TV. And you're not alone. Our newest AlphaWise survey of U.S. consumers reveals a pretty mixed signal. On the surface, things look solid. Consumers are still spending. We've seen that borne out in some of the recent economic data. And our survey work reveals around 34 percent expect to spend more next month, compared to just 15 percent who expect to spend less. That leaves us with a net spending outlook of +18 percent, which is actually above the long-term average. But when we start to dig in and look beneath the surface, the story shifts. Confidence is deteriorating. Nearly half of consumers expect the economy to get worse over the next six months, while only 32 percent expect an improvement. This results in a net outlook of -17 percent, a meaningful drop from what we saw last month. So how do we reconcile that? That spending with that deterioration in confidence. It's really a balance of timelines. Consumers are spending today, but they're increasingly worried about tomorrow. And these worries are grounded in very real concerns. Inflation remains the dominant issue, with 57 percent of consumers citing rising prices as a key concern – reversing what had been a fairly short-lived improvement on consumers' view on prices. At the same time, of course, with the tensions in the Middle East, geopolitical concerns are increasing quickly. They've jumped to 33 percent from 22 percent just last month. And concerns around the U.S. political environment remain elevated at 43 percent. When you combine all these pressures, it's not surprising that consumers are becoming more cautious in how they plan to spend. We're also seeing that caution show up in the mix of expenditures. In the near term, consumers are still increasing spending across most categories – especially the essentials like groceries, gasoline, and household items. But when we look over a longer horizon, the outlook becomes more selective. Discretionary categories are weakening. Apparel spending expectations have dropped to -16 percent, domestic travel to -11 percent, and international travel to -14 percent. That shift – from discretionary to essentials – is something we tend to see when consumers are bracing for a more uncertain environment. Now, one factor that's supporting the near-term – a brighter spot here – is tax season. This year, 46 percent of consumers expect to receive a larger tax refund compared to last year. And what's interesting about that is where people are going to put the money. About half of consumers plan to save at least a portion of the refund. About a third plan to pay down debt. And only around 30 percent intend to spend it on everyday purchases. So even when people receive a cash boost, the instinct isn't to spend freely. It's to shore up finances. Putting it all together, the picture of the U.S. consumer today is one of resilience but also rising caution. Spending is holding up in the near term, supported by income and tax refunds. But confidence is weakening, savings behavior is increasing, and discretionary demand is softening. These divergent trends are important. We'll continue to watch them closely and bring you updates.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 a tentative ceasefire in the Middle East holds, the Strait of Hormuz continues to be a sticking point in diplomatic efforts. Our Deputy Global Head of Research Michael Zezas and Head of Public Policy Research Ariana Salvatore walk through some scenarios that could play out.Read more insights from Morgan Stanley.----- Transcript -----Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Deputy Global Head of Research for Morgan Stanley. Ariana Salvatore: And I'm Ariana Salvatore, Head of Public Policy Research. Michael Zezas: Today we're discussing the U.S.-Iran ceasefire's key uncertainties, consequences and what we're watching for next. It's Wednesday, April 8th at 11am in New York. Okay. Let's start with the current situation. The U.S. and Iran have agreed to a provisional ceasefire, two weeks tied to follow on talks and the reopening of the Strait of Hormuz. Markets so far, treating this as a deescalation but not a clear resolution… Ariana Salvatore: That's right. And I think the key framing here is this is a pause, not a peace deal. And in the near term, I would not assume things are suddenly stable. We still have some key uncertainties around how the ceasefire deal is going to be implemented, as well as how negotiations will begin to take shape. Michael Zezas: Right. And that's important. It seems like Iran's reported 10-point plan for the ceasefire includes some elements that might be non-starters for the U.S., some things around sanctions and unfreezing of assets. And so, there's lots of ways that there could be some re-escalation in the near term. Ariana Salvatore: Okay. So that's the near term – fragile, noisy, and still pretty headline driven. But let's try to think about this a little bit further out. How are we thinking about the medium term? Michael Zezas: Yeah. So, thinking a little bit further out, it seems to us that ceasefire and Strait of Hormuz reopening should continue to progress because the incentives are widely shared across the key actors involved. So, the U.S.'s incentive to effectively be done with the conflict is pretty well understood. There's domestic political incentives and economic incentives. There's ways to potentially explain away some of the compromises the U.S. might have to make around the Strait of Hormuz, around sanctions. And maybe point to some incentives to work with partners in the region over time to diminish the importance of the Strait of Hormuz as a choke point. Iran's incentive is pretty clear – to preserve its regime. And another actor here, which appears to be increasingly important, is China, which has reportedly been involved in expressing its preference for deescalation. And that's pretty important because China has a lot of leverage on Iran given its economic relationship with the country. Ariana Salvatore: So, starting with these negotiations, it seems like, as you mentioned before, there's still a lot of gaps between what the U.S. side and what the Iranian side is asking for. But let's put that in the context of the ceasefire. Even if it were to hold – that doesn't necessarily translate to stability, right? Michael Zezas: Yeah, I think that's right. So, if Iran were to start rebuilding its military assets, in particular its nuclear program, at some point in the future, we'd probably come back to a similar point where Israel and the United States might find their ability to project that power to be intolerable. And what we don't know right now is if any type of deal is possible that can mitigate those very long-term concerns. So, even if commodities start flowing through the Strait of Hormuz at a rate that is similar to what it was before the conflict started, it seems like there will be this overhang. Of concern that that could shut down at any moment's notice, if the U.S. and Israel and other actors in the area become concerned again with Iran's power. Ariana Salvatore: So, that overhang you're talking about actually does have some real economic impacts. One way to frame this is kind of like a lingering tax on the global system. We see that through the oil market, right? So, we think of this as a structural risk premium on oil. Our strategist, Martijn Rats, thinks that even in a deescalation scenario, you're not getting back to that world of $65-$70 oil. This Strait of Hormuz will continue to be a critical choke point that doesn't necessarily go away overnight. And maybe over time you could see some mitigation, construction of new pipelines, alternative routes, et cetera. But in the interim, that risk premium feeds through to energy prices, shipping costs, and ultimately food and broader supply chains, which is something that Chetan Ahya has been flagging in Asia for quite some time. Michael Zezas: I think that's right. And so, in highlighting that the Strait of Hormuz is a critical choke point for the global economy and for supply chains generally, it's a reminder of a problem that's been on display for the last 10 years.Just that there are supply chain choke points all over the place when you start thinking about the security needs of the U.S. and other actors throughout the globe. And so, it underscores this dynamic where multinationals are going to have to rethink – and are already starting to rethink – their supply chains. And whether or not they need to build in what our investment bankers have been calling an anti-fragile supply chain strategy. So, we can't just solve for the cheapest cost of goods and cheapest transit. You have to wire up your supply chains in a way that can survive geopolitical conflicts. And while there's some extra embedded costs that comes along with that, well, they're more reliable, so it's more efficient over the long run. Of course, it costs a lot of money to rewire your supply chains, and so that's tied into this opportunity around capital expenditures going into proving this out. And so, investors should be aware that there are plenty of sectors which will have to participate in effectively being part of rebuilding those supply chains. Ariana Salvatore: Yeah, so the way we're framing this is, this is another data point kind of in that trend toward a multipolar world. We've seen certain geopolitical events accelerate that transition. Russia-Ukraine, for example, the pandemic; and this is just sort of another example in that same direction. And some of the sectors that we think are structural beneficiaries here: obviously defense, in particular in Europe, and industrials here in the U.S. Chris Snyder's been doing a lot of work on reshoring, how we're seeing that pick up – and we think that probably continues. But as we're speaking about the U.S. and what this could mean, let's bring this back to the AI angle. Because I think that's where this all really connects in maybe a less obvious way. Near term, we're thinking about the financing implications here as pretty modest. Unless we get a major re-escalation or a rupture of the ceasefire, it shouldn't really change capital availability in a meaningful way. But this could affect where capacity gets built. Michael Zezas: Yeah, that's right. And over the past year, there's been a lot of news about the U.S. engaging in the Middle East with partners to build AI capacity via data center capacity – because there's also plenty of energy in the area to fuel those data centers. But those data centers as an infrastructure asset, and an economically valuable one at that, potentially become military targets when they're built. So, there is a consideration here after this conflict about whether or not those things can be built or be relied upon. And it is a critical part of the U.S.' strategy to build compute capacity in the aggregate with allies. And increasingly they've been looking to the Middle East as allies in an AI build out. Ariana Salvatore: So, if that becomes more challenging and you see persistent instability, for example, in the Middle East, you're probably going to see more demand push toward domestic U.S. data centers. And something that we've been highlighting has been not only the kind of pressures on the capital side. But also, you know, the bottlenecks that are very real – like power, permitting, labor, equipment and political resistance, which we've talked about on this podcast as well. We're seeing a lot of constraints. So, it's not really feasible that the U.S. is going to be able to fully substitute that Middle East capacity. Michael Zezas: So, I think the read through here is that the U.S. is still on track to build the compute capacity that it needs. The CapEx that's going into that – that is helping the U.S. economy grow this year – is still very much intact. It raises some potential future questions about how quickly the U.S. can build out, but it's unclear if that matters in the near term to (a) both the build out and (b) the productivity that can come from the current build out. Ariana Salvatore: And I think a really important consequence of what you're describing has to do with the U.S. China dynamics. So, if the U.S. is, for example, seen as a less reliable security guarantor, then you may see some of the Gulf countries potentially deepen their economic alignment with China at the margin. And that's something that could be really relevant for the upcoming U.S.-China Summit next month. Remember that was postponed from – initially it was towards the end of March. Now it seems to be around the middle of May. So, that's a really important catalyst that we're keeping an eye on for now. That's a little bit further out.Near term, of course, we'll be watching things like military buildup in the region. Any indications on how exactly the Strait of Hormuz will be managed from here. And how these negotiations progress over the next two weeks. As far as the equity market is concerned, it appears that the worst of this risk is behind us from a rate of change perspective. So, our strategists think you should start to see leadership emerge from the sectors that were doing well into this conflict, namely cyclicals like Financials and Industrials leading the way from here. Michael Zezas: Well Ariana, thanks for taking the time to talk. Ariana Salvatore: Great speaking with you, Mike. Michael Zezas: And as a reminder, if you enjoy Thoughts on the Market, please take a moment to rate and review us wherever you listen. And share Thoughts on the Market with a friend or colleague today.

A supply-driven oil shock may start with inflation, but Morgan Stanley's Senior Global Economist Rajeev Sibal discusses why investors need to understand the second-order hit to growth, policy and markets.Read more insights from Morgan Stanley.----- Transcript -----Rajeev Sibal: Welcome to Thoughts on the Market. I'm Rajeev Sibal, Senior Global Economist at Morgan Stanley. Today, economic risk from an oil shock isn't the price of oil itself – but really what happens next? It's Tuesday, April 7th at 3pm in Dubai. An oil shock doesn't stop at the gas pump. It ripples through inflation, growth, central bank policy, and ultimately markets. As you've heard from my colleagues over the past several weeks, this time may be different. We're not just dealing with a temporary price spike. The closure of the Strait of Hormuz is historically unprecedented. We're well over a month now, and we're looking at the implication of a supply shock that could last many quarters. This could evolve into something far more complex. This is a tricky mix of rising inflation and slowing growth, and the sequence matters greatly. At Morgan Stanley, a collaboration between the economists and the strategists globally looked at a wide range of scenarios of where oil prices may go. If the Strait of Hormuz were to reopen rapidly, we would see oil prices probably decline rather quickly. That doesn't mean that the problems from the oil shock are going to go away very quickly. But it does mean that the price of oil may move down more quickly. Conversely, if we see a complete closure and an escalation in the conflict, the oil price is probably going to go much, much higher. And in a world where oil moves past $125, which is usually the level at which demand starts to destruct in the economy, i.e. people have to reduce their consumption of oil because of the price, we would see a much more dramatic impact in the global economy. Right now, we're in the in-between scenario. We see oil hovering between $100 and $125 for a number of weeks now, and this creates a lot of questions and confusions and modeling problems for many central banks. I want to go through some of the key regions of the world to talk about how they are reacting to what is happening right now. Asia is a little bit unusual. Asia is the most exposed to what's happening in the Middle East. Most oil and gas that leaves the Middle East goes to Asia in terms of physical volumes. The challenge is that many Asian economies have huge buffers in place or reserves. They also use fiscal policy to help subsidize and smooth the price of oil so that the consumer does not experience the shocks as dramatically as they would otherwise. As a result, there is a mix of countries in Asia that are grappling with figuring out how much support they should continue to provide but also making sure they have physical volumes in place because of the closure. This creates a rather mixed effect from central bank policy and a mixed effect from inflation and growth. In some economies, you're seeing prices move very rapidly and growth being affected very rapidly, whereas in other economies it's been delayed. We expect this mix to continue for the next few quarters. The euro area is a contrast to Asia because in the euro area inflation passes through very quickly. Historically, inflation reacts not only at the headline level, but also at core. As a result of this, the ECB has indicated that they are likely to raise interest rates in the near future because they don't want inflation expectations to become unanchored. They're more concerned about the speed of inflation than the growth risk right now. This is a big contrast to the Federal Reserve. In the United States, actually, oil supply shocks do not move core inflation as much as they do in many other regions of the world. The effect is on headline inflation and on consumption, but not necessarily on core inflation. We have to remember; the U.S. is primarily a services-based economy. As a result, the Fed is more likely to look through the effects of the supply shock and be focused on growth simply because the core inflation pass through is far less than it is in many other economies. As a result, the Fed is thinking more about the growth risks from higher prices of the pump than they are about the price risks – and what that transmission means to inflation in the United States. This is a big contrast to many other regions in the world, but I think the important thing to remember is that in every economy, in every region, there's a different reaction. Inflation will always lead in terms of oil supply shocks with growth following. But the way that that passes through in each domestic economy is very different. And that means that central banks have to react differently. It also means that potentially, if this lasts for a couple more quarters, fiscal policy will also react differently. The challenge for market participants, economists, and strategists will be figuring out the exact scale of disruption from the oil shock. For now, we know that we're talking about quarters and not months. And that in and of itself means that we expect growth downside risks to outweigh inflation upside risks.Thanks for listening. If you enjoy Thoughts on the Market, please leave us a review wherever you listen; and share the podcast with a friend or colleague today.

Our CIO and Chief U.S. Equity Strategist Mike Wilson talks about risks in this late stage of the equity market pullback, how investors should position and what could come next.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 what investors should be doing as we enter the final innings of this equity market correction.It's Monday, April 6th at 11:30 am in New York. So, let's get after it.For the past several months, my view has been very consistent. In short, I continue to believe we're in a bull market that began last April, coming out of what I've described as a rolling recession between 2022 and 2025. That recovery remains intact despite recent threats from AI disruption, private credit and a new war in Iran while the war between Russia and Ukraine persists.Markets have not been complacent with stocks correcting since last fall. In fact, it's well advanced with the S&P 500's forward price earnings multiple declining by 18 percent, a rare move outside of a recession or a Fed tightening cycle – neither of which is likely in my view.Meanwhile, earnings growth isn't rolling over. Instead, it's accelerating to multi-year highs and that's a key difference versus past periods when oil shocks led to a recession. And, in the absence of that outcome, I see a market that's discounted a lot of bad news.Beneath the surface, the damage has been even more significant with over half of stocks down at least 20 percent from their highs, and many down 30-40 percent. Resets of this scale usually occur near the end of corrections, not the beginning.The S&P 500 bounced last week off the 6300 to 6500 range of support that I have been highlighting. Could we re-test those levels? Sure – especially if rates push higher or geopolitical risks escalate further. However, I don't see a meaningful breakdown.If anything, what's still missing – and what I'd actually like to see – is a bit more de-risking in crowded trades like semiconductors and memory stocks, in particular. That kind of repositioning reset is often required to seal a durable bottom.So, if we are in the later innings, the next question is: where do you want to be? For me, it's about balance and I think the right approach is a barbell of cyclicals, and quality growth.On the cyclical side, I like Financials, Consumer Discretionary, and Industrials. These are the areas where earnings momentum remains strong and valuations have come down meaningfully. It's also what was leading prior to the start of the Iran conflict and reflects our core view that we are still in the early stages of a recovery from the rolling recession. Last week's jobs report supports that view with private payrolls increasing by [$]186 000, one of the largest rises in three years. On the growth side, I'm focused on the hyperscalers as a very good risk reward at this point. These companies are trading at roughly the same multiple as defensive sectors like Staples, but with more than three times the earnings growth. Meanwhile the sentiment and positioning is as bad as it's been since 2022's bear market when these companies were showing negative earnings growth. So, what could go wrong? The main risk to equities is still rates and central bank policy, not the war.We know this because we just flipped back into a regime where stocks and yields are negatively correlated where higher rates put pressure on valuations. 4.5 percent on a 10-year Treasury bond continues to be a key threshold where stock valuations are likely to get worse before they rebound durably. Furthermore, bond volatility and Fed expectations are driving tighter financial conditions—and that's been the real source of market stress lately.But here's the irony: that tightening is also what ultimately sets up a more dovish pivot from the Fed and other central banks. If financial conditions tighten too much, the Fed has the flexibility to respond—and we have plenty of evidence that there's willingness to do that over the past several years.Bottom line? The market has already done a lot of the hard work. It has priced in geopolitical risk, private credit concerns and even negative side effects from AI, which is ultimately a productivity enhancing technology.What we're dealing with now is the final hurdle – policy, rates levels and volatility. And once we get through that, I think the path forward becomes a lot clearer.But remember, markets don't wait for certainty – they move ahead of it. You should, too.Thanks for tuning in; I hope you found it informative and useful. Let us know what you think by leaving us a review. And if you find Thoughts on the Market worthwhile, tell a friend or colleague to try it out!

