Podcasts about chief u

Our Global Head of Macro Strategy Matthew Hornbach and Chief U.S. Economist Michael Gapen unpack what is likely to influence this week's interest rate decision by the Fed.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, will the Fed hold or hike? It's the question in the market right now. It's Tuesday, July 28th at 9:30am in New York. Will the Fed display patience, or has it run out of patience? That's the question hanging over the July FOMC meeting currently underway. We believe the former. We expect the Fed to keep the target range for the federal funds rate unchanged at 3.5 to 3.75 percent. The statement will probably also remain unchanged, reiterating the ample reserve policy, economic activity expanding at a solid pace despite elevated uncertainty. So, Mike, what's your assessment of the situation beyond that? Michael Gapen: Our assessment of the July FOMC meeting is actually the case for hikes is not as persuasive now as it was in June. And I think when we say that and when we come to the decision the Fed will stay on hold this week, we're basing it mainly on the data that has come in since the June FOMC meeting. And two important pieces on that front are employment growth moderated. So, in the June meeting, the three-month average payroll gain was running at about 188,000 per month. And I think it gave the sense that the labor market was really accelerating and there was downside risk to the unemployment rate. The subsequent employment data changed that view. Now it looks like there is much less of an acceleration in hiring and momentum has slowed. So, the labor market doesn't look quite as robust. Second, there was a lot of information, we think, a lot of signal about disinflation. So yes, recent volatility in the Middle East did push oil prices temporarily higher. We'll see where that goes. But underneath the hood, there was significant softness in goods inflation and services inflation, particularly related to housing. So, we do think that there was a lot of evidence that disinflation is here. So, with those two things in mind, we think there's less of a case to hike in July than there was in June. So, we think the right thing... Or what we think the Fed will do is to skip July, try and buy a little more time, get a little more information. If disinflation is indeed here, the Fed stays on hold. If not, and inflation stays firm, well, they can move to rate hikes later this year. But we think the case to hike in July is less compelling than it was in June. Matthew Hornbach: Well, they certainly will get a lot more information between the July meeting and the September meeting. If memory serves, at least two more rounds of all of the major economic data points… Michael Gapen: That's right. Matthew Hornbach: Payroll, CPI, and so on. Michael Gapen: That's right. The gap between the July FOMC meeting and the September FOMC meeting is the longest on the Fed's calendar. Of course, in part, that makes room for Jackson Hole in August, which if the Fed were moving to a tightening cycle, could be a venue to lay out the case for that. But you're right, they will see multiple employment and inflation reports before they meet again in September. Matthew Hornbach: If they really wanted to get ahead of that data and move at this meeting, what is the case for hiking rates in July? How would you think about that perspective? Michael Gapen: I think you could make a couple of cases to hike now. One is recent volatility and conflict in the Middle East has pushed oil prices higher. Maybe it convinces you – you're in a prolonged oil risk premium scenario, and inflation will not dissipate. Second, I think you could argue, well, it's a balance of risks argument. And we think risks have just shifted in the direction of inflation, where last year they were in the direction of a weaker labor market. We eased last year. Let's just reverse those risk management rate cuts this year. So, it's not about inflation in hand, it's about your view of risks around inflation. Another, I think, and to me, this is the most important one, is maybe Warsh wants a regime change in the reaction function. In other words, he emphasizes price stability and achieving the 2 percent target. Well, at some point, words are words and actions are actions. And maybe what he desires is a more hawkish reaction function and kind of a higher interest rate all else equal to guide inflation down to 2 percent more quickly. So, I think, Matt, if we're wrong this week, I think the main reason we're wrong is I'm thinking under an older reaction function, and Warsh is bringing a new one. And right now, we don't exactly know what his reaction function is. And he could reveal it this week as being in a direction where he really wants to concentrate on the inflation side of the mandate to the exclusion of nearly everything else. Matthew Hornbach: Well, I don't think that's lost on markets at all. And in fact, I think that the rise in yields we've seen in the bond market concentrated in the real yield component of the 10-year Treasury bond tells you a lot about how investors are thinking the Fed will react to higher energy prices. As energy prices have gone up, so have bond yields. The relationship between those two asset prices are very strong. And usually what that suggests is if the real yield is going up more than the break-even inflation rate is going up as energy prices rise, it's telling you that investors think the Fed will not look through the rise in energy prices. If you have the opposite happen, where your break-even inflation rate is going higher, more so than the real interest rate is going higher, that would suggest investors think the Fed will look through the energy price increase. That just hasn't been the case, and so I think investors are very much attuned to what they think is the right reaction function for the Fed. But I guess we'll see. Only time will tell. And I think in order to help us tell what the right reaction function is – we'll need some communication from the Fed. And maybe that's where I want to go next with you – is on communication. It does seem like there have been fewer FOMC participants speaking to the public since Chairman Warsh began his tenure as chairman. Is that your impression? How do you think about communication? And since we are in the midst of this FOMC meeting, the press conference… What do you think about press conferences going forward? Michael Gapen: I do think you're right. I haven't counted up the literal official FOMC communications. I do think there have likely been fewer speeches and/or interviews given recently. And whether or not that's a function of Kevin Warsh as the chairman or it's summer and things move a little slower, I don't know. I will say, though, that when participants have spoken, I think we're