Our Chief Cross-Asset Strategist Serena Tang discusses why the closure of the Strait of Hormuz and its impact on oil prices could define the entire market cycle.Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I'm Serena Tang, Morgan Stanley's Chief Cross-Asset Strategist. Today: how the latest energy shock is rippling across every major asset class.It's Thursday, April 2nd, at 10am in New York. Right now, the markets aren't just reacting to oil – they're being shaped by it. The path of energy prices is quickly becoming the lens through which investors interpret everything else: growth, inflation, policy, and ultimately risk appetite. And depending on where oil settles, the market story could look very different from here. The starting point is simple: the baseline for energy prices has shifted higher. If tensions ease, our Chief Commodities Strategist, Martijn Rats, expects oil to settle around $80 to $90 per barrel in 2026, quite a step up from what we saw in 2025. If constraints persist, that rises to $100 to $110 per barrel. And in a more extreme scenario – where supply disruptions intensify – oil can reach $150 to $180 per barrel. Now, at those higher levels, the impact becomes nonlinear. Oil stops being just an inflation story and starts weighing directly on demand and growth. That's why we see the current environment as binary: markets either revert to their pre-shock trajectory, or they begin pricing in a much tougher mix of tighter policy and weaker growth. To make sense of this, we frame the outlook through three scenarios. In a de-escalation scenario, supply disruptions ease quickly and oil stabilizes in that $80 to $90 per barrel range. Markets effectively breathe a sigh of relief. Investors refocus on growth drivers like earnings resilience and AI investment. And equities outperform, particularly cyclical sectors like consumer discretionary, financials, and industrials, while defensives lag. Bond yields fall, as inflation expectations decline. All in all, in plain terms, this is a classic risk-on environment. The second scenario – ongoing constraints – is a little bit more complicated. Oil stays elevated around $100 to $110 per barrel. Markets can absorb that, we think, but it creates friction. Equities still perform, but with more volatility and less conviction. The S&P [500] is likely to move within a wide 6400 and 6850 range in the near term. Leadership shifts toward higher-quality companies – those with steadier earnings and stronger balance sheets – along with select defensives like healthcare. At the same time, credit markets start to really feel the strain with spreads widening in general under performance. The third scenario – effective closure – is where the backdrop really changes. With oil above $150 per barrel, the focus shifts from inflation to growth risk. Investors will move into what we call a ‘recession playbook,' dialing back equity exposure and increasing allocations to government bonds and cash. Defensive sectors like utilities, telecoms, and energy take the lead, as markets begin to price in a higher risk to the earnings cycle. Credit conditions tighten sharply, with high-yield spreads potentially widening materially. What makes this environment especially challenging is how everything connects. In a typical cycle, bonds help offset equity losses. But in an oil shock, that relationship can break down because inflation is rising at the same time growth is slowing. That's what we usually call a stagflationary setup, and it makes diversification harder just when investors need it most. Currencies are reacting as well. In a more severe shock, the U.S. dollar strengthens, with EUR/USD potentially falling toward 1.13, while safe-haven currencies like the Swiss franc outperform. In a de-escalation scenario, EUR/USD could move back above 1.17 as risk sentiment improves. Importantly, markets have adjusted over the past month. Equity valuations at one point was down about 15 percent on a forward price-to-earnings basis, suggesting in a large part of the risk was being priced in. At the same time, sentiment has improved from deeply negative levels, especially over the last few days, even as volatility remains closely tied to oil. 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.

As the Strait of Hormuz continues to be a chokepoint for oil, our Global Head of Fixed Income Research Andrew Sheets and our Head of Commodity Research Martijn Rats discuss possible outcomes for the interconnected market.Read more insights from Morgan Stanley.----- Transcript -----Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley. Martijn Rats: I'm Martijn Rats, Head of Commodity Research at Morgan Stanley. Andrew Sheets: And today in the program: Oil flows through the Strait of Hormuz remain restricted. The implications for global energy markets and what may lie ahead.It's Wednesday, April 1st at 2pm in London. So, Martijn, it's great to sit down with you again. Three weeks ago, we were having this conversation; a conversation that was a little bit alarming about the scale of the disruption of the oil market with the closure of the Strait of Hormuz, and how that could have ripple effects through the global economy. Three weeks later, oil is still not flowing. What is happening? And what has maybe surprised you? Or been in line with expectations over the last couple of weeks? Martijn Rats: Yeah. Many things have been in line with expectations, in the sense that we're seeing the effects of the closure of the strait the earliest in regions that are physically the closest to the strait. So, we saw the first examples of physical shortages in, say, the west coast of India. Then we saw examples from the east coast of India From there on it's reverberated throughout Asia, where now governments have announced a whole host of. Effectively, energy demand, uh, management measures, uh, work from home, kids staying at home from school, um, cancellation of flights. There are quite many through, through Asia Also in Asia, we're seeing the type of prices that you would expect with this situation. Bunker fuel for shipping, somewhere between $150 to $200 a barrel. Jet fuel over $200 a barrel. Naphta going into Japan; naphta normally trades well below the headline price of Brent. Now $130 a barrel, that's more than double what it was in February. So, those things tell the story of this historic event. What has been surprising on the other end is how slow the reaction has been in many of the oil prices that we track the most. Like… Andrew Sheets: The numbers people will see on the news. You know, it's $100 a barrel maybe as we're talking. Martijn Rats: Yeah. It's strange to see jet fuel cargoes in Rotterdam more than $200 a barrel, but then the front month Brent future only trading at [$]100. That spread is historically wide and very surprising. But look, there are some reasons for it. The crude market had more buffers. There are a few other things. But how slow Brent futures have rallied? That has been somewhat surprising. Andrew Sheets: But you know, from those other prices you mentioned, those prices in Asia, those prices in Rotterdam that are maybe higher than the numbers that people might see on the news or on a financial website. Is it fair to say that in your mind that's sending a signal that this is a market that really is being affected by this? And being affected maybe in a larger way than the headline oil price might suggest? Martijn Rats: Oh, clearly. Look, the oil market is full with small price signals that tell the story of the underlying plumbing of the oil market. So, you can look at price differential. So, physically delivered cargoes versus financially traded futures. West African oil versus North Sea oil. Brazilian oil versus North Sea oil. Oil for immediate physical delivery versus the futures contract that trades a month out. And many of those spreads have rallied to all time highs. That is no exaggeration. And so, in an underlying sense, the stress in the market is clearly there. It is just that in front of Brent futures, which is the world's preferred speculative instrument to express a financial view on oil. Yeah, there the impact has been slower to come. But you're now seeing a lot of Asian refineries bidding for crudes that are further away in the Atlantic basin. So, demand is spreading to further away regions. And that should over time still put upward pressure on Brent. Andrew Sheets: In our first conversation, you know, you had this great walkthrough of both just putting the scale of this disruption in the Strait of Hormuz into the global context. How many barrels we're talking about, how that's a share of the global market. Maybe just might be helpful to revisit those numbers again. And also, some of the mitigation factors. You know, we talked about – well maybe we could release reserves, maybe some pipelines could be rerouted. Based on what you're currently seeing on the ground, what is this disruption looking like? Martijn Rats: Yeah, so to put things in context, global oil consumption is a bit more than 100 million barrels a day. That number lives in a lot of people's heads. But if you look at the market that is critical for price formation, that's really the seaborne market. You can imagine that if, say you're in China, and you have a shortage. But there is a pipeline from Canada into the United States – that pipeline's not really going to help you. What you need is a cargo that can be delivered to a port in Shanghai. So, the seaborne market is where prices are formed. That is roughly a 60 million barrel a day market, of which 20 million barrels a day flows through the Strait of Hormuz. So, for the relative market, the Strait of Hormuz is about a third. It's very, very large. Now, out of that 20 million barrel a day that is, in principle, in scope, there is still a little bit of Iranian oil flowing through. That continues. They let their own cargo through. Then Saudi Arabia has the East-West pipeline. They can divert some oil from the Persian Gulf to the Red Sea. That's about 4 million barrels a day, incremental on top of the flow that already exist on that pipeline. The UAE has a pipeline that can divert half a million barrel a day. But you are still left with a problem that is in the order of 14-ish million barrels a day. You're going to have some SPR releases to offset that a little bit. But global SPRs can flow maybe 1 to 2 million barrels a day. You're very quickly left with a double digit shortage – and that is historically large… Andrew Sheets: And just to take it to history, I mean, again, if we were placing a 14 million barrel a day disruption in the context of some of these historical oil disruptions that people might have a memory of – what is the relative scale? Martijn Rats: Yeah. This is at the heart of why this is such a difficult period to manage. Like, normally we care about imbalances of 0.5 to 1 million. That gets interesting for oil analysts. At a million, you can expect prices to move. If you have dislocations in supply and amount of, say, 2 to 3 million barrels a day, you have historically epic moves that we talk about for decades, literally. Like in 2008, oil fell from $130 a barrel to [$]30 on the basis of two to three quarters of 2 million barrel a day oversupply. In 2022, around the Ukraine invasion, oil went from 60-70 bucks to something like [$]130 at the peak on the basis of the expectation, but not realized. This was just an expectation that Russia would lose 3 million barrels a day of productive capacity. And so, 2 to 3 million barrels a day normally already gets us to these outsized moves. And so, this event is four, five times larger than that. That means we don't have historical reference for what's currently happening. Andrew Sheets: I guess I'd like to now focus on the future and maybe I'll ask you to summarize two highly complex scenarios in a[n] overly simplified way. But let's say tonight we get an announcement that hostilities have ceased, that the strait is open, that oil can flow again. Or a second scenario where it's another three weeks from now, we're having this conversation again, and the strait is still closed. Could you just kind of help listeners understand what the energy market could look like under each of those scenarios? Martijn Rats: Yeah. So maybe to start off with the latter one. Because from an analytical perspective, that one is perhaps a bit easier. Look, if the Strait stays closed, at some point, consumption needs to decline. Andrew Sheets: Significantly. Martijn Rats: Yeah, significantly. We need demand destruction. Now that's easier said than done. Who gets to consume in those type of environments – are those who are willing to pay the most. And that means that certain consumers need to be priced out of the market. We tried to answer this question in 2022, and the collective answer that we all came up with is that you need prices for Brent – in money of the day – $150 or something thereabouts. That is not an exaggeration. Now, let's all hope we can avoid that scenario because that is… You know, that looks like a spectacular price. But that is not a beneficial scenario for anybody in the economy.The other scenario is more interesting, and it can actually be split in sort of two sub scenarios… Andrew Sheets: And this is the scenario where actually stuff starts flowing tomorrow. Martijn Rats: Exactly, exactly. If it completely flows like it always did – sure, we go back to the situation we had before these events. Brent can fall substantially – 70 bucks. Before these events we thought the oil market would be oversupplied. Who knows? True freedom of navigation may be even lower. But, at the moment, that doesn't quite look like that will be the scenario that's in front of us. What seems to be emerging is an outcome whereby this could deescalate but leave the Iranian regime structurally in control of the flow of oil through the Strait of Hormuz. And if the Iranian regime continues to manage the flow as they currently do – cargo by cargo. Because there are some cargoes trickling out and there is a process that seems to be established for it. There seems to be a toll that seems to be paid. And if it remains that sort of relatively heavy handed -- This cargo goes, that cargo doesn't. Given that that will then manage 20 percent of global oil supply, that is not the same oil market that we had before. Like all of OPEC spare capacity would be behind this system. Would that spare capacity be available in the case of an emergency? Maybe, maybe not. This is only one of many questions. But if the Iranians stay in control of the strait, we will not return to the oil market that we once knew. Andrew Sheets: And is that fair to say we might need a higher, long-term oil price? A higher risk premium in future oil prices to offset some of that? Martijn Rats: Yes. I would say that that is very likely. First, a lot of the supply would be fundamentally less reliable. Second, we would have de minimis effective spare capacity in the system. Thirdly, if this is the scenario we are left with, that creates an enormous incentive for countries to start expanding their strategic storages. And building strategic inventories is like exerting demand. China has built a lot of strategic storage over the last two years. They are now in a better shape than if they hadn't. In the west, we've historically had strategic storage. But India for example, has none. And so, the rest of Southeast Asia, no strategic storage; a lot of strategic storage buying that will is price supportive. And also, look, the prices that we care about are the price of Brent and WTI, and they are not behind the Strait of Hormuz. They have higher security of delivery. You can totally see how refineries would be willing to pay premium for those crudes relative to others. So, when you add all of that up, it leaves you with a higher risk premium. That people would pay particularly for the crudes that form our perceptions about the oil market, Andrew Sheets: Martijn, one final question I'd love to ask you about is how the U.S. fits into all of this. You know, you do encounter this perception that the U.S. is energy independent. It produces a lot of oil. It's net energy neutral in terms of its imports-exports. You can correct me to the extent that's correct. But to what extent do you think it's true that the U.S. is more isolated energy wise from what's going on? And to what extent do you think that that could be a little bit misleading given a global interconnected market? Martijn Rats: Look, the United States is in a better position than many other countries, that's for sure. China, it's a very large importer of oil Europe, very large importer of oil, uh, and at least the United States has, has a much bigger base of its own production. Um, But the practical reality is also that that is, I would just say, mostly sort of a volume argument, but not a price argument. The United States is a net exporter of oil. But that is a net effect after very large imports and very large exports. It's just that the exports are a little bit bigger than the imports… Andrew Sheets: So, it's a lot of flow in both directions… Martijn Rats: There is an enormous flow in both directions and that connects the United States with the rest of the world. In the end, in the seaborne market, there really is only one oil price and we all pay it, including the United States. But nevertheless, relative to other parts of the world, yeah, better positioned, Andrew Sheets: But still not immune from what's going on. Martijn Rats: No, no. We're all connected. Andrew Sheets: Martin, it's been wonderful talking with you and while I hope to catch up with you again soon, if we're not talking again in three weeks, it maybe is a good sign. Martijn Rats: Might be. Thank you, Andrew. Andrew Sheets: And thank you, as always, for your time. If you find Thoughts on the Market useful, let us know by leaving a review wherever you listen. And also, tell a friend or colleague about us today.

Our Chief Fixed Income Strategist Vishy Tirupattur and Morgan Stanley Investment Management's Global Head of Private Credit & Equity David Miller discuss the recent pressure on the private credit market, potential risks and opportunities that remain in that space.Read more insights from Morgan Stanley.----- Transcript -----Vishy Tirupattur: Welcome to Thoughts on the Market. I'm Vishy Tirupattur, Morgan Stanley's Chief Fixed Income Strategist. David Miller: And I'm David Miller, Global Head of Private Credit and Equity within Morgan Stanley Investment Management. Vishy Tirupattur: Today – the evolving risks and opportunities in private credit. It's Tuesday, March 31st at 10 am In New York. Until recently, private credit was among the fast-growing parts of the financial system. In just over a decade, it went from a niche strategy to a market that's well worth over a trillion dollars. After years of outsized inflows and unusually smooth return, private credit is now in focus, and investors are asking tough questions about liquidity, transparency, and valuation. David, you manage private credit and equity portfolios within Morgan Stanley Investment Management. Do you think the industry is facing its first real stress test? And how do you think the industry is faring? David Miller: So, I think private credit has been tested before, you could go back to the GFC. And I know that was a long time ago and the industry was quite a bit smaller. But you could certainly look to the pandemic and the rate shocks of [20]22 - [20]23 as a stress test. And I think private credit performed, you know, quite well through that, despite the initial volatility. We saw some of that recently last year with Liberation Day; and the current environment from a fundamental perspective doesn't feel as bad as those times, and the industry does not feel under that stress. I think the current situation is more of a test of the non-traded BDC structure where roughly 20 percent of direct lending assets sit. And the liquidity provisions in those vehicles are designed to provide some liquidity, but not total liquidity. And so, while I think the vehicles are working as intended, obviously there's been a lot of noise. Vishy Tirupattur: So, I totally agree with you, David. The liquidity provisions that are in these structures are there for a reason; are designed to be that. It's part of the feature and not a bug, precisely to prevent a fire sale of assets. And that really would hurt the overall system. So, we think that there's a greater understanding of this is very much required. David Miller: I think that's right. The limitations on liquidity are there so that the vehicles can operate properly over the long run. When you have illiquid assets, you maintain some liquidity. But clearly those protections are in place so that the vehicle continue to run in ordinary fashion. I think there is a bit of a disconnect, you know, in the media between the sentiment and the fundamentals that are underlying private credit. And yeah, there are concerns about software, and macro, and unseen future risks. But right now, private credit portfolios are performing pretty well. And actually, if you look at 2025 versus [20]24, the metrics were actually improving… Vishy Tirupattur: Absolutely. I mean, we look at across various metrics, you know, in leverage and coverage metrics, we see overall trends are actually improving. Software [is] very much in focus. Fitch reported, yesterday that, uh, in the last, uh, you know, year to date there have been no software defaults. Another point I would make is there are about 5 percent defaults in – generally speaking – in the private credit space. And the default rates within the software sector is a little bit less than half of that. So, that's an important distinction to make. David Miller: Yeah, I think software is a very interesting and long topic. But generally, our view is: we think that AI is going to be a net tailwind overall for software over time. You know, even factoring in some of the erosion to the SaaS business models, I think well positioned incumbents will get their share of the upside. And so there will be some losers. We think that'll be pretty narrow. But overall, we feel very good about our software book. We've been looking at AI risk for at least three years, when we made loans. And we think that a lot of the embedded enterprise software platforms are going to be net beneficiaries of AI. Vishy Tirupattur: I have slightly different take on the software exposure and all the discussion points on this. The way I think about it is the market assumption is that AI disruption is necessarily going to disrupt all of software companies. And that disruption is imminent. I would push back on both of those points. You know, you could easily imagine that AI will lead to some disruption at some point in the future. But a necessary thing for that to happen is a significant amount of CapEx related to infrastructure to enable AI from innovation to adoption that needs to take place. That will take some time. So, this potential disruption is not imminent. It's potentially coming in the future. But all in, disruption is also not going to be negative. You know, we will have some companies whose business models, who don't have the moats and may not be able to benefit. But on the other hand, as you point out, there will be a number of business models which will actually flourish because of AI adoption and see their margins expand. So, I think I would push back on this notion that's prevalent in the media narrative here. That all AI disruption is imminent and it is all bad. David Miller: I think that's a very good point, and we do believe that there will be dispersion and outcome in private credit portfolios because of some of those facts. And it's really important for managers to have deep experience, not just in software, but any industries that they participate in. And really do very strong credit selection. Vishy Tirupattur: So, another thing that's happening in the private credit space is really the advent of the retail investor into the private credit. What do you think the advent of retail investors had done to the portfolio selection, portfolio construction and credit selection in your portfolios? David Miller: So, for us, we haven't changed our portfolio construction or credit selection process for retail portfolios. They're virtually the same as our institutional portfolios. And that's, you know, based on a lot of diversification, limiting borrower concentration, avoiding cyclicals, et cetera. The one difference that's important for our non-traded BDC is we do have about 10 percent of the portfolio in broadly syndicated loans, to add a little bit more liquidity to the portfolio. But otherwise, they're pretty much the same. I think the biggest impact that we've witnessed over the past few years, where there's been a large inflow of retail capital, has been to push spreads tighter. And weaken some of the terms than they would've otherwise been. There was a lot of capital that needed to be deployed quickly, so we saw that and we're quite cautious. You're seeing that trend reverse now as flows have moderated, and we expect that those trends will result in better pricing and better terms going forward. So, Vishy, how are you thinking about risk in the system now? Are you seeing signs of systemic risk? Or is the pressure more isolated? Vishy Tirupattur: I think the pressure is really more isolated, more focused on the software sector. As we just discussed, it will take time to figure out the winners and losers coming out of this. But that process is really; we think will result in some pickup in default rates. But we think it'll be very concentrated within the software sector. So, when I look back at the systemic risks, the echoes of the financial crisis of 2008 come back, you know. We both have gone through that in different roles, you know. I used to be tall and good looking is before the financial crisis. So, the scars of financial crisis are clearly on upon me now. But I compare these two time periods – and I say in any metric, the risks in the system today are nowhere comparable to the kind of systemic risk that existed back then. You look at the risks, the leverage at the company level. You look at the leverage; the vehicles where credit risk is sitting. Look at the risks and the leverage within the banking system. And the links of the non-banks to banks. All of them put together make us think that the systemic risks are very, very contained. And any allusion to that ‘We are back in 2008,' I would very strongly push back against that illusion. So, David, let me ask you one final question here. If we had to highlight one risk or one opportunity in private credit for investors over the next year, what would it be? David Miller: I think the headlines have covered most of the risks, so I'll go with an opportunity. So, we believe spreads on private credit loans have widened quite a bit for direct lending. Both for non-software and software names. So, for investors looking to deploy new capital or investors who are underweight their target allocations, we think it's an interesting time. But we believe there's also a really nice opportunity in opportunistic or hybrid private credit. And that's coming from borrowers who need more flexible solutions, and that can come from M&A activity, non-dilutive growth capital. Or balance sheet rationalizations where one can inject junior capital to good businesses that have over-levered balance sheets. And you can get paid well for the flexibility and the optionality that's providing equity holders. There's been far less capital raised for these types of opportunities over the last few years, and they're pretty favorable dynamics going forward as demand increases. Vishy Tirupattur: That's very insightful. David, thanks for taking the time to talk. David Miller: Great speaking with you, Vishy. Vishy Tirupattur: And thanks for listening. If you enjoy Thoughts on the Market, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.David Miller is not a member of Morgan Stanley's Research department. Unless otherwise indicated, his views are his own and may differ from the views of the Morgan Stanley Research department and from the views of others within Morgan Stanley.

The stock market has already discounted many disruptions, including geopolitics, oil and AI. Our CIO and Chief U.S. Equity Strategist Mike Wilson explains why investors are now focused on one thing: whether monetary policy stays too tight for too long.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 why the balance between the upside and the downside is actually better than at the start of the year. It's Monday, March 30th at 11:30 am in New York. So, let's get after it. Everyone I've been speaking with lately is focused on the same things: the conflict in Iran, oil prices, and of course, AI—whether it's CapEx, disruption of labor markets, and efficiency. When I look at how markets are trading, I come away with a different conclusion than the consensus. First, the U.S. equity market is far less complacent about growth risks than people think. Consider this: more than half of the Russell 3000 stocks are down at least 20 percent from their highs, while the S&P 500's Price/Earnings multiple is down 17 percent. That's not complacency. That's a well advanced correction consistent with prior growth scares, if not an outright recession. Second, let's talk about oil, everyone's top concern. Historically, oil spikes have often ended business cycles. However, recessions only occurred when earnings growth was decelerating or outright negative. Today, it's accelerating and running close to 14 percent while forward earnings growth is north of 20 percent. Meanwhile, the magnitude of the oil move, on a year-over-year basis, is only about half of what we saw in the recession outcomes. In other words, the market isn't pricing in a recession because the odds of that happening appear low. Instead, we believe it's pricing in continued uncertainty about oil and other key resources until there is ultimately a resolution where tanker flows resume and prices stabilize or come back down. From my observations, I think interest rates are weighing more heavily on U.S. stocks rather than oil. Specifically, the correlation between equities and yields has flipped deeply negative. Stocks are extremely sensitive to moves in higher yields—more so than they've been in years. This is mainly due to the recent hawkish pivot by the Fed and other central banks. As a result, we're also approaching the 4.5 percent level on 10-year Treasury yields, a point where we typically observe further equity valuation compression. Finally, bond volatility is also rising, and equity valuations are always sensitive to that. The good news is that the Fed is more sensitive to bond than stock volatility and any further rise could likely lead to a Fed pivot back to a more dovish stance. In short, the tightening in financial conditions driven by rates and bond volatility is the bigger near-term risk, not the geopolitical backdrop. Ironically, it's also what could provide relief. At the end of the day, I still think we're getting closer to the end of this correction; and when I look at the next 6 to 12 months, the risk-reward looks better today than it did at the start of the year. On the positioning side, I'm also seeing some interesting shifts. Defensive stocks and Gold had a strong run from early January right up until tensions in the Middle East began at the end of February. But they have underperformed significantly since. Meanwhile, some of the better-performing sectors recently have been the more cyclical ones. That tells me the market got ahead of these concerns and may be ready to look past it, sooner than most investors. As for AI, there's still a lot of focus on disruption, but I think the near-term story is more about efficiency and margin expansion. We're not seeing a demand shock that would trigger a traditional labor cycle. Instead, we're seeing companies use AI to right-size costs and improve productivity. Bottom line, the market has already done a lot of the heavy lifting of this correction by discounting the war, higher oil prices, AI, and credit risks. What it's wrestling with now is the risk of a monetary policy mistake with central banks staying too tight for too long. If that hawkish bent starts to ease, which it probably will if bond volatility rises much further, the resumption of the bull market is likely to arrive faster than most expect. Thanks for tuning in; I hope you found it informative and useful. Let us know what you think by leaving us a review. And if you find Thoughts on the Market worthwhile, tell a friend or colleague to try it out!

Our Global Head of Fixed Income Andrew Sheets and Head of U.S. Credit Strategy Vishwas Patkar discuss what's driving record debt issuance and growing worries about private credit.Read more insights from Morgan Stanley.----- Transcript -----Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley.Vishwas Patkar: And I'm Vishwas Patkar, Head of U.S. Credit Strategy at Morgan Stanley.Andrew Sheets: And today on the program, we're going to talk about two of the biggest questions facing global credit markets. A rush of issuance and questions around private credit.It's Friday, March 27th at 2pm in London.Vishwas, it's great to have you in town, talking over what I think are two of the biggest questions that are hanging over the global credit market. A large wave of issuance and a lot of questions around a segment of that market, often known as private credit.So, let's dig into those in turn. I want to start with issuance. You know, you and your team had a pretty aggressive forecast at the start of the year, for a significant level of supply. How's that going? How is it shaping out? We're now almost through the first quarter…Vishwas Patkar: Yeah. So, we came into the year expecting a record, [$]2.25 trillion of gross issuance in investment grade. That's 25 percent higher than last year. That would mark a record one year number for investment grade. And for the high yield market, we expected about [$]400 billion of issuance; up roughly 30 percent.If I were to mark to market those, the forecast is roughly playing out as expected through mid-March. IG issuance is up about 21 percent. High yield issuance is up about 25 percent. So far at least, it's along the lines of what we'd call for. More importantly though, when I think about the drivers of the issuance, that I think in some ways is a little more validating. Because there were two big components of what was going to drive the issuance.One was AI related issuance from the large hyperscalers, and the second was a decent uptick in M&A. And we've seen both of those. So, year-to-date, we've had north of [$]80 billion of issuance from hyperscalers alone in the dollar market. That's on top of significant non-USD issuance that we've had this year.So, I think this idea of AI CapEx investments and by extension issuance being somewhat agnostic to macro, that seems to be playing out so far.Andrew Sheets: So, let's talk a little bit more about that – because, you know, this is a new development. This kind of is a new regime to have this much supply, sort of, somewhat independent of a very volatile macro backdrop.And you know, maybe if you could talk just a little bit more about what we're learning about the issuers. What do they care about? What is bringing them to market? And then maybe what would cause them to slow down or speed up?Vishwas Patkar: Yeah, I think we've learned a couple of things, right? First is – this issuance is being driven by investments that are not opportunistic, right? They are competitive in nature. Clearly there is an arms race to figure out who will win the AI race.I think a second leg of it is the issuance is somewhat spread agnostic. So, you know, in credit we look at this metric called new issue concessions, which is effectively how much is a company paying in terms of excess funding costs relative to their bonds outstanding. And what we've seen with some of the larger deals is that new issue concessions are well above average.And that's pretty important in the grand scheme of things because, you know, we're talking about one sector that is driving AI infrastructure. But when you have issuance that comes in size, and it comes wide to where existing bonds are, we think that has knock-on effects repricing other companies that are downstream of those names.Andrew Sheets: So, we have a market for issuing corporate debt that's pretty wide open. You know, as you mentioned, very high levels of issuance and supply going through, despite what would've been a lot of concerns. And one of those concerns is the conflict in Iran.But another concern that's been cropping up is a concern around this market often known as private credit where you've seen a lot of focus, a lot of headlines, volatility in some of the managers of private credit. But also, I think this is an area where less is known. And where there's still a lot of confusion about what it is and how it's performing.So, for the second set of questions, Vishwas, maybe we could just start with, you know, when you think about private credit, what is it to you? And how do you break up the market?Vishwas Patkar: Yeah, so I think at a very high level, you can think about private credit as capital that is provided by non-bank lenders. And in some ways – that is not broadly syndicated. So it's different from investment grade bonds or high yield bonds or leverage loans in that respect. You know, the second factor I laid out.You know, private credit overarchingly is a big umbrella term. It includes direct lending to businesses. It includes infrastructure finance, project finance, the private placement market, asset-based finance. So, there are a lot of subcomponents.Now, you know, to your point where the market's a little worried and there is growing anxiety is around the direct lending portion of private credit. That segment of the market has grown substantially over the last decade. It was about [$]500 billion or so 10 years ago. It's about [$]1.3 trillion right now.Andrew Sheets: And this is lending directly to companies?Vishwas Patkar: Yeah. This is lending directly to companies. Leverage typically tends to be higher than what you see in the public market. So, one of the challenges around navigating the risks are, you know, when you get a bunch of negative headlines that isn't necessarily the readily available information to either disprove or validate it.So, I think that's some of the anxiety, which is building among the investor base. Our view is, you know, these risks are significant and investors should be cognizant of what's happening.Andrew Sheets: So maybe just to take a step back a little bit there. Why have investors been more worried about the private credit space?Have we seen particular events? Or is it more, kind of, other factors that you think have driven this increased focus?Vishwas Patkar: Yeah, I think it's been a rolling set of factors. This year the whole story has really been about software and concerns about AI disruption. But before I get into that, I think it was a process that really began, I would say, second half of last year.So, private credit really had its moment in the sun a few years ago where inflows were massive. The public market was choppy while the Fed was hiking rates, and a lot of stressed issuers were choosing to raise capital via direct lenders. And at that time, spreads in the private credit market were also very attractive.What you've seen last year is private credit AUM was effectively flat. The fee income being generated on the loans has come down as the Fed has eased policy and the spread on private credit versus the public market has also narrowed. So, what started off, I think, was more macro. It was driven more by what was happening on the policy front…Andrew Sheets: More yield compression. Less yield for investors, which caused them to be just a little bit less attracted to the space…Vishwas Patkar: Absolutely, yeah. And I think that was largely the driver of, you know, the correction in some of these asset manager stocks to begin with. Then you had some of the headlines around specific single name headlines. Double pledging of collateral, some accounting malpractices, which, you know, I think we can say with the benefit of hindsight, those were idiosyncratic. Those were one offs. But again, you know, doesn't make for a positive headline when you get news flow to that effect.And then this year, as I said, it's really been about concerns around the software sector…Andrew Sheets: Which is a very big part of the private credit market.Vishwas Patkar: It is a very big part of the private credit market. It made up for almost a third of all LBOs that were originated between 2018 through 2022. And in fact, really if you look at 2021, when interest rates were very low, a lot of the outstanding software loans were originated in those really weak vintages.And so, you know, I think AI disruption has maybe been the catalyst to drive some of this price action. But that's on top of software, where a lot of loans were originated with high leverage. But now that, you know, you have a very disruptive force around margins, potentially looming, the concern has now shifted towards what do balance sheets look like. And the software sector is very levered. In the bank loan market, for example, more than 50 percent of software loans outstanding are rated B- or lower.And one extension of that is that, you know, you have a non-trivial amount of debt that is maturing in the next few years. So, through 2028, we see about [$]65 billion of software loans maturing largely in that lower quality cohort.So, you know, even before we get clarity around how AI will diffuse and disrupt or will not disrupt these names, the issue is really refinancing. In this period of uncertainty, will all these software loans over the next 12 to 18 months – will they have the capital to term out their maturities?Andrew Sheets: So, Vishwas, maybe just in closing, as you're going around and talking to credit investors at the moment, what do you think are the two or three biggest, kind of, high level takeaways and views that you're trying to get across?Vishwas Patkar: A few things I would say. So, specifically on private credit, we are saying that, you know, I think we are in for a period where returns might be subpar. It is possible that private credit sees AUM growth that is sluggish, maybe even down year-over-year this year. But we would not conflate that with something that's systemic. And I think it's very important to lay that out. But importantly, some of the linkages to the banking system are through, you know, leverage that is significantly lower in this cycle than what we've seen in the past, say prior to the GFC. So that's one.Second, I continue to think that the aspect of issuance being very high and somewhat agnostic to macro conditions, that's been validated so far. And when I look at what credit markets are priced for, in aggregate, we think valuations are still too tight. And that's not withstanding everything that's going on in the Middle East.You know, we clearly have a commodity price shock to navigate. And that can have a feedback loop via what central banks will do. And the U.S. consumer. But I would say just the convexity of credit is very weak. If, let's say, we get a…Andrew Sheets: Limited upside versus relative to more downside…Vishwas Patkar: Very limited upside. And downside, if we get both a technical and a fundamental – and why it is, is significant.And the third thing I would say is it makes sense to own hedges here. You know, again, hedges can be expensive, can lead to loss of carry. But they can also be a very efficient way to protect yourself. And if you look at this time last year in the lead up to Liberation Day, credit had held up really well for the first, say, five or six weeks of that sell off.But then when it moved, it moved very quickly. And in some ways, you know, if you; if investors were able to protect themselves through that last leg of volatility, that effectively provided a very good entry point to capture the rally that played out thereafter.Andrew Sheets: Vishwas. I think that's a great thing to keep in mind. Thanks for taking the time to talk.Vishwas Patkar: Alright. Thank you for having me, Andrew.Andrew Sheets: And thank you as always for your time. If you find Thoughts on the Market useful, let us know by leaving review wherever you listen. And also tell a friend or colleague about us today.