getting the same, say, normal communication that they brought in the past. So far, I don't read participants as unwilling to provide their view about the outlook for the economy and for monetary policy. On the press conference, boy, would that be a change. I've been of the view that you probably will not get what I'll call a major change to the SEPs or the press conferences in terms of their frequency until the task force on communications has run its course, where I think the deadline is ultimately later this year. So, I don't think the schedule of press conferences will change until 2027, if it changes at all. But if we don't have them… The way that I would look at that, Matt, is to say, if the Fed's speaking less, there will be a vacuum out there to some degree. So, if the Fed's giving its view on the outlook and monetary policy less frequently, something else will fill that narrative, whether it's markets or the private sector or whatever it is. Vacuums are going to get filled. The Fed's speaking less, somebody else will speak more. Maybe that drives volatility more. I guess it would depend on the situation, but I think pulling press conferences would be a major surprise. I don't think it's in market expectations, and my belief is it would probably lead to some increase in volatility over time.How would you read it? Matthew Hornbach: Absolutely. I think the void has already begun to be filled by investors and how they think about the Fed's reaction function, rightly or wrongly. Which is why I think we've seen real yields move in a very positively correlated way with energy prices. Investors are intuiting a certain reaction function to higher energy prices. Whether or not that is the correct view, only time will tell. If we do have a press conference at this upcoming meeting, which looks very likely, investors are going to pay attention to every nuance and every shift in the chairman's tone. How he chooses to address certain questions versus others—or whether he chooses to address them at all—will be important for market participants and how they invest in the bond and currency markets. With that, Mike, thanks again for taking the time to talk. I look forward to catching up with you again in late August around the Jackson Hole symposium. Michael Gapen: Great speaking with you, Matt. Thanks for having me on. Matthew Hornbach: 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 CIO and Chief U.S. Equity Strategist Mike Wilson explains why he thinks the bull market has entered a new phase, with more focus on quality.Read more insights from Morgan Stanley.----- Transcript -----Mike Wilson: 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 transition from early- to mid-cycle and what that means for your portfolio.It's Monday, July 27th at 11:30 am in New York. So, let's get after it.Our broadening call for the market has been about moving beyond the narrow leadership of the mega-cap winners and into more economically sensitive areas. That made sense in the context of our rolling recovery thesis, a period when revenue growth returns to lean cost structures, and operating leverage emerges across many sectors of the economy.But now, I think that early-cycle phase of the rolling recovery is ending, and the market is starting to rotate toward quality. That's not bearish, but it is different and can affect portfolios at the stock level. As the cycle matures, investors stop rewarding low quality beta and start focusing more on free cash flow, balance sheet strength, margins, and earnings stability. The market is not abandoning the recovery. It is becoming more selective about the best way to own it. This setup reminds me of early-to-mid 2021. After the initial post-COVID rebound, leadership shifted away from lower-quality and more speculative areas and toward higher-quality companies. The S&P 500 kept rising, but the leadership changed. I think we're seeing something similar today. The S&P itself is already a quality-heavy benchmark, with high-quality cohorts representing roughly 42 percent of the index versus about 28 percent for low quality. That should help keep the index resilient, even as the market continues to digest this transition. Could we still see near-term volatility? Absolutely. If the war escalates further or the Fed surprises us with a rate hike this week, the market can continue to correct. I continue to think 7000 on the S&P 500 is important support if investors remain uneasy about the Fed transition or the geopolitical backdrop. However, the bigger message is that leadership is changing, not that the bull market is ending.One of the most important drivers of this shift is AI adoption. Earlier in the cycle, margin expansion was about classic operating leverage: sales recovering faster than costs. From here, margin expansion will depend more on companies using AI effectively, running leaner, and turning productivity into revenue growth as well. This is why quality matters. Companies with strong pricing power, strong balance sheets, or the ability to translate AI adoption into real growth are likely to be rewarded disproportionately.Companies where AI is material to the investment thesis and pricing power is neutral to strong are seeing forward net margin expectations improve nearly 400 basis points above the median stock. Our transcript work also shows that roughly 25 percent of S&P 500 companies cited measurable benefits from AI adoption in the second quarter, up from 14 percent a year ago. That's operating leverage with a new engine. This also feeds into the AI leadership rotation. I still think semis are likely to underperform hyperscalers from here, even if both can be under pressure during the next leg of consolidation. Semis are a classic early-cycle group, and they've already seen a peak rate of change in earnings revisions. The hyperscalers, by contrast, have high quality core businesses, exposure to the agentic application layer, and an underappreciated ability to take costs out through AI-driven efficiencies. In terms of the overall S&P 500, the two variables I'm watching most closely are interest rates and oil. The bond market is pricing a meaningful probability of a Fed hike, but my base case remains that the Fed stays on hold. A hike would be a hawkish surprise and a risky maneuver, but I think even that would delay rather than derail a positive finish to 2026 with earnings growth remaining strong. Oil is the other wildcard. A sustained rise in oil is not priced into equities, and just another reason to move one's portfolio up the quality ladder.Bottom line, the broadening is not over, but it is changing shape and leadership. We're moving from early-cycle beta toward mid-cycle quality as the market seeks not only growth, but companies that can convert that growth into durable free cash flow and margin expansion. The recent elevation of quality factors has been evolving for the past month and now it's time to fully embrace it. 