Our Global Head of Macro Strategy Matthew Hornbach and our Chief U.S. Economist Michael Gapen discuss how oil prices, tariffs and inflation expectations are raising the bar for rate cuts by the Fed, and markets' response to the new scenario.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, the outcome of the March FOMC meeting and what it means for our economic and rates outlook for the rest of the year.It's Thursday, March 26th at 8:30am in New York. So, Mike, as we expected, the Fed stayed on hold last week at the FOMC meeting and retained its easing bias. But what do you think the heightened macro uncertainty means for rate cuts this year? Michael Gapen: Well, Matt, I think the answer is caution and probably rate cuts come later than earlier. So, we've changed our view on the back of the FOMC meeting. We previously thought rate cuts would come in June and September. We've slid those back to September and December. The short answer here is I think with the rise in oil prices and at least some renewed upward pressure on headline inflation – it will likely take the Fed longer to conclude that disinflation is occurring. So, I think they need more time, and that obviously means the Fed pushes rate cuts out. Matthew Hornbach: Is there anything about the press conference that struck you as being interesting? Michael Gapen: Yeah, I think the almost near singular focus on inflation. So, after the meeting was over and the press conference was done, we did a little deep dive into the transcript. Because that's what we do as economists who follow the Fed. And there were about 18 questions on inflation or prices. There were only five on labor markets. And if you do, kind of, a word count on inflation- and oil-related terms, that would've popped about 200 answers. If you looked at labor market terms, you would've gotten about 40. So, by a five-to- one ratio, the press conference was dominated by fears or concerns around inflation, inflation expectations, and oil prices. And, you know, whatever message the Fed was trying to send, I think it's hard to send either a neutral or a dovish message when nearly every question was about inflation. So, for me, I think the singular focus on inflation was what surprised me. Matthew Hornbach: And one of the questions that I think market participants, and I'm sure you yourself expected Powell to be asked, was about how the Fed would respond to this supply side energy shock that would raise inflation. And whether or not the Fed would look through that type of supply side effect. How did you interpret his answer?Michael Gapen: His answer was, for me, a little more complicated than I thought it would be. You're right that it is, kind of, traditional monetary policy knowledge or views that you're supposed to look through an increase in headline inflation from oil prices. History says in the U.S., they have little effect on core inflation. Very little second round effects. So, you do, I think, want to come into this event thinking we're primed to look through. But what he said was, ‘Well wait. First of all, what we have to do is get through this tariff pass through to core goods first that I can't even tell you…' I'm paraphrasing here. ‘That I can't even tell you whether or not we want to look through an increase in headline inflation until we get greater clarity that tariff pass through to core goods has ended.' So, this, I think, contributes to our view that it's going to take a longer time until the Fed's comfortable easing, because I think that raises the bar for a conclusion that disinflation is happening. Matthew Hornbach: Right. So, they want to first check the box on being past the tariff-related inflation before they start to consider whether or not they look through the energy-related inflation. And as a part of that question, the reporter, sort of, framed it as: Well, in the context of missing your inflation target for five years – how are you going to think about it? And he layered that into his answer as well. Michael Gapen: They've missed their target for five years? I wasn't aware. Yes. No. That was the additional context, which is to conclude that you can look through increases in headline inflation from oil, one of the conditioning factors there is – that long run inflation expectations remain stable and well anchored around the Fed's 2 percent target. So, short run inflation expectations have moved higher. Just as they did when tariffs were implemented, just as they did during COVID. So yes, there's a multiple kind of step box checking – to use your term – that the Fed needs to go to before it can say, ‘Okay, fine. We think disinflation is in place.' I still think they can get there this year. But obviously that's a later than sooner kind of decision. Matthew Hornbach: Absolutely, and I think in terms of the market response to the FOMC meeting and the press conference, it was that exchange with that reporter that was concerning to investors. And they said, ‘Well, if the Fed first needs to see tariff related inflation pass, and then they're going to consider whether or not to look through energy related inflation in the context of having missed their inflation target for five years.' Market participants said, ‘Well, gosh, that really increases the chance the Fed doesn't ease at all this year.' And so, at the end of that trading day, the market had been pricing about a 50 percent probability that the Fed would deliver its only rate cut in December. And of course, the market has moved since the FOMC meeting. But that was my takeaway, at least. In terms of inflation expectations… Because this is so critical in terms of how the Fed and other central banks around the world – who have slightly different mandates than the Fed does – how do you expect the Fed to think about inflation expectations later this year; when perhaps they're actually considering whether or not to look through the energy price inflation in the context of what happened to longer run inflation expectations in the wake of the pandemic? Michael Gapen: So, my view on this, and at least my takeaway from listening to Powell in prior press conferences – and hearing other FOMC members. I think they feel that coming out of COVID, yes, long run inflation expectations moved up. But they actually moved up for a good reason. I think they felt that long run inflation expectations were a little low going into COVID. So, still generally consistent with 2 percent outcomes. But kind of on the downside. So, a little increase in long run inflation expectations coming out of COVID, I think they were okay with. The risk now will be, COVID has been followed by a tariff price shock and an oil price shock. And in theory, these are supply side shocks that shouldn't result in long run inflation. But you never know, business and consumers may feel differently. So, I think as long as they – they meaning long run inflation expectations – are about where they are, I think the Fed's okay with that. Matthew Hornbach: Right. You did mention that the labor market didn't come up all that much. What's your view on the labor market going into the end of the year? Michael Gapen: Well, I think that; I think it's pretty similar to the way Powell characterized it. Which is: it is abundantly clear that immigration controls have had a strong effect on the labor market and reduced growth in labor supply.It's obvious also, we've had a year now where hiring has come down. So, on one hand the labor market… I'm an economist, so I have to say on the one hand, and on the other hand. On the one hand, the labor market's generally in balance – low labor supply, low labor demand. The unemployment rate has been, you know, broadly unchanged, pretty stable since September. That's what Powell in the past has characterized as “the curious balance.” So yes, the labor market is in balance. But what concerns me and concerns us is – it's not a very dynamic labor market. An economy the size of the U.S., about 360-ish million people or so. We're basically not adding many jobs every month. 20,000 to 30,000, if you, kind of, take a six month or so average is about all we're adding every month. That doesn't feel very robust. Rates of turnover, movement in and out of the labor market have slowed down. And so, I think you can say ‘Yes, the labor market is in a general equilibrium.' But payroll growth close to zero doesn't feel good. This is also why I think it's reasonable to expect rate cuts out of the Fed in the second half of the year. It can come either because disinflation happens. Or higher oil prices can weigh on demand, slow consumer spending, delay business spending plans. If that happens, I think it'd be reasonable to think the unemployment rate may drift up a little. Not a lot, but enough to get the Fed thinking maybe we should give it some more support. Matthew Hornbach: And I think if that's what we end up seeing out of the economy and out of the Fed, then the U.S. Treasury market is set up for a decent run into the end of the year. The market today isn't pricing many rate cuts at all to speak of. And in fact, at one point after the FOMC meeting for a moment in time, we were pricing rate hikes. But I think if we get that outcome for the U.S. economy and for Fed policy, I think investors in U.S. treasuries will be rewarded. And even if they're not rewarded in the way that they might expect or hope – the U.S. Treasury market itself and the correlations that it has delivered vis-a-vis riskier assets like the equity market, suggest that U.S. Treasuries, despite the recent sell off, have been behaving as good hedge securities for broader risky asset portfolios. So, we certainly would expect the U.S. Treasury market to perform quite well in this scenario.And so, with that, Mike, I am afraid I will have to bid you adieu until the next FOMC meeting. Michael Gapen: Thanks for having me on, Matt. It's great speaking with you. Matthew Hornbach: Likewise, And thanks for listening. If you enjoy Thoughts on the Market, please leave us a review wherever you listen and share the podcast with a friend or colleague today.

Our Head of Public Policy Research Ariana Salvatore breaks down what's being discussed by policymakers around the world to try to cap the oil price spike. Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I'm Ariana Salvatore, Head of Public Policy Research. Today, I'll be talking about the ongoing conflict in Iran and the policy options to offset a rise in oil prices. It's Wednesday, March 25th at 8pm in Tokyo. The U.S.-Iran conflict is stretching into its fourth week, and markets are still trying to distill headlines for news of an off-ramp or further escalation. Even here in Tokyo, the global supply crunch is top of mind. But we're also watching for second order effects among a number of key supply chains, ranging from food to semiconductors. As you've been hearing on the show, the Middle East is a critical supplier of aluminum, petrochemicals, and fertilizers—all industries that are energy intensive and deeply embedded in global supply chains. There's also sulphur, which is needed to produce copper and cobalt, largely used for chip materials and components. And helium, which is a critical material for semiconductor manufacturing. So with all this supply chain disruption on the line, what are policymakers' options to mitigate that loss? Let's start by putting some numbers around the disruption. The Strait of Hormuz accounts for about 20 percent of global oil supply, and about a third of seaborne oil. Our strategists highlight three potential offsets. First, alternative pipelines. Saudi Arabia maintains an East-West pipeline and the UAE similarly has a smaller scale Abu Dhabi Crude Oil Pipeline. Those together can allow for some crude to bypass Hormuz. Second, the U.S. has publicly discussed potential naval escorts. We've written about the logistical difficulties with this plan, in addition to significant execution risks. Third, the IEA has coordinated a strategic stock release, which could translate to a sustained release of around 2 million barrels a day, depending on the duration of the conflict. There are also geographic considerations though that can add a lag to those strategic releases. On net, our oil strategists think these policy levers can mitigate about 9 million barrels per day from the lost 20, meaning that the global economy will still be short about 11 million barrels per day; more than three times the supply shock the market feared from the Russia-Ukraine conflict back in 2022. So, given those limitations, we're starting to see countries around the world – particularly in Asia – begin to implement rationing measures to conserve energy. The Philippines, for example, has implemented a four-day workweek for government workers and mandated agencies to cut fuel and electricity use. Myanmar has imposed driving limits, and Sri Lanka has introduced gasoline rationing. But what about in the U.S.? We've seen domestic gasoline prices climb due to this conflict, and the national average is now close to $4, almost a dollar up from where we were about a month ago. The President has announced a number of policy efforts – including a Jones Act waiver, which temporarily allows foreign vessels to transport fuel between U.S. ports, and a temporary pause on some Russian and Iranian oil sanctions. President Trump has also directed a release from the Strategic Petroleum Reserve, but similarly to the IEA stockpile, the flow rate is going to be the key limit. The authorization was for 172 million barrels over a 120 period, which translates to just about 1.4 million barrels per day on average. So what should we be watching? Tanker transits, signs of upstream shut-ins as storage fills, refinery run-cuts, and—most crucially—whether policy announcements on insurance and escorted convoys can actually translate into reality. These are all going to be critical elements going forward. For now, our oil strategists have raised their near-term Brent forecast to $110 per barrel, which underscores our U.S. economists' outlook for weaker growth and stickier inflation than previously expected. And for now, policy tools seem to be unable to meaningfully offset that disruption. Thanks for listening. As a reminder, if you enjoy Thoughts on the Market, please take a moment to rate and review us wherever you listen and share the podcast with a friend or colleague today.

Our Global Commodities Strategist Martijn Rats discusses how the Strait of Hormuz shutdown has created a deep air pocket that will likely keep markets tighter and prices higher for longer than many expect.Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I'm Martijn Rats, Morgan Stanley's Global Commodities Strategist. Today – an update on the global impact on the Strait of Hormuz shutdown.It's Tuesday, March 24th, at 3pm in London.More than three weeks into the Iran conflict and the Strait of Hormuz disruptions, the numbers are striking. Normally, around 35 oil tankers leave the Gulf each day. Today, that number is closer to zero to two. That amounts to a shock. In fact, we estimate this event has disrupted roughly 20 percent of global oil supply – double the scale of the Suez crisis in the 1950s. Now, you might think: can't the system adapt? Can't oil just flow another way? At first, oil kept moving by being stored on ships already inside the Gulf. But that buffer is now full. Floating storage has surged in the area to over 120 million barrels, and new loadings have effectively stopped. Once storage is filled, producers have no choice but to cut output – and that's exactly what we're seeing. About 10 million barrels per day of upstream oil and gas production is now offline. Now once we reach this point, the Hormuz closure becomes a real supply loss. There are some partial workarounds. Pipelines that bypass the Strait. Strategic reserve releases. Possibly, naval escorts at some point to help ships move along. But unfortunately, none of these fully solve the problem. Even after accounting for all these offsets, the market still faces a shortfall of around 10 to 12 million barrels per day. Now, that is more than three times the supply shock markets feared in 2022, when Brent oil prices surged to around $130 a barrel. And beyond crude oil, the supply strain is showing up even more in refined products. Now, how so? By comparison, crude oil is still flexible. One barrel can sometimes be substituted with another. But refined products – like jet fuel or petrochemical feedstocks – are much more specific. They're harder to replace quickly. And we're already seeing acute shortages. Europe relies on imports for about 37 percent of its jet fuel needs, and those flows have now declined sharply. Middle East exports of naphtha, a key input for plastics and chemicals to destinations in Asia, have fallen from about 1.2 million barrels per day to almost zero. And in shipping hubs like Singapore, marine fuel prices have surged dramatically, with some fuels exceeding $250 per barrel. Once fuel shortages hit logistics, the disruption spreads beyond energy to affect the movement of goods across the economy. So where does this leave us? We envision two broad scenarios. First, a reopening. Even if the Strait reopens relatively quickly, say within one to two weeks, the system doesn't just snap back. There's what we call an air pocket in the system – a gap created by delayed shipments, empty inventories, and disrupted supply chains. In that case, oil prices are still likely to stay elevated throughout the second and third quarters, rather than quickly returning to pre-crisis levels which were about $70 per barrel at the time. A second scenario would be a prolonged closure. If the disruption continues, the market shifts from substitution to rationing. And rationing means demand has to fall. Historically, that only happens at much higher prices – typically in the range of $130 to $150 per barrel. Now given all this, we've revised our base case forecasts higher. We now expect Brent oil prices to average around $110 per barrel in the second quarter, easing only slightly to $90 in the third and $80 by the fourth quarter. But it's key to realize that reopening the Strait is not the same as repairing the system. This supply chain shock to the oil market will take time to unwind.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 Asia Energy Analyst Mayank Maheshwari discusses how the conflict in the Middle East is sending ripple effects through Asia's energy, power and food systems.Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I'm Mayank Maheshwari, Morgan Stanley's research analyst covering energy markets in India and Southeast Asia.Today—how disruptions linked to Iran and the Strait of Hormuz are creating energy-related disruptions across Asia.It's Monday, March 23rd, at 8am in Singapore.To understand the scale of the impact, let's start with a simple fact: about a quarter of Asia's energy—that is oil, liquefied natural gas, and propane—comes from the Middle East, much of it flowing through a single chokepoint, the Strait of Hormuz. Any disruption here affects more than just oil prices. It also hits power generation, industrial output and even food supply chains across the region.Asia hasn't seen a true energy access shock in over 50 years. So that makes this moment very critical. And with oil around $100 per barrel, stress is building in the system. Diesel margins are double pre-conflict levels. Jet fuel premiums have nearly doubled. And Dubai crude—normally cheaper than Brent historically—is now trading at a premium of more than $20 per barrel. This kind of price move signals tightening supply chains.Asia's dependence on [the] Middle East runs deep. Refiners source up to 80 percent of crude from the region, and 30–40 percent of LNG imports originate there. For major economies like India and China, roughly 40–50 percent of oil demand passes through Hormuz. It's a critical energy highway. And when flows slow, the entire system backs up.Inventories may look like a buffer. Asia holds around 65–70 days of crude. But the system reacts sooner than waiting to run out. Governments are already rationing energy, industries are cutting LNG and LPG usage, and export restrictions are limiting downstream production of fuels. The tightening has already begun.The real pressure point may not be oil, but natural gas—particularly LNG, as Qatar, which is a big supplier of Asia's LNG, has seen infrastructure damage. Asia accounts for about half of global LNG consumption, with up to 40 percent secured from the Middle East. Unlike oil, LNG has very limited buffers; in number of days, and not in months.This is where the story extends well beyond energy. Around 25 million tons per year of petrochemical capacity has been impacted, along with roughly 10 million tons of fertilizer production. Prices for key materials like polymers have risen 15–25 percent in just a few weeks, and the premiums are still rising. These inputs feed into everyday products—from cars and electronics to packaging and agriculture. Even basic services are affected, with cooking gas shortages hitting restaurants in parts of Asia.Policymakers are responding, but options are limited. Around 100 million barrels of crude has been released from reserves. Countries are securing higher-cost LNG cargoes. And many are turning back to coal for reliability despite environmental trade-offs.Ultimately, the longer this disruption persists, the more pressure builds across energy, power, chemicals, and food systems. And in a region as interconnected and import-dependent as Asia, those ripple effects spread quickly—and widely.Thanks for listening. If you enjoy Thoughts on the Market, please leave us a review wherever you listen and share the podcast with a friend or colleague today.

As the Iran conflict upends market narratives, our Global Head of Fixed Income Research Andrew Sheets offers his take on how to view the historic disruption happening in March and what the next few weeks could bring.Read more insights from Morgan Stanley.----- Transcript -----Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley. Today on the program, a survey of just how quickly key narratives have changed and how lasting that might be. It's Friday, March 20th at 2pm in London. The NCAA basketball tournament, also known as March Madness, is one of my favorite times of the year. The single elimination tournament of 64 teams is wonderfully chaotic with plenty of surprises, especially in the early games. And basketball is one of those sports where momentum often seems real. A team that has somehow forgotten how to shoot in the first half of the game can suddenly look unstoppable in the second. As I said, March is one of my favorite times to watch sports. It is often not one of my favorite times to forecast markets. In 2005, 2008, 2020, 2022, 2023, and 2025, March saw outsized market volatility. And it's the case again this year. I'm sure, it's just a coincidence. This time, it's not just about a historic disruption to the energy markets, which my colleague Martijn Rats and I discussed on this program last week. It's also a major reversal of the market storyline. If this were a basketball game, the momentum just flipped. In January and February of 2026, there were strong overlapping signals that the U.S. and global economy were in a good – even accelerating – place, boosted by cheap energy, stimulative policy, and robust AI investment. Oil prices were down as metals, transports, cyclicals and financial stocks, all rose. Europe, Asia, and emerging market equities – all more sensitive to global growth – were outperforming. Inflation was moderating. Central banks were planning to lower interest rates. The yield curve was steepening and the U.S. dollar was weakening. The January U.S. Jobs report was pretty good. And then … it all changed. In a moment, the Iran conflict and the subsequent risk of an oil price shock flipped almost every single one of those storylines on its head. Now, oil prices rose and the prices for metals, transports, cyclicals and financial stocks all fell. Equities in Europe and Asia – regions that rely heavily on importing oil – underperformed. The U.S. dollar rose as investors sought out safe haven. Inflation jumped following oil prices. The yield curve flattened on that higher inflation, as we and many other forecasters adjusted our expectations for what central banks would do. And, as it happens, the last U.S. Jobs report was pretty bad. If the Iran conflict ends and oil resumes flowing through the Strait of Hormuz, it's very possible that this story could once again swing back. But until it does, the speed of which this momentum has flipped means that almost by definition, many investors have been caught off guard and left poorly positioned. If you couple that with the challenge of diversifying in this new environment – where the prices for stocks, bonds, and even gold have all been moving in the same direction – the path of least resistance for investors may be to continue to reduce their exposure to ride out the storm, driving further near term weakness.Unfortunately, that could make for an uncomfortable few weeks. At least, there's some good basketball on. Thank you as always, for your time. If you find Thoughts on the Market useful, let us know by leaving a review wherever you listen. And also tell a friend or colleague about us today.

Live from Morgan Stanley's European Financials Conference, our Head of European Banks Alvaro Serrano and European Equity Research Banks Analyst Giulia Aurora Miotto discuss how geopolitics, private credit risk and AI are testing how resilient banks really are.Read more insights from Morgan Stanley.----- Transcript -----Alvaro Serrano: Welcome to Thoughts on the Market. I'm Alvaro Serrano, Head of European Banks.Giulia Aurora Miotto: And I'm Giulia Aurora Miotto, European Equity Research Banks Analyst.Alvaro Serrano: Today we're at our annual European Financials Conference.It's Thursday, March 19th at 1:30pm, London.We're at our European Financials conference. Attendance is up almost at record levels, a great deal of engagement with both investors and companies – with three main topics dominating the debate: geopolitics, private credit, and AI. I think, on the Middle East, clearly a lot of focus during the whole three days. I think the message from banks has been about the resilience of the business model, acknowledging the loan growth could be weaker. Some of the investment decisions could be delayed, given the uncertainty. And of course, fees could also be affected as a result. On the flip side, there's an acknowledgement that during stress, savings rates go up. Deposit growth could be better, and with a steeper curve that could be better monetized. So, the message from the banks is about the resilience of the pre-provision profit outlook. Some banks have been talking about top-up of provisions if the situation persists in a IFRS9 world. But we do believe the overall outlook for earnings is of a resilient picture. However, we acknowledge the positioning of the sector is much richer than it was this time last year. The positioning; that means if stress continues, we could see the multiple suffering. And that, to be honest, is what we see the biggest channel of contagion to the sector is – is multiple de-rating if the stress continues, in what otherwise looks like a pretty resilient earnings picture. Giulia, what did you learn on private credit? Giulia Aurora Miotto: Yes, private credit was definitely another area of big focus and worrying from investors. From a bank's perspective, all the banks that are involved in private credit highlighted a couple of things. First of all, they tend to be senior when they lend to B2Cs. Secondly, they are over collateralized by hundreds, if not thousands of loans. And then thirdly, most investment banks have been doing this for a decade or more, and they tend to partner only with prime sponsors. So overall, the message was actually rather reassuring. Alvaro, AI was the other big topic at the conference. What did you learn there? Alvaro Serrano: It's even a bigger topic than last year. And obviously some of the volatility we've seen year-to-date contributed to that. I think overall the banks are seen as net beneficiaries of AI from an operational perspective. There's an acknowledgement that in an AI world, competition might increase, deposit competition has come up. Some fee products has also come up. But you have banks guiding to 9 percentage points improvement in cost income ratio in the next three years. So, the operational savings from productivity are seeing them more than offsetting any potential increase in competition. I think the known-unknown is employment; consequences of the improved productivity further down the line. But the message in Europe is relatively reassuring considering that over 20 percent of the workforce in Europe is expected to retire [in] the next 10 years. So, overall, seen as net beneficiaries.There's also discussions around regulation Giulia… Giulia Aurora Miotto: Yes, we had Maria Luís Albuquerque, European Commissioner in charge of the Savings and Investment Union project. This was one of the most attended sessions. And we heard on one side definitely determination to deliver on the project of the savings and investment union and deepen European capital markets. And mobilize savings towards more productive investments. On the other side, investors were rather skeptical and are really in wait and see mode. Some banks highlighted that they expect the progress on some of the key packages like securitization or market integration package as soon as May. So, we think this is a key area to monitor over the coming months – from a European competitiveness standpoint, Alvaro Serrano: I think that's a great place to wrap it up. And to our audience, thanks for listening. If you enjoy listening to Thoughts on the Market, do let us know wherever you listen and share the podcast with friends and a colleague today.

A prolonged oil disruption is pushing gas prices higher. Arunima Sinha from our U.S. and Global Economics team joins Head of U.S. Policy Strategy Ariana Salvatore to discuss what that means for consumer spending, inflation expectations and the U.S. midterm elections.Read more insights from Morgan Stanley.----- Transcript -----Arunima Sinha: Welcome to Thoughts on the Market. I'm Arunima Sinha from Morgan Stanley's U.S. and Global Economics Teams.Ariana Salvatore: And I'm Ariana Salvatore, Head of U.S. Policy Strategy.Arunima Sinha: Today – what are the implications of the ongoing oil disruption for the U.S. consumer?It's Wednesday, March 18th at 10am in New York.Ariana, let's start with where we are in week three of this particular oil disruption and what you are thinking about in terms of what the paths to resolution could look like.Ariana Salvatore: Yeah. Great place to start. So, I would say before we get into what the resolution could look like, we need to think about how long could this conflict possibly last? And that's the most relevant question for investors as well. And there I would say there's very little conviction just because of the uncertainty associated with this conflict. But I'm keeping my eye on three different things.The first is a clearer prioritization of the objectives tied to the conflict. The Trump administration has laid out a number of different goals for this conflict, some of which are shorter in nature than others. The second thing I think we're looking at – that's really important – is traffic at the Strait of Hormuz. And there, the Trump administration has spoken about insurance, you know, naval escorts – all of these things that we think will take some time to really come to fruition. And at the time that we're recording this, it seems that we're still getting about low single digit number of tankers through the strait on a daily basis. So that's the second thing.The third point I would make is any type of escalation is really critical here. So, whether it's vertical – meaning different types of weapons used, different types of targets being hit. Or horizontal escalation, broadening out into different proxies and, and more so throughout the region. Those are really important indicators, and right now all of these things are pointing to a slightly longer-term conflict than I think most people expected at the start.Now, in terms of what that means for markets, for domestic gasoline prices, all these are really important questions that I'm sure we're going to get into. But what we should note is that the president has spoken about a number of policy offsets to mitigate those price increases, ranging from the Treasury actually loosening up some of the sanctions on Russia to sell some oil. You know, we've heard some talk of invoking the Jones Act waiver. That's a temporary fix.On net, we think that these policy offsets are not going to really be enough to mitigate that supply loss that we're getting. That's a 20 million barrel per day loss. Some of these efforts mainly will, kind of, target about 7 or 8 million barrels per day. You're still in a deficit of about 10 to 13 [million]. And that's really meaningful for markets, for consumption as you well know, and everything else in between.Arunima Sinha: That's really helpful perspective, Ariana. And it's also a useful segue to think about the note that we jointly put out a few days ago. And just thinking about what this means for the U.S. consumer. And there, I think there's the first point to start with is that the consumer is now going to be living through the third supply shock in about five years. So, after COVID, after tariffs, here comes the next. And I think this particular oil shock is going to be somewhat different from tariffs in the sense that this is going to hit consumers at the front end and directly. This is not something that is going to have to pass through business costs. And some of them could be absorbed by businesses and not fully passed on to the consumer. So, I think that's an important point.The second point here is that in terms of the share of spending of gasoline out of total spend, we are at pretty low numbers. We're somewhere in the 2 to 3 percent range. So, it could give a little bit of a cushion. So, the longer-term average can be somewhere about 4 percent. So, there could be some cushion. But we know that consumers have already been stretched by, sort of, several years of high prices.And so, the way that we thought about what some of the channels could be for how higher oil prices, which translate into higher gas prices, could matter for the consumer. I think there are, sort of, three to identify.The first one is that it is really just a hit to your real purchasing power because this is a type of good that is actually really hard to substitute away from. And you could look through some of it, at the start. So maybe in the first month you don't react very much. You pull down on some savings; you take out a little bit of short-term credit.But the longer it lasts, the bigger the consumption response is going to be. And the second channel then to identify is – you start to build up some precautionary savings motives because there's this uncertainty that's also lasting for some time. And what do you pull back on? You'll typically pull back on discretionary types of spending.And so, we sized out this impact to say that if oil prices were to be about 50 percent higher and they last for two to three quarters, it could hit real personal spending growth by about 40 [basis points] after 12 months. And most of that is really just coming from the impact on good spending, specifically through durable goods.So, there could be some meaningful impact to real consumer spending in the U.S., if this shock were to go on longer. And the last point I would just say is, you know, how do inflation expectations move? Because that's an important point for the Fed and it's an important point for just people who are thinking about their spending decisions over the next year or so.And one interesting thing I think came out in the University of Michigan survey that came out this Friday; and this was a preliminary survey. About half of it was conducted before the conflict started, and half of it was after the conflict started. And what we saw was that inflation expectations in the year ahead, so the 12-month-ahead expectations that had been trending down, paused.So, they are no longer trending down. And, in its release, the University of Michigan noted that for the responses that were collected after the conflict started, inflation expectations did tick up. And interestingly, the strains were the most for the bottom income cohort. So, they saw a bigger uptick in inflation expectations. They actually also saw a bigger uptick in their unemployment expectations over the next year.Ariana Salvatore: So, Arunima, if I can ask, we've been talking a lot about the K-shape economy this year, right? So, consumption really being led by the upper; let's call it the upper income cohort. When we think about this translation to consumption, like you said, more of the stresses on the lower income side, how do you square that with the economic impact that you guys are expecting?Arunima Sinha: The way that I would square it is the longer it lasts and the greater the, sort of, uncertainty in asset markets – that might actually begin to weigh on the upper income consumer as well. So that might make some of those wealth effects less supportive, than what we have seen, over most of 2025. Just given where consumption has been running in terms of its pace.So not only might we see a bigger strain on the lower-income cohorts as we see this shock lasting longer, we might actually see some pressures not through the direct spending channel on gas, but really just, you know, how it's impacting their balance sheets.Ariana Salvatore: And that's a really important point because it also, to me, resonates with the concept of affordability, which has been a really key political topic for the past few months, I would say.And the way we're thinking about this is, like I mentioned, there are limited policy offsets that can be used to mitigate the potential increase in domestic gasoline prices. And that matters a lot for the midterm elections. Typically voters don't really rank foreign policy as a top issue when it comes to their choice for candidates – in midterm elections and elections in general.But once you see that feed through to, you know, inflation, cost of living, job expectations, that's when it starts to really matter for people. And what we've been saying, it's not a perfect rule of thumb, but looking back at the past few elections. If gasoline prices here in the U.S. are something like $3 a gallon, that tends to be pretty good for the incumbent party. [$]4 [a gallon], let's say it's a little bit more politically challenging. And [$]5 [a gallon], you know, is when you kind of get into that even more challenging territory for the administration and for Republicans in Congress.So again, not a perfect benchmark, but something that we'll be keeping an eye on too as this conflict evolves.Arunima Sinha: Ok! So, we'll be keeping an eye on how that oil disruption plays out and matters for the U.S. consumer.Ariana Salvatore: 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. Important note regarding economic sanctions. This report references jurisdictions which may be the subject of economic sanctions. Readers are solely responsible for ensuring that their investment activities are carried out in compliance with applicable laws.

Morgan Stanley MUFG 's Japan Equity Strategist Sho Nakazawa talks about the sectors that are leading the current rebound of Japanese stocks and why these gains may be more than a cyclical shift.Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I'm Sho Nakazawa, Japan Equity Strategist at Morgan Stanley MUFG Securities.Today: How Japan's Takaichi administration could define Japan's stock market for years to come.It's Tuesday, March 17th, at 3 PM in Tokyo.Sanae Takaichi became Japan's first female prime minister on October 21, 2025. She leads a conservative administration that emphasizes defense spending and economic resilience. When Takaichi took office in February, this signaled the start of a structural pivot in Japan's economy. And markets have responded quickly. Over the past several months, stocks with high exposure to the administration's 17 strategic domains have outperformed TOPIX by 15 percentage points. That kind of divergence suggests something bigger than a cyclical rebound. Capital is positioned to a structural shift. First, there's the Japanese government's increased emphasis on economic security and supply chain resilience. This reflects a philosophical shift. For years efficiency ruled: just-in-time supply chains and global optimization. The pandemic and the reorientation towards a multipolar world changed that workflow. Now the emphasis is on redundancy and autonomy – and this has implications for Defense & Space, Advanced Materials & Critical Minerals, Shipbuilding, and Cybersecurity. The second pillar of Japan's structural market shift is AI and the compute revolution. Yes, some investors worry about overinvestment in AI, but we believe in [the] possibility of nonlinear returns as AI breakthroughs occur. And, keep in mind, AI isn't just software. It requires data-center cooling, communications networks, expanded power grids, and critical minerals. This is a full industrial stack upgrade. Looking further out, the global humanoid robotics market could reach US$7.5 trillion annually by 2050 according to our global robotics team estimates. That's roughly three times the combined 2024 revenue of the world's top 20 automakers at about US$2.5 trillion. The third force reshaping Japan's market is infrastructure. The 2026 budget slated towards national resilience initiatives exceeds ¥5 trillion. With aging infrastructure and intensifying natural disasters, resilience spending relates directly to economic security. Ports, logistics, and communications systems are increasingly becoming strategic assets. Our work suggests the long-term construction cycle is entering an expansion phase as bubble-era buildings from the late 1980s reach replacement timing. That points to durable demand rather than a temporary spike. With all of this said, what's also important is how stock market leadership spreads. It tends to move from upstream to downstream – from materials and power infrastructure, to AI, to defense and communications, and eventually to applications like drug discovery, quantum technologies, cybersecurity, and content. Right now, the strongest three-month returns are in Advanced Materials and Critical Minerals, and in Next-Gen Power and Grid Infrastructure. Meanwhile, areas like Cybersecurity and Content have lagged but remain tightly connected in the network. If leadership broadens, those linkages matter. The real constraint isn't political opposition. It's [the] market itself. If investors decide this is a temporary stimulus rather than sustainable earnings growth, valuations might adjust. But we do believe that Japan's equity market isn't simply rallying. It is reorganizing around economic security, AI infrastructure, and national resilience.Thanks for listening. If you enjoy Thoughts on the Market, please leave us a review wherever you listen and share the podcast with a friend and colleague today.