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 CIO and Chief U.S. Equity Strategist Mike Wilson explains why market leadership is rotating beyond semiconductors and where investors may find opportunities despite near-term volatility.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 will explain why the recent volatility in markets makes sense. It's Wednesday, July 22nd at 2 p.m. in New York. So, let's get after it. The broadening trade is back and it's gaining steam. We established this thesis last week. Importantly, there's a key reason this broadening trade is likely to continue. One of the more crowded areas of the market—semiconductors—has lost its momentum. As I've also noted before, this is not a call that the AI cycle is over. However, stocks do trade on the rate of change in growth, and expectations often reach a place where they can no longer surprise on the upside. Earnings revisions tend to get too stretched, and capital starts looking for the next place where fundamentals are improving but positioning is still light. This is no different than what happened to other leadership groups earlier this year in areas like precious metals and energy stocks. Remember, I first made the call for market broadening in our November outlook. My view is that the economy had moved into a new expansion after the rolling recession ended in April 2025. Markets were starting to catch on before the Iran conflict interrupted that trend. Investors piled back into the AI trade—especially semis—as oil prices jumped and Fed expectations shifted more hawkish. Back in June, I noted that those earnings revisions were likely nearing their peak. Hyperscale stocks starting to lag was the first indication. Since semis ultimately depend on hyperscaler spending, that divergence usually doesn't last. It doesn't mean the buildout is ending. However, the spenders may be moving from blind enthusiasm to a more disciplined phase as a means of addressing the market's concerns about falling cash flows. We've seen this pattern before. Since ChatGPT launched, this ebbing and flowing between the hyperscaler and semiconductor stocks has happened three times. This is the fourth such adjustment, during which the hyperscaler stocks are likely to outperform the semis. Since a few weeks back, hyperscalers have outperformed semiconductors by almost 30 percent. Another consequence is that the major averages may trade lower in the near term. When a crowded, large-cap leadership group is unwinding, the index can look choppy even as the market underneath is improving. That's the key distinction. The index may struggle, but the broadening can still work. Over the next month, don't be surprised if the S&P 500 trades as low as 7000 before it makes a move to 8000 by year-end. Use this weakness to add to equity positions. I continue to like Consumer Discretionary Goods, Transports, and Biotech. Discretionary Goods remains one of the cleaner expressions of the broadening thesis. Wallet share is shifting from services back toward goods, goods pricing is improving, and earnings revisions are strengthening. Transports continue to show improving revisions as volumes stabilize and pricing gets better. Biotech is one of the more attractive lower-rate beneficiaries, especially if policy expectations are too hawkish, as I think they are. On that last point, the Fed backdrop matters. The June FOMC meeting told us forward guidance is going to be limited, and the inflation path is going to drive policy. The softer-than-expected inflation data last week should allow the Fed to stay on hold rather than hiking. It may take the bond market a few more data points to fully re-price this view. Bottom line, the broadening is in gear, but it may not feel comfortable because it's happening while the crowded momentum trade unwinds, a process that is likely unfinished. That's usually how rotations in market leadership work. Like spring, it's often: in like a lion and out like a lamb. 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 part of our economic roundtable, Michael Gapen, Jens Eisenschmidt and Chetan Ahya join Seth Carpenter to discuss how central banks are balancing sticky inflation, resilient growth and regional policy trade-offs.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 once again today, I am joined by Morgan Stanley's chief regional economists: Michael Gapen, the Chief U.S. Economist, Jens Eisenschmidt, our Chief Europe Economist, and on the other side of the world, Chetna Ahya, our Chief Asia Economist. Yesterday, we talked about what's supporting growth around the world, especially AI spending in the U.S. and some government spending in Europe, and Asia's role in making all of this happen. Today, we're going to try to dig deeper and go into policy. It's Tuesday, July 21st at 10 am in New York Jens Eisenschmidt: And 4pm in Frankfurt. Chetan Ahya: And 10pm in Hong Kong. Seth Carpenter: Since the last time we did this in mid-April, I will say the debate around central banks has probably become more complicated. Global growth has held up, probably better than many people expected. And inflation, which picked up a lot, started to recede. But it has not gone away. And some of the forces helping to shape the economy, the AI spending, government spending, that possible upswing in manufacturing, that could keep demand strong, and it might keep pushing inflation higher. So, the question today is, if growth remains resilient, how much room really do central banks have to navigate? Mike, let me start with you because your call for the Fed here in the U.S. is out of consensus, or at least at odds with where the market is pricing things. We talked about the demand going from AI. You pointed out that imports are actually limiting how much domestic demand there is. So, what is the underlying story for inflation in the U.S.? And what does it mean for the Fed? Michael Gapen: So, our view is that inflation will come down in the U.S. So, we think disinflation will be driven by some payback in energy prices. Some payback from tariffs, which have pushed up goods prices over the last year. And some further diminishment in housing-related inflation, namely shelter. So, we think on a broad-based perspective, inflation has already peaked and will start moving lower. And we think we've seen evidence of this in recent inflation prints. A risk to that, though, is from the demand side of the economy and AI-related inflation in two parts. One, higher software prices, chipflation. So, the pass-through of some of the AI pricing components. Fortunately, here, they're about less than 1 percent of the consumer basket. So, we don't think that there's a great risk, a strong risk, a high risk of AI-related inflation in the consumer bundle. I think the real risk is that maybe we underestimate broad-based demand, animal spirits. And so, you might just see a broad-based increase in inflation from stronger demand. That'll be a little bit harder to see in real times. But our expectation is that inflation moves lower to about 3 percent, by the end of this year and closer to 2.5 percent next year. Seth Carpenter: All right. Thanks, Mike. And in fact, the most recent inflation report that we just got confirms your perspective that inflation should be coming down. And so, I guess the question then remains: What would it take for the Fed to hike this year if inflation has come down like we've seen? Michael Gapen: Well, I think that the answer there is that inflation wouldn't come down in line with our expectations. So, if the view is that energy prices, tariffs, and shelter inflation should provide plenty of offset and bring inflation down, I think the answer is you don't get payback. Explicitly, core goods prices stay elevated. Maybe we get ongoing disruptions in the Middle East that push energy prices higher and create second-round effects. So, I think inflation just lingering at elevated levels could mean the Fed gets brought in to raise rates in September or later this year. We think if they're patient enough, they'll see enough disinflation to keep them on the sidelines. But the risk is disinflation forecast is too optimistic, inflation stays firm, the Fed needs to raise rates. Seth Carpenter: All right, Jens, what about for you and the ECB? They've already raised interest rates once this year. I think you've got a forecast for them raising interest rates again in September. What could make you wrong about that forecast? What's going to make you convinced that you're right about that forecast? And is there a similar tension that the ECB is wrestling with that Mike talked about for the Fed? Jens Eisenschmidt: Yeah. I mean, starting with the last part of your question, I think no doubt, very similar tension. Just that, of course, it's less obvious. It's essentially a nuanced European version instead of the loud American version that we always stereotypically think the world looks like. So, essentially, we have here clearly not an AI boom. That, I mean, there's no question. And we have discussed that yesterday. Still, there is certainly the notion that the world demand is not really weak, and some of this will also arrive in Europe. And so, you have that tension between maybe there's more resilience than we had thought, and so inflation will not come down through to slack as much. And so, we might actually add something here in terms of monetary restrictiveness. Now, the other thing that is often forgotten, even though it's blatantly obvious, the starting point is just different. The ECB is running neutral monetary policy by all accounts. I mean, you could say 2 percent is neutral, and now they are 2.25. But, you know, there are ranges of uncertainty around any estimate. And the latest that they published runs – goes from 1.75 to 2;2.5. So basically, even if they were to increase rates to 2.5 in September, you could go with the microphone around the governing council, and you would probably find a lot of people saying, "Well, this is still a neutral policy." That's probably not the case for the U.S. So, I guess this matters here for that debate too. Seth Carpenter: All right. Yesterday we talked about lots of different things, but for Europe, we brought up fiscal policy. How do you think about fiscal policy and how it affects monetary policy? And so, I'm thinking about two channels. One, how much does the ECB care that if they keep pushing up interest rates, they're going to increase the debt service burden for countries that are already facing high debt costs? And second, is fiscal policy going to be the extra impetus for inflation that forces even more rate hikes from the ECB? Jens Eisenschmidt: I guess it depends on who you ask. Certainly, more concerned members in the governing council that would point to exactly that fiscal stimulus as a reason why interest rates have to be increased further from here. The other answer I would give is – probably for now at least, the view on fiscal policy is really model-based. You look at what type of increase in interest rate gets you essentially more fiscal restraint because there's an increase in interest rate bill and so less spending somewhere else. And that gets you basically less stimulus or less growth, I mean, very roughly speaking. I don't think it's a major concern for now. We haven't reached yet interest rates where this would start to play a role. I guess, again, Europe being fragmented as it is, with all the political risk that's around the corner. Think about the elections in France and Italy and Spain next year. That will very likely find itself expressed in spreads. And so, the higher the interest rates are, the larger the spreads could become. Seth Carpenter: So, for each of you, there's clearly a role for inflation. One of the risks we'll talk about maybe is inflation expectations and how maybe there's a big shift in what's going on with inflation. But Chetan, that brings me to you and Asia, because one economy where there unquestionably has been a fundamental shift in inflation and inflation expectation over the past several years is Japan. The Bank of Japan is on this normalization path where they're raising interest rates. Interest rates had been negative and then zero, and now they're gradually raising things up. Inflation has come back to Japan. Markets are looking at what the Bank of Japan is likely to do. Can you tell us a little bit about what our view is for the Bank of Japan this year and next? And what might make them hike interest rates faster than we think? And is there any risk that in fact they hike interest rates slower than we think? Chetan Ahya: Yeah, Seth. So, we are expecting BoJ to hike twice from here. The first rate hike is coming up in December of this year, and then another one coming up in June of next year. And then we think that, you know, the underlying inflation trend in Japan is not really that strong. So, while market pricing is for about three more rate hikes instead of two that we are building in our base case. And some of the macro investors are even talking about four more rate hikes. We think the underlying inflation trend warrants a caution and BoJ to go slowly than what the market is pricing in and what the macro investors are saying in. And the key part of our framework on thinking about Japan's inflation is that bulk of the explanation to inflation rise in Japan lies in currency moves. And secondarily, you can look at also the other drivers are more from supply side, which is higher energy prices or food prices. Whereas it's not driven