With volatility and oil prices up while Fed policy is easing, our CIO and Chief U.S. Equity Strategist Mike Wilson breaks down why today's selloff is giving flashbacks to March 2025—and why he believes his bull case still holds.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 discuss how the equity market has been processing recent headlines for months. It's Monday, March 16th at 1 pm in New York. So, let's get after it. Last week on the podcast, I noted it was clear to me that the current equity market correction began last fall when liquidity first started to tighten. As soon as funding markets started to show stress from that tightening, the Fed responded by announcing it would end its balance sheet reduction program earlier than expected. It then followed that up by restarting asset purchases in December. This pivot subsequently led to better equity performance in January. It also happened alongside a sharp decline in the U.S. dollar and concentrated returns in emerging markets and commodity-oriented sectors like gold and silver, industrial metals, oil and memory stocks. More recently, the dollar has rallied and these same areas have noticeably cooled off. The key point is that before the attacks in Iran two weeks ago, the correction in equities was already very well advanced in both time and price. In fact, 50 percent of all stocks in the Russell 3000 are now down 20 percent from their 52-week highs. In many ways, we find ourselves in a similar position to last year. Recall that the major indices started to accelerate lower in February and early March. The concern at that time was centered around tariffs. But like today equity markets had been trading poorly for months under the surface on additional concerns that had nothing to do with tariffs. More specifically, equity markets had been worried about risks related to DeepSeek, immigration controls, and DOGE. Tariffs then provided the final blow. This time around, markets have been worried about AI disruption on labor markets, private credit defaults and liquidity tightness well before the Iran conflict escalated. Now it's interesting to note – but not surprising – that crude and volatility began to rise in January, signaling the market was ahead of this risk, too. Corrections typically don't end though until the best stocks and highest quality indices get hit, and that usually takes a capitulatory shock. Last year, this was Liberation Day. This time around, that event is the Iran conflict and concern about a sustained rise in crude prices above $100 a barrel. This final corrective phase has begun, in our view, with the S&P 500 having its worst two-week stretch since last April. To be clear, I don't expect this capitulation or drawdown to be as bad as last year for several reasons. First, last year's events came at the end of what we were calling a rolling recession at the time and effectively marked the end of that downturn. That means equities were pricing in a recession at the lows in April 2025 and that's why the S&P 500 was down 20 percent from its highs. Second, the current backdrop for earnings and economic growth is much better than a year ago. Third, fiscal support is much greater today, too. Specifically, personal income tax cuts are flowing through right now with tax refunds running 17 percent higher year-over-year. Tax incentives in the [One] Big Beautiful Bill [act] should drive higher capital spending. Lastly, the Fed is much more accommodative with asset purchases versus balance sheet contraction in 2025. Bottom line, equity markets have been digesting many of the concerns for months that are now hitting the headlines. We think this means that we are closer to the end of this correction rather than the beginning and investors should be getting ready to buy any final capitulation that may occur on the next bad headline. One scenario that might create that final downdraft is a combination of a more hawkish Fed this week on backward looking inflation concerns combined with Triple Witching options expiration. Or maybe the upcoming trade meeting between the United States and China is delayed or cancelled. Whatever it might be, market lows happen faster than tops. So be ready to add risk in anticipation of the bull market resuming. Thanks for tuning in; I hope you found it informative and useful. Let us know what you think by leaving us a review. And if you find Thoughts on the Market worthwhile, tell a friend or colleague to try it out!

Our Head of Asia Technology Research Shawn Kim explains what disruptions to shipping in the Strait of Hormuz could mean for the global semiconductor supply chain and the immediate future of AI infrastructure.Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I'm Shawn Kim, Head of Morgan Stanley's Asia Technology Team.Today: why the Strait of Hormuz closure may matter to the global technology industry.It's Friday, March 13th, at 8 pm in Taipei. AI and advanced chips may represent the cutting edge of technology, but they depend on something far more basic: that's energy. And a large share of that energy flows through one narrow shipping lane in the Middle East – the Strait of Hormuz. When energy supply chains are disrupted, the effects can quickly ripple into semiconductor manufacturing.Advanced semiconductor fabrication is, in fact, one of the most energy‑intensive industrial processes in the world. Take Taiwan, for example – home of the world's largest share of leading-edge chip production. Just one major manufacturer alone accounts for roughly 9–10 percent of the country's total electricity consumption. That scale of energy use means the stability of power supply is critical.Taiwan relies heavily on imported LNG to generate electricity. But storage levels are limited. It maintains roughly one and half weeks worth of LNG inventory, with several additional weeks supplied by vessels currently at sea. If shipping through the Strait of Hormuz were significantly disrupted, that supply chain could come under pressure. The immediate impact might not necessarily be an outright shortage – but rising energy costs could still affect semiconductor production economics. And that's important because advanced chips are foundational to everything from cloud computing to artificial intelligence systems.Energy isn't the only potential bottleneck. Another lesser-known input in the semiconductor ecosystem is sulfur. More than 90 percent of the world's sulfur supply is produced as a by‑product of oil refining. That sulfur is then used to produce sulfuric acid, a key chemical that supports semiconductor materials, metal processing, and battery components.Disruptions in oil refining tied to shipping constraints or energy market shocks could also affect sulfur supply. In other words, a disruption in energy markets could trigger second‑order effects across multiple layers of the technological supply chain. And those effects extend beyond chips themselves. The downstream impact touches industries tied to electrification, data centers, and advanced electronics manufacturing.History also offers some lessons learned about how technology markets react when energy prices spike. During periods of major oil price surges – such as in 2008 and again in 2021 through 2022 – semiconductor equities experienced significant drawdowns. In both cases, semiconductor stocks declined by roughly 30 percent before reaching an inflection point. The mechanism is fairly intuitive. Higher oil prices raise costs across the economy and can weaken consumer spending. At the same time, companies building energy‑intensive infrastructure – like large‑scale AI data centers – may face higher operating costs and low revenues.So when energy markets move sharply, technology markets often move with them. A disruption in the Strait of Hormuz wouldn't automatically halt chip production, but it could ripple through power costs, materials supply, and the economics of building AI infrastructure. And that highlights an important reality for investors: the future of technology isn't just written in code. It's powered by energy, by infrastructure, and the fragile global networks behind the digital economy.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 co-heads of Securitized Products Research Jay Bacow and James Egan discuss the impact of upcoming regulatory changes on U.S. mortgage rates and home sales.Read more insights from Morgan Stanley.----- Transcript -----Jay Bacow: It is March and there's some madness going on. I'm Jay Bacow, here with Jim Egan, noted Wahoo Wa fan. James Egan: Hey, it looks like Virginia's going to be back in the tournament this year, hoping for a three seed, looking like a four seed. It's the first year that my son is really excited about it. So, hoping we can win a few games. Jay Bacow: Let's hope they don't lose the first game and make him cry like you did a few years ago. But … Welcome to Thoughts on the Market. I'm Jay Bacow, co-head of Securitized Products Research at Morgan Stanley. James Egan: And I'm Jim Egan, the other co-head of Securitized Products Research at Morgan Stanley. Jay Bacow: Today, with everything going on in the world, we thought it'd be prudent to discuss the U.S. mortgage and housing market. It's Thursday, March 12th at 10:30am in New York. James Egan: Jay, as you mentioned, there is a lot going on in markets right now, but hey, people need to live somewhere. And those somewheres remain pretty unaffordable. But this administration has been very focused on affordability, and we also have some updates on what is clearly the most exciting part of the housing and mortgage markets – regulation. What's going on there? Jay Bacow: Look, nothing gets me more excited than thinking about the regulatory outlook for the mortgage market. We've been focusing a lot on what's happening in D.C. with possible changes that could be helping out affordability, changes to the investor program, changes to the policy rate. But Michelle Bowman, who is the Vice Chair of Supervision, has been recently on the tape saying that we could get an update and a proposal for the Basel Endgame by the end of this month; and that proposal for the Basel Endgame is likely to make it easier for banks to hold loans on their balance sheet. It's going to give banks excess capital and the combination of these, along with some other changes that are going to be coming from the Fed, the FDIC and the OCC around: For instance, the GSIB surcharge that our banking analysts led by Manan Gosalia have spoken about – it's really going to help out the mortgage market in our view. James Egan: Alright, so freeing up capital, helping the mortgage market. When we think about the implications to affordability specifically, what do you think it means for mortgage rates? Jay Bacow: Right. So, it's important that [when] we think about the mortgage rate, we realize where it's coming from. The mortgage rate starts off with the level of Treasury rates, and then you add upon that a spread. And the spread is dependent among a number of different factors. But one of the biggest ones is just the demand. And one of the reasons why mortgage rates have been so high over the previous four years was (a) Treasury rates were high, but also the spread was wide. And we think one of the biggest reasons why the spread was wide is that the domestic banks, who are the largest asset type investor in mortgages – they own $3 trillion of mortgages – basically weren't buying them over the past four years. And one of the reasons they weren't buying was they didn't have the regulatory clarity. And so, if the banks come back, that will cause that spread to tighten, which will likely cause the mortgage rate to come down. That is presumably, Jim, good about affordability, right? James Egan: Yes. And I want to clarify, or at least emphasize, that affordability itself has been improving. Over the course of the past four to five months at this point, we've been close to, if not at the lowest mortgage rate we've seen in three years. And when we think about what that has practically done to the monthly principal and interest payment on homes purchased today. Like that monthly payment on the median priced home is down $150 over the past year. That's about a 7 percent decrease. When we lay in incomes – or when we layer in incomes to get into that actual affordability equation, we're at our most affordable place since the second quarter of 2022. So yes, big picture, this is still a challenge to affordability environment. But it's not as challenged as it's been over the past three years. Jay Bacow: All right, so affordability improving. It's still challenged though. What does that mean for home prices then? James Egan: So, when we think about the home price implication of mortgage rates coming down; of mortgage rates coming down in an environment where incomes are going up – we're thinking about demand for shelter, purchase volumes and supply of that shelter. And demand really has not reacted to the improved affordability environment. That's not unusual. Normally takes about 12 months for affordability improvement to pull through in terms of increased transaction volumes. But we do think that the lock-in effect that we've talked about in detail on this podcast in the past, that is going to play a role here. Mortgage rates end of February finally hit a five handle, really, for the first time in three years. They're back above that now with the volatility in the interest rate markets. But from 4 percent to 6 percent, mortgage rates is effectively an air pocket. We don't think you're going to get a lot of unlocking at these levels. So we think that transaction volumes will pick up. We're calling for 3 to 4 percent growth in purchase volumes this year. But they've been largely flat for two to three years at this point. And more importantly, any improvement in affordability that comes from a decrease in mortgage rates is going to lead to commensurately more supply alongside that growth in demand – which is going to keep home prices, specifically, very range bound here. The pace of growth is slowed to about 1.3 to 1.5 percent right now. We've been here for four or five months. We think we're pretty much going to stay here. We we're calling for 2 percent growth, so a little bit acceleration. But we think you're in a very range bound home price market. Jay Bacow: All right, so home prices range bound, affordability improved. But still has a little bit of room to go. Some possible tailwinds from the deregulatory path that will make homes being a little bit more affordable. Fair amount going on. Jim, always a pleasure speaking to you James Egan: And always great speaking to you too, Jay. And to all of our regular listeners, thank you for adding us to your playlist. Let us know what you think wherever you get this podcast. And share Thoughts on the Market with a friend or colleague today.Jay Bacow: Go smash that subscribe button!