so much by demand. To elaborate further on why it is not driven by demand, when you look at Japan's consumption trend, and if you index it to hundred at pre-COVID levels in September [20]19 then it's currently about 101; i.e., that it's just about 1 percent up over the last seven years. So that's a very tepid trend of consumption demand. And therefore, we don't think that BoJ needs to rush into hike in a more aggressive pace going forward. Seth Carpenter: So, there is this fundamental shift, but boy, it's not on a tear, and so the BoJ can take its time. You know, Chetan, it's hard to wrap up a conversation about the global economy without talking about China. I get the sense that there's not a lot going on with monetary policy, but we did just see a soft Q2 GDP print. So, against that backdrop, what should we be expecting in terms of policy? Is there any monetary policy coming? Or is there going to be some fiscal expansion? Or is China just sort of stuck in this lower gear? Chetan Ahya: Yeah, Seth. So, we were also surprised by the soft GDP print. But when you look into the data, actually, it was interestingly doing well on exports. And I mentioned earlier about how the global CapEx trend is helping Asia. It's definitely helping China too. But at the same time, China's domestic demand turned out to be quite weak. And particularly in the areas where we think that the policy response can be providing some help, i.e., infrastructure spend, was also very weak. And therefore, we are expecting that in the back half of the year, you will see the government taking up some fiscal expansion. Not new stimulus announcement, but whatever they had budgeted. They have enough room within that to utilize that budget and actually increase that fiscal spending towards infrastructure. We have about 2 trillion RMB worth of funds available for the government to go ahead and spend in the second half. And then lift that growth trend, which has dipped to 4.3 percent in second quarter to back to 4.6 percent in the back half of the year. Seth Carpenter: You know what? Maybe that's a great place for us to leave it. We've gone around the world again today, but this time focusing much more on policy. In the U.S., the Fed is facing this interesting situation. We think inflation is coming down. The last CPI print went in our favor. And so as a result, our forecast is that the Fed doesn't change policy at all this year. But it's going to come down to the data, and in particular, whether or not Mike and his team are right in terms of where inflation is going. In Europe, the ECB has already raised interest rates once this year. Jens and team are looking for another interest rate hike. The ECB really does seem more sensitive to inflation coming from the energy shock, but there are lots of other crosscurrents that they're paying attention to as well. And then the other major developed market central bank, the Bank of Japan, is on this normalization path. They are in the process of raising interest rates, but Chetan pointed out to us that the growth rate is such that they don't have to be in any sort of hurry, and they can take their time. So, with that, Mike, Jens, Chetan, thank you so much for helping us connect all of these dots. And to the listeners, thank you 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 a colleague today.

AI investment is reshaping the global outlook. In part one of this economic roundtable, our panel explores where the momentum is strongest — and where investment still needs to catch up.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. Michael Gapen: And I'm Michael Gapen, Chief U.S. Economist. Chetan Ahya: And I'm Chetan Ahya, Chief Asia Economist. Jens Eisenschmidt: And I'm Jens Eisenschmidt, Chief Europe Economist. Seth Carpenter: And today is going to be our third quarter economic roundtable taking a wide-angle view on the global economy and all the key forces shaping our outlook and the economy. Seth Carpenter: It's Monday, July 20th at 10am in New York Jens Eisenschmidt: And 4pm in Frankfurt. Chetan Ahya: And 10pm in Hong Kong. Seth Carpenter: Since our last roundtable in April, the global economy has continued to face all sorts of shocks, a mix of resilience and friction. Inflation pressures have not disappeared. Energy and geopolitical risks have come up, they've receded, they've come back, they've receded all over the place But there is one underlying source of momentum that we have to talk about. And that is the AI-driven CapEx cycle. Michael, let me turn to you because the U.S. is a real focal point of all of this. Tell me a little bit about where Morgan Stanley Research is thinking about hyperscaler CapEx. How big it is? And then for you, when you think about the U.S. economy, just how big of a driver is it for what we're looking for in the U.S.? Michael Gapen: Yeah, we continue to revise higher our estimates for hyperscaler and AI-related CapEx in the U.S. economy. We were thinking a little over a trillion for 2027. Now we're more like 1.2 - 1.3 trillion, maybe as high as 1.4 trillion in 2028. So, the level of hyperscaler spending continues to keep rising. The growth rate and its effect on the economy is likely to slow. But as you noted, it's still a major driver of momentum in the U.S. You would look at that headline number and think, "Wow, that's, you know, 3.5 percent or so of GDP. Must be a massive source of momentum for GDP growth." But roughly about 60 percent of that hyperscaler CapEx spending goes to items like computers and peripherals, equipment spending categories that have a very, very high import content. We still get a significant number that AI CapEx is probably contributing around 40 basis points to growth this year. Be a similar-sized amount perhaps next year.So, for an economy that's growing somewhere a little bit above 2 percent right now, maybe closer to 2.5 percent next year, that's a non-trivial amount. We just have to remember it's fueling growth around the world, just not here in the U.S. Seth Carpenter: Yeah, that's a really great point because I have seen some estimates where people say, "Well, if it wasn't for AI CapEx, the U.S. economy wouldn't have grown at all." And that's clearly wrong, as you point out. But U.S. imports are necessarily exports from somewhere else. And, Chetan, if I can pull you into the story then, U.S. firms are buying a lot of AI-related equipment from Asia. What does that mean in your part of the world? And in particular, I'm thinking about Korea, Taiwan, and maybe some other economies in Asia. What's the critical story there? Chetan Ahya: So, for Asia, this has definitely been a big boon. If you look at Asia's exports, they have been booming, and particularly for the ones which are exporting semiconductors to the U.S. They are seeing semiconductor exports growing by 90 percent. And when we go back in time and compare Asia's semiconductor exports, it's very tightly linked to the U.S. IT CapEx. And it's not surprising when Mike Gapen mentions about the imports going up. It's on the other side, helping Asia's exports quite meaningfully. So, so far, we've seen this benefiting Korea, number one, Taiwan, and also Japan. All these three are big beneficiaries of U.S. AI CapEx. And of course, also not just U.S., but the other countries which are doing any little amount of CapEx on AI front, that's also helping these three economies in the region. Seth Carpenter: You've been doing a lot of work, Chetan, recently about how much the story can actually broaden out, that the AI CapEx cycle has really contributed to Asian growth, but it doesn't tell the whole story that there's a broader industrial cycle. Can you give us a little bit of a flavor of that story? Chetan Ahya: That's right, Seth. So, we are actually highlighting that there is a CapEx and industrial super cycle that is underway in Asia, and there are four components to this story. AI and semiconductors CapEx, which we just briefly discussed. Number two is energy. Number three is defense. And number four is industrial supply chain onshoring related CapEx. I know that everybody still thinks that AI is the most important part of this story, but when I give you the numbers and the breakup of that... So, for Asia, AI and semiconductor companies CapEx is about $380 billion in 2026, but energy CapEx is going to be $900 billion. So, this is a far broader story than just AI for Asia. Seth Carpenter: Mike, let me come back to you and to the U.S. then. So, isn't the growth story also broader than that as well domestically? So, what's going on in terms of consumer spending in the U.S., and is there a broader CapEx story in the U.S. as well? Michael Gapen: I would say, is it broader than that? I think maybe you could argue also it's narrower than that. Here's what I mean by that. As I noted AI CapEx contributing about 40 basis points to growth, it's certainly underpinning equity valuations in the U.S. and underpinning strong wealth creation. So about [$]180 trillion in household net worth in the U.S. About [$]55 trillion of that has been created in just the last five years alone, underpinned in part by AI-related spending and optimism about future profitability. That's really supported spending by upper income households. So, I think it's both investment-led and consumer-led, but they're inextricably linked. So, the positive for the U.S. is that it's providing a lot of resilience. The negative component of that is it feels like momentum in the U.S. is narrowly driven. Jens Eisenschmidt: Let me maybe jump in here from Europe to provide some perspective from the other side. So, I think it's a fair summary to say that AI investment is not yet, or maybe will never get there, dominating the business cycle. What we do have instead is an unusually consumption-driven expansion. That has to do not so much with an extraordinary strength of consumption, but more of an absence of other factors. Now, prospectively looking forward, we think the fiscal expansion might help lifting us a little bit. And then it is really the debate how much AI investment can arrive in Europe. For now, I would say it's probably a factor of 20 that separates European investment plans from the plans we know that exist for the U.S. Seth Carpenter: Let me stick with you then in Europe because you brought up fiscal as one of the factors going on here and where it's going… You and your team recently wrote a blue paper talking about what the outlook is for fiscal policy in Europe, and in particular, we had this era of cheap debt. Interest rates in Europe were low, at times negative. It was super easy to borrow. Not as much happened then. There's been a shift towards more fiscal expansion at the same time that interest rates have gone up, causing the cost of debt to go up. Feels like there's a lot of push and pull going on. Can you unpack for us a little bit what was in that paper you wrote, what's going on with fiscal policy in Europe, especially in Germany? And what it might mean over time for Euro-area countries? Jens Eisenschmidt: Yeah, so I think fiscal policy in Europe really is looking at a regime shift. So, there is this very famous, probably in the U.S. even more so than here, notion that the Europeans have built a very comfortable welfare state. And that's true if you just look at the accounting from a GDP perspective. It's close to 50 percent that, you know, budgets are actually extended on welfare spending. And now you have three structural headwinds for any type of fiscal spend. So, one is aging related costs, you mentioned it already. Defense spending has to increase significantly, and the interest rate costs will also rise significantly. All of that means there will be very hard choices to be made. The one thing that actually could help here is growth. Growth is the one thing that's, for now at least, missing, at least in comparison to the U.S. It's probably half what we expect, what the U.S. colleagues think is in stake for the U.S., and a quarter or even less than that of what is there in Asia. So, growth is really the key, the solution, the answer to everything in Europe. More growth than just 1 percent, which is potential, would help solving that fiscal challenge. For now, it looks really, really like an uphill battle. Returning to Germany, it's the one country that has a very good fiscal starting position. They are pushing a lot but they're to some extent pushing a string. So, even with the German huge fiscal package, given that private sector investments so far are absent, doesn't get us a ton of growth. Seth Carpenter: Chetan, maybe I'll come back to you before we close part one of this roundtable. The AI CapEx cycle started with AI, broadened out further. How long do you expect this cycle to last? How durable can it be? And how might it compare to previous CapEx cycles? Chetan Ahya: Yeah, Seth. So, we think this will be a multi-year CapEx cycle. And when we are thinking about the duration of the cycle, there are two things that I would keep in mind. Number one is that most of the drivers that we just discussed – the CapEx on AI, energy, defense, and industrial supply chain onshoring related investments – these are all structural drivers. So, we think these are going to continue for some more time. At this point of time, we have the visibility for this cycle to be lasting for three-four more years. And then the second point of framework that I would keep in mind is that the corporate balance sheets are in a pretty good shape. So, when you are thinking about the leverage in the private sector, you can look at both households and the corporate sector balance sheet. But since the cycle is CapEx