Our analysts Andrew Sheets and Martijn Rats discuss why a prolonged disruption of oil flow through the Strait of Hormuz would be unprecedented—and nearly impossible for the market to absorb.Read more insights from Morgan Stanley.----- Transcript -----Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley.Martijn Rats: I'm Martijn Rats, Head of Commodity Research at Morgan Stanley.Andrew Sheets: Today on the program we're going to talk about why investors everywhere are tracking ships through the Strait of Hormuz.It's Wednesday, March 11th at 2pm in London.Andrew Sheets: Martijn, the oil market, which is often volatile, has been historically volatile over the last couple of weeks following renewed military conflict between the United States and Iran.Now, there are a lot of different angles to this, but the oil market is really at the center of the market's focus on this conflict. And so, I think before we get into the specifics, I think it's helpful to set some context. How big is the global oil market and where does the Persian Gulf, the Strait of Hormuz fit within that global picture?Martijn Rats: Yeah, so the global oil consumption is a little bit more than a 100 million barrels a day. But that splits in two parts. There is a pipeline market and there is a seaborne market. And when it comes to prices, the seaborne market is really where it's at. If you're sitting in China, you're buying oil from the Middle East, all of a sudden, it's not available. Sure, if there is a pipeline that goes from Canada into the United States, that doesn't really help you all that much.Andrew Sheets: So, it's the oil on the ships that really matters.Martijn Rats: It's the oil on ships that is the flexible part of the market that we can redirect to where the oil is needed. And that is also the market where prices are formed. The seaborne market is in the order of 60 million barrels a day. So, only a subset of the 100 [million]. Now relative to that 60 million barrel a day, the Strait of Hormuz flows about 20 [million]. So, the Strait of Hormuz is responsible for about a third of seaborne supply, which is, of course, very large and therefore, you know, very critical to the system.Andrew Sheets: And I think an important thing we should also discuss here, which we were just discussing earlier today on another call, is – this is a market that could be quite sensitive to actually quite small disruptions in oil. So, can you give just some sense of sensitivity? I mean, in normal times, what sort of disruptions, in terms of barrels of oil, kind of, move markets; get investors' attention?Martijn Rats: Yeah, look, this is part of why this situation is so unusual, and oil analysts really sort of struggle with this. Look normally, at relative to the 100 million barrels a day of consumption, we care about supply demand imbalances of a couple of 100,000 barrels a day. That becomes interesting.If that, increases to say 1 million barrel a day, over- or undersupplied, you can expect prices to move. You can expect them to move by meaningful amounts. We can write research; the clients can trade. You have a tradable idea in front of you. When that becomes 2 to 3 million barrels a day, either side, you have major historical market moving events.So, in [20]08-09, oil famously fell from over 100 [million] down to something like 30 [million], on the basis that the oil market was 2-2.5 million barrel day oversupplied for two quarters. In 2022, we all thought – this actually never happened, but we all thought that Russia was going to lose about 3 million barrel day of supply. And on that basis, just on the basis of the expectation alone, Brent went to $130 per barrel. So, 2-3 [million] either side you have historically large moves. Now we're talking about 20 [million].Andrew Sheets: And I think that's what's so striking. I mean, again, I think investors, people listening to this, they can do that arithmetic too. If this is a market where 2 to 3 million barrels a day have caused some of the largest moves that we've seen in history, something that's 20 [million] is exceptional. And I think it's also fair to say this type of closure of the Strait [of Hormuz] is something we haven't seen before.Martijn Rats: No, which also made it very hard to forecast, by the way. Because the historical track records did not point in that direction, and yet here we are. The historical track record – look, you can look at other major disruptions historically.The largest disruption in the history of the oil market is the Suez Crisis in the mid-1950s that took away about 10 percent of global oil consumption. This is easily double that. So really unusual. If you look at supply and demand shocks of this order of magnitude, you can think about COVID. In April 2020, for one month, at the peak of COVID, when we're all sitting at home. Nobody driving, nobody flying. Yeah, we lost very briefly 20 million barrels a day of demand. Now we're losing 20 million barrels a day of supply. So, look, the sign is flipped, but it's in the same order of magnitude. And yeah, these are unusual events that you wouldn't actually, sort of, forecast them that easily. But that is what is in front of us at the moment.Andrew Sheets: So, I think the next kind of logical question is if shipping remains disrupted, and I'd love for you to talk a little bit about, you know, you're sitting there with satellite maps on your screen tracking shipping, which is – a development. But, you know, what are the options that are available in the region, maybe globally to temporarily balance this supply and create some offset?Martijn Rats: Yeah. So, like of course when we have a big disruption like this one, of course the market is going to try to solve for this. There are a few blocks that we can work with. I'll run you through them one by one, including some of the numbers. But very quickly you arrive at the conclusion that this is; this puzzle – we can't really solve it.Like in 2022, the market was very stressed. We thought Russia was going to lose 3 million barrels a day of supply, but we could move things around in our supply demand model. Russia oil goes to China and India. Oil that they buy, we can get in Europe, we can move stuff around to kind of sort of solve a puzzle.This puzzle is very, very difficult to solve. So, through the Strait of Hormuz, 15 million barrels a day have crude, 5 million barrels a day of refined product, 20 million barrels a day in total. What can we do?Well, the biggest offset, is arguably the Saudi EastWest pipeline. Saudi Arabia has a pipeline that effectively allows it to ship oil to the Red Sea at the Port of Yanbu, where it can be evacuated on tankers there. That pipeline has a capacity of 7 million barrels a day. We think it was probably already flowing at something like 3 million barrels a day. So, there's probably an incremental 4 [million] that can become available through that. That's the biggest block, that we can see of workaround capacity, so to say.After that the numbers do get smaller. The UAE has a pipeline that goes through Fujairah that's also beyond the Strait of Hormuz. We think there is maybe 0.5 million barrel a day of capacity there. Then you're basically, sort of, done within the region, and you have to look globally for other sources of oil.If there are sanctions relief, maybe on Russian oil, you can find a 0.5 million barrel day there. Here, there and everywhere. 100,000 barrels a day, 200,000 barrels a day. But the numbers get…Andrew Sheets: It's still not… So, if you kind of put all of those, you know, kind of, almost in a best-case scenario relative to the 20 million that's getting disrupted.Martijn Rats: If you add another one or two from a massive SPR release, the fastest release from SPR…Andrew Sheets: That's the Strategic Petroleum Reserve.Martijn Rats: Yeah, exactly. Earlier today, we got an announcement, that the IEA is proposing to release 400 million barrels from Strategic Reserve across its member countries. That is a very large number. But – and that is important. But more important is how fast can it flow because the extraction rate from these tanks is not infinite. The fastest ever rate of SPR release is only 1.3 million barrels a day. Now, maybe the circumstances are so extraordinary, we can do better than that and we can get it to 2 [million]. But beyond that, you're really in very, very uncharted territory.So maybe in the region, work around sanctions relief, SPR release, we can probably find like 7 million barrels a day out of a problem that is 20 [million]. You're left with another 13 [million]. The 13 [million] is four times what we thought Russia would lose. So, you're left with this conclusion: Look, this really needs to come to an end.Andrew Sheets: And the other rebalancing mechanism, which again, you know, when we come back to markets and forecasting, this is obviously price. And, you know, you talk about this idea of demand destruction, which I think we could paraphrase as – the price is higher so people use less of it and then you can rebalance the market that way.But give us just a little sense of, you know, as you and your team are sitting there modeling, how do you think about, kind of, the price of oil? Where it would need to go to – to potentially rebalance this the other way.Martijn Rats: Yeah, that price is very high. So, what it's a[n] really interesting analysis to do is to look at the historical frequency distribution of inflation adjusted oil prices.You take 20 years of oil prices. You convert it all in money of the day, adjusted for inflation, and then simply plot the frequency distribution. What you get is not one single bell curve centered around the middle with some variation around the midpoint. You get, sort of, two partially overlapping bell curves.There is a slightly larger one, which is, sort of, the normal regime. Lower prices, 60, 70, 80 bucks. There's a lot of density there in the frequency distribution, that's where we are normally. What's interesting is that actually, if you go from there to higher prices, there are prices that are actually very rare in inflation adjusted terms.Like a [$] 100-110. In nominal terms, we might feel that that has happened. In inflation adjusted terms, these prices are extremely rare. They are way rarer than prices that live even further to the right. [$]130, 140.The oil market has this other regime of these very high prices. If you go back in history, when did those prices prevail? They always prevailed in periods where we asked the same question. What is the demand destruction price? And yeah, to erode demand by a somewhat meaningful quantity, yeah, you end up in that regime. These very high prices, like [$]130. And it's… It's not a gradual scale. You sort of at one point shoot through these levels and that's where you then end up.Andrew Sheets: It's quite, quite serious stuff.Martijn Rats: Well, yeah. Also, because we can casually say in the oil market, ‘Oh, demand erosion has to be the answer.' But we don't erode demand in isolation. Like, you know, diesel is trucking. Yeah, jet is flying. NAFTA is petrochemicals.Andrew Sheets: These are real core parts of economic activity.Martijn Rats: It's all GDP.Andrew Sheets: So maybe Martijn, in conclusion, let me give you a slightly different scenario. Let's say that the conflict goes on for another couple of weeks, but then there is a resolution. Traffic goes back to normal. Walk us through a little bit of what that would mean. You know, kind of how long does it take to get back to normal in a market like this?Martijn Rats: Yeah. So, if you say, weeks, I would say that is an uncomfortable period of time actually.Andrew Sheets: Feel free to use a slightly different scenario.Martijn Rats: If you say days. Let's say next week something happens, the whole thing comes soon to end. Look, then we will have logistical supply chain issues. But look, we can work through that.There is at the moment somewhat of an air pocket in the global oil supply chain. There should be oil tankers on their way to refineries for arrival in April and May that currently are not. So, we will have hiccups and things need to be rerouted and we draw on some inventories here or there, but… And that will keep commodity prices tense, I would imagine. The equity market will probably look through it.We'll have a month or six weeks, not more than two months, I would imagine of logistical issues to sort out. Look, of course, if that, you know, doesn't happen, then we're back in the scenario that we discussed. But yeah, look, that that's equally true. If it's short, we can sort of live with a disruption.Andrew Sheets: It's fair to say that this is a situation where days really matter, where weeks make a big difference.Martijn Rats: Oh, totally. Look, the oil industry has built in various, sort of, compensatory measures, I think. You know, inventories along the supply chains. But nothing of the scale that can work with this. I mean, this is truly yet another order of magnitude.Andrew Sheets: Martijn, thank you for taking the time to talk.Martijn Rats: My pleasure.Andrew Sheets: And thank you as always for your time. If you find Thoughts on the Market useful, let us know by leaving review wherever you listen. And also tell a friend or colleague about us today.Important note regarding economic sanctions. This report references jurisdictions which may be the subject of economic sanctions. Readers are solely responsible for ensuring that their investment activities are carried out in compliance with applicable laws.

Our Chief Cross-Asset Strategist Serena Tang discusses how rising oil prices and geopolitical tensions could make stocks and bonds move in the same direction, challenging one of the key principles of portfolio diversification.Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I'm Serena Tang, Morgan Stanley's Chief Cross-Asset Strategist. Today: what happens if your main diversification strategy suddenly stops working because of oil price moves? It's Tuesday, March 10th, at 10am in New York. For decades, investors have relied on the idea that stocks and bonds return tend to move in opposite directions. When equities fall, bonds often rise, helping cushion portfolio losses. But that relationship isn't guaranteed. Between 2021 and 2023, coming out of the pandemic, stocks and bonds sold off together, and the traditional 60/40 equity-bond portfolio suffered its worst annual performance in nearly a century. Now, recent geopolitical tensions and rising oil prices are raising a familiar concern for investors: Could that uncertainty dynamic return? At first glance, oil prices may seem like a narrow commodity story. But in reality, they can shape the entire macroeconomic environment. The classic negative correlation between stocks and bonds depends on a fairly simple economic pattern: growth and inflation moving in the same direction. When economic growth accelerates, inflation often rises as well. In that environment, equities may perform well while bonds weaken. But when growth and inflation move in opposite directions, the relationship between stocks and bonds can flip. That's what happened coming out of the pandemic. Bond investors worried about rising inflation, while equity investors were worried about slowing growth. In that scenario, both asset classes' returns declined at the same time.A sustained oil price shock could potentially recreate those conditions. Higher oil prices can push up inflation while also weighing on economic activity – a combination that economists often refer to as stagflation. If markets begin to price in that kind of environment again, the relationship between stocks and bonds could shift back toward that less favorable regime. Despite recent volatility tied to tensions in the Middle East, the relationship between stocks and bonds today still largely reflects the traditional pattern. Overall, stock-bond returns correlation remains negative, meaning bonds can still help diversify equity risk. In fact, correlations between U.S. stocks and 2-year Treasury returns have been trending negative since 2024, and on a longer-term basis they are now extremely negative relative to the past three years. But the key point here is that not all bonds behave the same way. Many investors think of government bonds as a single asset class. But the maturity of the bond – how long it takes to repay – matters a lot for diversification. Shorter-dated bonds, such as 2-year U.S. Treasuries, have maintained stronger negative correlations with equities. Longer-dated bonds, however – particularly the 30-year Treasury – have behaved a bit differently. Their correlation with stocks has been stickier and less negative, partly because markets increasingly view longer-dated bonds as risky. As a result, the difference between how 2-year and 30-year Treasuries move relative to stocks has remained unusually wide for several years. In recent days oil prices have been rising -- linked in part to concerns around the Strait of Hormuz. That's pushing up yields at the front end of the Treasury curve, creating what's known as a bear-flattening. In other words, short-term interest rates are rising faster than long-term ones, reflecting markets placing more emphasis on inflation risks. And that brings us to the key questions for investors: Which risks will dominate from here – is it going to be higher inflation or slower growth? The answer could determine which assets provide better diversifications in the months ahead. So the takeaway is this: Higher oil prices and geopolitical risks could increase the chances that stocks and bonds move together again. But diversification isn't disappearing. It's just becoming more nuanced. For investors, the real question isn't whether bonds diversify portfolios. It's which bonds do. 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 why history, technicals and fundamentals suggest a clearer runway for U.S. stocks six months out, despite geopolitical concerns.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 conflict in Iran and what it means for equities. It's Monday, March 9th at 11:30 am in New York. So, let's get after it. While most believe the current equity market correction began in February, it's clear to me that it actually began last fall when liquidity began to tighten. In fact, back in September I warned that the Fed was not doing enough with the balance sheet – and financial conditions were likely to tighten and cause some stress in equities. Starting in October, that stress manifested as a sharp correction in the most speculative parts of the equity market and crypto currencies. The Fed responded by ending its balance sheet reduction earlier than expected and restarting asset purchases which led to strong equity performance in January. At this point, the correction is very well advanced in both time and price, with many stocks down 30 percent, or more. Meanwhile, dispersion has rarely been higher with the spread between winners and losers the highest we have seen in 20+ years. As usual, the markets got it right by anticipating many of the concerns that are now obvious to all. The questions for equity investors now are what will the world look like in six months and are prices cheap enough to start assuming a better future? The short answer is not yet, but get your shopping lists ready. In many ways, we find ourselves in a very similar position to last year. Recall that the major indices started to accelerate lower in Late February and early March. The concern at the time was centered around tariffs, but like today, equity markets had already been trading poorly for months on concerns that had nothing to do with tariffs. This time around, markets have been worried about AI labor disruption, private credit defaults and liquidity shortages long before the Iran conflict escalated. Corrections typically don't end until the best stocks and highest quality indices get hit and that usually takes a bigger shock, like Liberation Day or war. That process has begun with the S&P 500 having its worst week since October. The other thing to consider is that market levels tend to be tied to where they were a year ago. This year-over-year comparison is very important when thinking about support. Given the sharp decline last year, it tells me we have another month during which the equity markets are likely to struggle. Based on this simple observation and other technical indicators, I think the S&P 500 could trade toward 6300 by early April before our favorable fundamental outlook can take hold again. Does this mean we shouldn't worry about the conflict in Iran taking oil prices sustainably above $100? No, but since no one seems to be able to predict the outcome of military conflicts or oil prices, I am not going to try either. Instead, I am going to assume that in six months, things have likely settled down after this initial surge, much like we saw after Russia invaded Ukraine. Importantly, the spike in oil prices is the result of a logistical logjam in the Straits of Hormuz rather than a shortage of supply. That logjam is a real constraint, but necessity is the mother of ingenuity and will likely be solved. Another reason to be optimistic six months out is the broadening in earnings growth, a trend that remains intact and a key call in our 2026 outlook. Secondarily, the US is much more resilient than Asia and Europe to an oil shock given its energy independence. This should attract investor flows back to the US. And finally, tax incentives for capital spending and tax cuts for individuals in the [One] Big Beautiful Bill should provide a positive offset to the higher oil prices in the short term. On the negative side, the flight to quality and safety could lead to more US dollar strength which is a headwind to global liquidity. Bottom line, oil and US dollar strength is likely to persist until the conflict simmers down. While much of the damage has likely been done to the most vulnerable parts of the equity market, the index remains vulnerable to another 5-7 percent downside in my opinion while crowded stocks could see double digit declines before a final low appears next month. Remember market lows happen faster than tops so be ready to add risk in anticipation of the bull market resuming later this year. Thanks for tuning in; I hope you found it informative and useful. Let us know what you think by leaving us a review. And if you find Thoughts on the Market worthwhile, tell a friend or colleague to try it out!