driven, we are looking at the corporate balance sheets, and they are in a pretty good shape. Across the region, corporate debt to GDP is below where it was in 2019. Seth Carpenter: Mike, let me, let me wrap up quickly with you. We talked about AI, AI CapEx. For now, that's a very strong demand story. When are we going to see a supply side of things coming from AI? Are you already seeing a big contribution to GDP and growth from productivity coming from AI? Michael Gapen: We are, but not outside of the high-tech sectors, and we're seeing limited, what I'll call labor market restructuring of tasks and occupations beyond high AI-exposed occupations. So right now, everything is still very isolated I think maybe as we get into 2029 and beyond, so as Chetan says, we probably have a three to four-year super cycle here around a build-out phase. Then we might see some of that broader-based diffusion to other non-tech sectors in the economy. Seth Carpenter: All right, Jens, for you, let's wrap up here. So, what is the state of play for the build-out in the CapEx cycle for AI in Europe? Jens Eisenschmidt: Yeah, it's very early stages. As I said before, we really; we connected to all the industry experts or analysts covering the sector and the total plans are a factor of 20 below what we see in the U.S. by just the seven hyperscalers. So, I would say very fragmented, very small, in general. Not only AI. I think the one thing I would be looking at for any type of sign of revival, sign of growth is investment. The second would be investment. And you can guess what the third would be… Investments in the core countries. That's really what we need to see, and we haven't seen much in Germany or France on this front. Seth Carpenter:That's a great place for us to stop today. We talked about the real side of the economy, AI, CapEx, trade. Tomorrow we're going to come back, and we'll talk about how that growth outlook affects inflation. And once you start talking about growth and inflation, you got to talk about policy, and that's where we'll be tomorrow. Mike, Jens, and Chetan, thank you for joining today. And for the listeners, thank you for listening. Be sure to tune in tomorrow for Part 2 of our conversation. And I have to say, 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.

Our CIO and Chief U.S. Equity Strategist Mike Wilson discusses where investors may find opportunity beyond the AI sector and risks that could slow market gains.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 our broadening thesis and the near-term risks to monitor. It's Tuesday, July 14th at 11:30 am in New York. So, let's get after it. The broadening trade is now playing out. It's showing up in stock prices, relative performance and earnings revisions. It's also making investors question the sustainability of the most crowded areas of the market, and consider other near-term risks. I first made the broadening call late last year based on my view that the economy had entered a new expansion after completing the rolling recession in April of 2025. In a new expansion, earnings growth tends to be much better than expected because revenue growth returns to companies that have already become more cost efficient. That's classic operating leverage. The market began to anticipate that dynamic late last year, but then the Iran conflict interrupted the move. Oil surged, rate-cut expectations disappeared, and investors crowded back into the most obvious AI capex beneficiaries led by semiconductors and memory, in particular. Since mid May, that interruption has faded with oil prices falling sharply and the broadening trade has begun to work again. Importantly, the market is not abandoning AI. It is simply rotating within AI and beyond AI. And that distinction matters. Semiconductors have had a historic run, supported by earnings revisions. But even great stories get exhausted in the short term. When earnings revisions breadth is pressing against historical highs and the trade becomes one of the most crowded areas of the market, the bar for upside gets very high. At that point, the issue is not whether the story is good. The issue is whether the rate of change can keep improving. That is a very different question. The underperformance of the hyperscalers was probably the first warning sign. Semis depend on hyperscaler capex. So when the spenders start lagging the beneficiaries, that divergence usually resolves one way or another. And now we're starting to see it. Meta's decision to sell excess capacity to outside customers may not mean the AI capex cycle is over. But it does tell you the market is beginning to ask harder questions about the path and pace of that spending. Credit spreads and stock prices of these hyperscalers provide the feedback loop to managements that maybe they should curtail the pace of spend. We've had multiple corrections inside this AI cycle already. This looks like another one – not the end of the cycle, but a reset. That reset is what gives the rest of the market room to work. Our preferred ways to express the broadening remain Consumer Discretionary Goods, Transports, and Biotech. These are not the areas investors have been excited about. In fact, positioning and sentiment remain subdued. But that's exactly why I like them. The risks to the story in the short term are two-fold. First, uncertainty about the full re-opening of the strait remains high, with pivots on both sides. This is keeping oil prices volatile in the short term even if the primary trend remains lower. Second, interest rate volatility is picking up again with the entire curve shifting higher in both nominal and real terms. If this doesn't stabilize, it will have a negative impact on stocks both at the index level and even for stocks that should benefit from our broadening call. With the inflation data coming in today softer than expected, this should reduce some of the recent upward pressure on rates. However, the new Fed Chair and board remain resolute to make sure inflation doesn't rear its head again. In the end, dealing with this risk up front is a good thing in my view even if it means uncertainty for markets. Bottom line, equity markets have been consolidating and correcting for the past several months. This is the result of the peak rate of change in earnings revisions and a reaction function shift at the Fed to focus more on the inflation mandate than growth. With the recent rollover in semiconductors, heavy supply of equity and credit issuance, and a transition of leadership at the Fed, expect more volatility and corrective activity in stocks before the next leg of the bull market resumes. Don't chase momentum. Instead, add to risk on down days to areas that will benefit from a broadening in the economy and earnings growth. 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!