In the second of our two-part panel discussion from Morgan Stanley's TMT conference, our analysts break down the complexity of financing AI's infrastructure and the technological disruption happening across industries.Read more insights from Morgan Stanley.----- Transcript -----Michelle Weaver: Welcome back to Thoughts on the Market, and welcome to part two of our conversation live from the Technology, Media and Telecom conference. I'm Michelle Weaver, U.S. Thematic and Equity Strategist at Morgan Stanley. Today we're continuing our conversation with Stephen Byrd, Josh Baer and Lindsay Tyler. This time looking at financing AI and some of the risks to the story. It's Friday, March 6th at 11am in San Francisco. So yesterday we spoke about AI adoption. And while there's a lot of excitement on this theme, there've also been some concerns bubbling up. Lindsay, I want to start with you around financing. That's another critical component of the AI build out. What's your latest on the magnitude of the data center financing gap, and what role [are] credit markets playing here? Lindsay Tyler: Yeah, in partnership with Thematic Research, Stephen and team, and colleagues across fixed income research last summer, we did put out a note, thinking about the data center financing gap, right? So, Stephen and team modeled a $3 trillion global data center CapEx need over a four-year timeframe. So, in partnership with fixed income across asset classes, we thought: okay, how will that really be funded? And we came to the conclusion that the hyperscalers, the high quality hyperscalers, generate a good amount of cash flow, right? So, there's cash from ops that can fund approximately half of that. But then we think that fixed income markets are critical to fund the rest of the funding gap. And really private credit is the leader in that and then aided by corporate credit and also securitized credit. What we've seen since is that yes, private credit has served a role. There is this difference between private credit 1.0, which is more of that middle market direct lending. And then private credit 2.0, which is more ABF – Asset Based Finance or Asset Backed Finance. And what we see there is an interest in leases of hyperscaler tenants, right? We've also seen in the market over the past nine months or so, investment grade bond issuance by hyperscalers. Obviously, a use of cash flow by hyperscalers. We've seen the construction loans with banks and also private credit per reports. We've also seen high yield bond issuance, which is kind of a new trend for construction financing. We've seen ABS and CMBS as well. And then something new that's emerging in focus for investors is more of a chip-backed or compute contract backed financings, like more creative solutions. We're really in early innings of the spend right now. And so, there is this shift. As we start to work through the construction early phases, the next focus is: okay, but what about the chips? And so, I think a big focus is that, you know, chips are more than 50 percent of the spend for if you're looking at a gigawatt site. And it depends what type of chips and kind of what generation. But that's the next leg of this too. So, it's kind of a focus, you know, for 2026. Michelle Weaver: And how do you view balance sheet leverage and financing when you think about hyperscaler debt raising magnitude and timelines? Lindsay Tyler: So just to bring it down to more of a basic level, if you need compute, you really might need two things, right? A powered shell and then the chips. And so, if you're looking for that compute, you could kind of go in three basic ways. You could look to build the shell and kind of build and buy the whole thing. You could lease the shell, from, you know, a developer, maybe a Bitcoin miner too – that is converted to HBC. And then you kind of buy the chips and you put them in yourselves. Or you could lease all the compute; quote unquote lease, it's more of a contract. In terms of the funding, if you're thinking about the cash flows of some of the big companies – think of that as primarily being put towards chip spend. If you're thinking about the construction that's kind of split between cash CapEx but also leases. And so, what we've seen is that there is more than [$]600 billion of un-commenced lease obligations that will commence over the next two to five years, across the big four or five players. And then my equity counterparts estimate around [$]700 billion of cash CapEx that needs this year for some of those players as well. So, these are big numbers. But that's kind of how, at a basic level, they're approaching some of the financing. It's a split approach. Michelle Weaver: And what have you learned around financing the past few days at the conference? Anything incremental to share there? Lindsay Tyler: Sure. Yeah. I think I found confirmation of some key themes here at the conference. The first being that numerous funding buckets are available. That was a big focus of our note last year is that you can kind of look at asset level financing. You can look at public bonds, you can look at some equity. There are these different funding buckets available.The second is that tenant quality matters for construction financing. I think I've seen this more in the markets than maybe at this conference over the past two to three weeks. But that has been a focus of pricing for the deals, but also market depth for the deals. A third confirmation of a key theme was around the neo clouds and also the GPU as a service business models. Thinking about those creative financings, right. Are they thinking about from their compute counterparties? Would they like upfront payments? Might they look to move financing off [the] balance sheet, if they have a very high-quality investment grade rated counterparty? So, there is some of this evolution around those solutions. And then a fourth key theme is just around the credit support. And Stephen has and I have talked about this around some of the Bitcoin miners – is that, you know, there can be these higher quality investment grade players that might look to lend their credit support. Maybe a lease backstop to other players in the ecosystem in order to get a better pricing on construction financing. And we are seeing some press pickup around how that might play out in chip financing down the road too. Michelle Weaver: Mm-hmm. AI driven risk and potential disruption has been a big feature of the price action we've seen year-to-date in this theme. Stephen, what are some asset classes or businesses you see as resistant to some of this disruption? Stephen Byrd: We spend a lot of time thinking about, sort of, asset classes that are resistant to deflation and disruption. And what's interesting is there's actually a handful of economists in the world that are doing remarkable work on this concept. That they would call it the economics of transformative AI. There are three Americans, two Canadians, two Brits, a number of others who are doing really, really interesting work. And essentially what they're looking at is what do economies look like? As we see very powerful AI enter many industries – cause price reductions, deflation… What does that do? They have a lot of interesting takeaways, but one is this idea that the relative value of assets that cannot be deflated by AI goes up. Very simple idea. But think of it this way, I mean, there's only, you know, one principle resort on Kauai. You know, there's a limited amount of metals. And so, what we go through is this list that's gotten a lot of investor attention of resistant asset classes or more of the resistant asset classes that can go up in value. So, there are obvious ones like land, though you have to be a little careful with real estate in the sense that like, office real estate probably wouldn't be where you would go. Nor would you potentially go sort of towards middle income, lower income housing. But more, you know, think of industrial REITs, higher-end real estate. But there are a lot of other categories that are interesting to me. All kinds of infrastructure should be quite resistant, all kinds of critical materials. Metals should do extremely well in this. But then when you go beyond that, it's actually kind of interesting that there; arguably there's a longer list than those classic sort of land and metals examples.Examples here would be compute… Michelle Weaver: Mm-hmm. Stephen Byrd: I thought Jensen put it, well, you know, if there's a limited amount of infrastructure available, you want to put the best compute. And ultimately, in some ways, intelligence becomes the new coin of the realm in the world, right? So, I would want to own the purveyors of intelligence. It could include high-end luxury. It could include unique human experiences. So, I don't know how many of y'all have children who are sort of college age. But my children are college age, and they absolutely hate what they would call AI slop.They want legit human content, and they seek it out. And they absolutely hate it when they see bad copies of human content. And so, I think there is a place in many parts of the economy for unique human experiences, unique human content, and it's interesting to kind of seek out where that might be in the economy. So those would be some examples of resistant assets. Michelle Weaver: Mm-hmm. Josh, software's been at really the center of this AI disruption debate. How would you compare the current pullback in software multiples to prior periods of peak uncertainty? And do you think any of these concerns are valid? Or how are you thinking about that? Josh Baer: Great question. I mean, software multiples on an EV to sales basis are down 30 – 35 percent just from the fall, I will say. And that's overall in the group. A lot of stocks, multiple handfuls, are down 60-70 percent over the last year. And what's being priced in is really peak uncertainty, a lot of fear. And these multiples, now four times sales – takes us all the way back about 10 years to the shift to cloud. And this time in many ways reminds us of that period of peak fear. In this case, what's being priced in is terminal value risk. We talked about this TAM yesterday. But you know, who is going to win that share? How is it divided from a competitive perspective across these model providers? The LLMs with new entrants. Of course, the incumbents. And this other idea of in-housing. Michelle Weaver: Mm-hmm. Josh Baer: So, there's competitive risk, there's business model risk. Are companies going to need to change their pricing models from seat-based to consumption or hybrid. And then last margin risk. Just thinking about the higher input costs and higher capital intensity. And so, you know, all of those fears are being priced in right now. Michelle Weaver: And we, of course though, had a bunch of these companies live with us at the conference. How are they responding to some of these risks? How are they addressing these investor concerns? Josh Baer: Most of the companies here from our coverage are the incumbent software vendors. And I think that the leadership teams did a really nice job coming out and defending their competitive moats and really articulating the story of why they are in a great position to capitalize on the opportunity. And the reasons can vary across different companies. But some of the commonalities are around enterprise grade, trust, security, governance, acceptance from IT organizations.The idea of vibe coding all apps in an organization get squashed when you actually talk to companies and chief information officers. For some companies there's proprietary data moats, network effects. All of that's on top of existing customer relationships. And so, you know, that was the message from the companies that we had. That we're the incumbents. We get to use all of the same innovative AI technology in the same way that all these different competitive buckets do. But we have, you know, that differentiation in that moat. And so, we're in a good place. Michelle Weaver: I want to wrap on a positive note. Stephen, what did you hear at the conference that you're most excited about? Stephen Byrd: I'd say the life sciences. A few investors pointed out that perhaps AI has a PR problem these days. And I do think showing a significant benefit to humanity in terms of improved health outcomes, whether that's just better diagnosis, you know. Away from this event, but I was in India the week before and, you know, AI can have a powerful benefit to the people who suffer the most in terms of providing very powerful medical tools in a distributed manner. So, I'm a big fan there.But you know, in many ways, curing the most challenging diseases plaguing humanity. The kind of problems involved in providing those and developing those cures are perfect for AI. So that, for me – stepping way back – that is by far the most exciting thing. Michelle Weaver: Josh, same to you. What are you most excited about? Josh Baer: From my perspective, it's potentially the turning point for software. The ability to showcase that we are at this inflection point and acceleration. To actually see that it takes time for our software companies to develop new AI technologies. Put that into products that have been tested and proven and go through the enterprise adoption cycle. And that we're at the cusp of more adoption – that's what our survey work says. And to see that inflection, I think can help to rerate this sector. Michelle Weaver: Lindsay, same question for you… Lindsay Tyler: Maybe I'll tie it to markets. I've already had a lot of more conversations with equity investors over the past, how many months? There's a big fixed income focus right now, which is a great, you know, spot and really interesting opportunity in my seat. And there's a lot of interesting structures coming to be right now in the credit space. So, I think it's an exciting time. Michelle Weaver: Lindsay, Stephen, Josh, thank you very much for joining to recap the event and let us know what you learned at the conference. To our audience, thank you for listening here live. And to our audience tuning in, thanks for listening. If you enjoy Thoughts on the Market, please leave us a review wherever you listen. And share the podcast with a friend or colleague today.

Live from Morgan Stanley's TMT conference, our panel break down where AI is already delivering real returns—and where rapid advances are raising new risks.Read more insights from Morgan Stanley.----- Transcript -----Michelle Weaver: Welcome to Thoughts on the Market. I'm Michelle Weaver, U.S. Thematic and Equity Strategist here at Morgan Stanley.Today we've got a special episode on AI adoption. And this is a first in a two-part conversation live from our Technology, Media and Telecom conference.It's Thursday, March 5th at 11am in San Francisco.We're really excited to be here with all of you taping live. And we've got on stage with me. Stephen Byrd, he's our Global Head of Thematic and Sustainability Research; Josh Baer, Software Analyst; and Lindsay Tyler, TMT Credit Research Analyst.So, Stephen, I want to start with you, pretty broad, pretty high level. We recently published our fifth AI Mapping Survey that identifies how different companies are exposed to the broad AI theme. Can you just share with us some insights from that piece and how stocks are performing with this AI exposure?Stephen Byrd: Yeah, it's interesting. I mean, we've been doing this survey now, thanks to you, Michelle, and your excellent work, for quite a while. And every six months it is pretty telling to see the progression.I would say a few things that got my attention from our most recent mapping was the number of companies that are quantifying the adoption benefits continues to go up quite a bit. And to me that feels like that's going to be table stakes very soon as in every industry you see two or three companies that are really laying out quite specifically what they expect to be able to do with AI and lay out the math. I think that really is going to pull all the other companies to follow suit. So, we're seeing that in a big way.We do see adopters, with real tangible benefits performing well. But a new thing that we're seeing now, of course, in the market is concerns that in some cases adoption can lead to dramatic deflation, disruption, et cetera. That's coming up as well. So, we're seeing greater concerns around disruption as well.But broadly, I'd say a proliferation of adoption, that that universe of companies continues to grow, increases in quantification of the benefits. So, that is good. What's really surprised me though, is the narrative among investors has so quickly moved from those benefits which we've talked about into flipping that to toggle all negative, which I know some of our analysts have to deal with every day. The mapping work suggests significant benefits. But the market is fast forwarding to very powerful AI that is very disruptive in deflation. And that's been a surprise to me.Michelle Weaver: Mm-hmm. Josh, I want to bring software into this. Your team has been arguing that AI is actually good for software. And it's really something that you need that application layer to then enable other companies to adopt AI. Can you tell us a little bit about how much GenAI could add to the broader enterprise software market? And how are you thinking about monetization these days?Josh Baer: Of course. I think the best starting place is a reminder that AI is software, and so we see software as a TAM expander. And in many ways, even though this is extremely exciting innovation, it's following past innovation trends where first you see value accrue and market cap accrue to semiconductors, and then hardware and devices, and then eventually software and services. And we do think that that absolutely will occur just given [$]3 trillion in infrastructure investment into data centers and GPUs.There's got to be an application layer that brings all of these productivity and efficiency gains to enterprises and advanced capabilities to consumers as well. And so we see AI more as an evolution for software than a revolution. An evolution of capabilities and expansion of capabilities. LLMs and diffusion engines absolutely unlocked all of these new features of what software can do. But incumbents will play a key role in this unlock.And our CIO surveys really support that. Quarterly we ask chief information officers about their spending intentions, and these application vendors who we cover in the public markets are increasingly selected as vendors that companies will go to, to help deploy and apply AI and LLM technologies.So, to answer your question, we estimate GenAI could unlock [$]400 billion in incremental TAM for software; for enterprise software by 2028. And this is based on looking at the type of work able to be automated, the labor costs associated with that work, the scope of automation, and then thinking about how much of that value is captured typically by software vendors.Michelle Weaver: And you have a bit of a different lens on AI adoption. So, what are some of the ways you're hearing software customers using these AI tools and anything interesting that popped up at the conference?Josh Baer: To echo what Stephen laid out, I mean, all of our software companies are using AI internally, both to drive efficiencies, but also to move faster. So thinking about product. Innovation, you know, the incumbents are able to use all of the same coding tools and, you know, …Michelle Weaver: Mm-hmm.Josh Bear: … products geared to developers to move faster and more efficiently on R&D. So, they're doing more. From a sales and marketing perspective, a G&A perspective, every area of OpEx, our software companies are in a great position to deploy the AI tools internally.I think more important[ly], speaking to this TAM and expanded opportunity, is our companies have skews that they're monetizing. It might be a separate suite that incorporates advanced AI functionality. It might be a standalone offering, or it might be embedded into the core platform because the essence of software is AI and it, you know, leading to better retention rates and acceleration from here.Michelle Weaver: Mm-hmm. And Stephen, going back to you on the state of play for AI, we had the AI labs here and we heard a lot about the developments and what's to come. So, what's your view on the trajectory for LLM advancements and what are some of the key signposts or catalysts you're watching here?Stephen Byrd: Yeah, this is for me, maybe the most important takeaway of the conference – is this continued non-linear improvement of LLMs, which we've been writing about for quite some time. And just to give you an example, we think many of the labs have achieved a step change up in terms of the compute that they have, in some cases 10 x the amount of compute to train their LLMs. And that [if] the scaling laws hold – and we see every sign that they will – a 10x increase in compute used to train the models results in about a doubling of the model capabilities.Now just let that sink in for a moment. Let's just think about that. A doubling from here in a relatively short period of time is difficult to predict. It's obviously very significant and I think several of the LLM execs at our event sounded to me extremely bullish on what that will be. A lot of that I think will be evident in greater agentic capabilities.But also, I'd say greater creativity. It was about three weeks ago, three of the best physics minds in the world worked with an LLM to achieve a true breakthrough in physics – solving a problem that had never been solved before. A couple of days ago, a math team did the same thing. And so, what we're seeing is sort of these breakthrough capabilities in creativity. This morning I thought Sam speaking to, you know, incredible increases in what these models can do – which also brings risk. You know, I think it was interesting he spoke to, you know, the risk of misalignment, the risk of what these models are doing.But for me, that's the single biggest thing that I'm thinking about, and that's going to be evident in the next several months.Michelle Weaver: Mm-hmm.Stephen Byrd: So, you know, on the positive side, it leads to greater benefits from AI adoption. And to Josh's point that, you know – more and more the economy can be addressed by AI, I do get concerned about the risk that that kind of step change will create greater concerns about disruption and deflation.That causes me to think a lot about that dynamic. Interestingly, we think the Chinese labs will not be able to keep pace just for one reason, which is compute. We think the Chinese labs have everything else they need. They have the talent, the infrastructure. They certainly have the energy, power. But they don't have the chips.If what we laid out with the American models turns out to be true, I could see a chain reaction where the Chinese government pushes the Trump administration for full transfer of the best technology to China. And China could use their rare earth trade position to ensure that. So, that's sort of the chain reaction I've been thinking about.Michelle Weaver: Mm-hmm. So, let's think about then bottlenecks in the U.S. Power is still one of the main bottlenecks. We had several of the solutions providers here at the conference. So, what are you thinking in terms of the size of the power bottleneck in the U.S. and how are we going to fix that?Stephen Byrd: Yeah, absolutely. I am bullish on the companies that can de-bottleneck power, not just in the U.S., a few other places. Let's go through the math in terms of the problem we face and then the solution.So, we have this very cool – it is cool if you're a nerd – power model that starts in the chip level up, from our semiconductor teams. And from that, we build a global power demand model for data centers. We then apply that to the U.S.Through 2028 we need about 74 gigawatts of data centers, both AI and non-AI to be built in the United States. I don't think we'll be able to achieve that for lots of reasons. But starting from that 74, we have sort of 10 gigs that have been recently built or are under construction. We have 15 gigs of incremental grid access, but after those two, we have to go to unconventional solutions, meaning typically off-grid solutions, over 40 gigawatts of unconventional solutions.So that will be repurposing Bitcoin sites, which could be sort of 10 to 15 gigawatts. That'll be big. Renewable energy, fuel cells will be part of the solution. Gas turbines will be a big part of the solution. Co-locating at a few nuclear plants. I'm less bullish than I used to be on that. But when we net all that out, we think the U.S. is likely to be 10 to 20 percent short of the data center capacity that will need to be in.It's not just a power grid access issue, though, that's a big one. Labor is now showing up as a huge issue. Many of the companies I speak to trying to develop data centers struggle with availability of labor. Electricians being one very tangible example. In the U.S. we need hundreds of thousands of additional electricians.So, for any of your children, like mine, thinking about careers, you know, you'd be surprised [at] the amount of money that people are making in the infrastructure business that does feel like it's a labor shift that's going to have to happen, but it's going to take years. So, in that context, we had a number of the Bitcoin companies at our event here. And the economics of turning a Bitcoin site into hosting a data center are extremely attractive. I mean, extremely attractive.To give you a sense of that. Before this opportunity presented itself to these Bitcoin players, those stocks tended to trade at an enterprise value per watt of about $1 to $2 a watt. Then we started to see these deals in which the Bitcoin players build a data center and lease them to hyperscalers. Those deals – depends a lot on the deal but – have created between $10 and $18 a watt of value. Let me repeat that. 10 to 18 – relative to where these stocks were at 1 to 2.Now many of these stocks have rerated, but not all of them. And there's still quite a bit of upside. And what we've noticed is the economics that the hyperscalers are paying are trending up and up and up. Because of this power shortage that we're dealing with. So, a lot of exciting opportunities are still in the power space.Michelle Weaver: Great. Well, I think that's a good place to wrap this first part of our conversation around AI adoption and the state of play. We'll be back again tomorrow with Part Two, looking at financing and risks.To our panelists, thank you for talking with me. And to our audience, thanks for listening. If you enjoy Thoughts on the Market, please leave us a review wherever you listen and share the podcast with a friend or colleague today.