Bill Adams, Chief U.S. Economist, Fifth Third Commercial Bank ( NYSE: FITB) "Cooling Inflation, Conflicted Fed" full 791 Mon, 13 Jul 2026 19:53:35 +0000 tk9wEUxIUxccvI8e8fsfmWlSdNMIFIqu business CEO Spotlight business Bill Adams, Chief U.S. Economist, Fifth Third Commercial Bank ( NYSE: FITB) "Cooling Inflation, Conflicted Fed" David Johnson CEO Spotlight 2024 © 2021 Audacy, Inc. Business

Robert Feldman and Michael Gapen discuss how AI could reshape growth, labor markets and productivity in the U.S. and Japan.Read more insights from Morgan Stanley.----- Transcript -----Robert Feldman: Welcome to Thoughts on the Market. I'm Robert Feldman, Senior Advisor at Morgan Stanley MUFG Securities in Tokyo. Michael Gapen: And I'm Michael Gapen, Morgan Stanley's Chief U.S. Economist. Robert Feldman: Today, we'll discuss why the U.S. and Japanese economies may react differently to the AI productivity test. It's Thursday, July 9th at 8 pm in Tokyo. Michael Gapen: And 9 am in New York. Robert Feldman: AI is the biggest theme around the world right now, but AI will play out differently in different economies. Take the cases of the U.S. and Japan. In the U.S., it's already a catalyst in investment, imports, productivity, and the labor market outlook. But here in Japan, it's seen as a savior for an economy with an intense labor shortage, low unemployment, and very little room to raise labor force participation. Mike, in the U.S., AI's contribution to real GDP growth will rise from about 0.05 percentage points in 2024 to an estimated 0.43 percentage points in 2027. What does that mean for markets? Michael Gapen: Well, Robby, I think it, it means a number of things, but, you know, I'm an economist, so the answer is always, "It depends." I think the real crux of the issue over time in the U.S., and therefore what it means for financial markets, is ultimately whether AI is labor replacing – and pushes the unemployment rate higher. Or it acts like a more traditional general-purpose technology that's labor augmenting. So, if, that's the case, meaning it looks similar to the internet and digital era, then it would mean faster output growth, stronger productivity growth, but still an economy that's running at or near full employment. That would be very beneficial in our estimation for risk assets, equity markets, credit markets, and it would probably mean that we stay in an interest rate environment that's certainly higher than it was during the post GFC period. But if – AI is a very different technology than we've seen in the past, and it displaces labor, and we get increases in the unemployment rate as AI diffuses through the economy. Then it could be very different for markets. Maybe returns to capital and equity markets are supported, but that might be more narrowly for technology stocks and not broader, say, consumer discretionary stocks. So, the answer, of course, is it depends. We don't know. And I think, ultimately, we come down on the side of thinking that AI will not create dystopian outcomes in the labor markets, that employment will hold up. So, we have a fairly constructive view, perhaps an optimistic view. And we think, ultimately it'll benefit markets greatly, similar to what we saw from the mid-90s to the early 2000's. Robert Feldman: Well, in your model, you have a particular variable that captures the speed of diffusion. But your baseline has AI spreading twice as fast as the internet did. But without that rise of employment. Is that really manageable? And if it's not, what economic indicators would warn us, if we're crossing into the danger zone? Michael Gapen: This is really the tricky part as, as you know. We have a new technology. We have to model how it diffuses through the economy. And I would say I think there's an argument here that penetration rates and usage rates are very different than what economists think about diffusion, which is how the production process is reshaped because of this new technology. And so most economists look at the internet and digital era and think it took 20-25 years to fully diffuse. Mass penetration in maybe 10 years, but full diffusion in more like 20-25 years. And so, each innovation cycle tends to happen more rapidly. So, I do think AI will spread more rapidly. And even by saying it spreads twice as fast as the internet did still means that it'll take roughly a decade, maybe 10-12 years for this to fully diffuse. So, our argument here would be that that is enough time for a flexible economy and a flexible labor market, like we have in the U.S., to rebalance labor. But if we're wrong, then Robby, what I think you will see is that as AI rolls through, it diffuses faster. And what we would see then is increases in rates of job separation and layoffs that would overwhelm the labor market's ability to reallocate workers. So, I think we would see two things – or three things: scale layoffs, a rise in the unemployment rate, and probably a significant amount of underemployment. Those who get rebalanced may be rebalanced into work that's not, say, consistent with the skill of that worker. So, I think we would see a very disrupted labor market in the process. But if it takes a decade, maybe 10-12 years, we think ultimately the U.S. economy is flexible enough to rebalance labor without large scale layoffs. Robert Feldman: Now, people are afraid of a lot of things, but one other thing is that AI might create new kinds of jobs, new kinds of tasks, have different impacts on people's wealth, and different responses from policymakers as well. How do these knock-on effects change the AI labor story? Michael Gapen: Yeah. That's right. I think you make a very good point there that I think it's easy to fall into what an economist would call a partial equilibrium trap. So, for example, we look at occupations exposed to AI task replacement, and we say, "Wow, if all these tasks are replaced, we might lose 10 million workers or 20 million workers." But that's too simplistic, in our view. Because as you note, AI may destroy some tasks or replace some tasks, but it's also going to create new ones. So, it may eliminate some types of occupations but create others. And in addition, if people are, say, laid off because of AI, you get a loss in labor market income for the economy. But AI will likely create returns to capital, say, stronger equity performance, and that's an indirect wealth effect. So, our model kind of, looks at, say, three wedges or three horse races in the economy then. It's about the speed of diffusion of AI against the ability of the labor market to rebalance. It's task destruction or task replacement versus new task creation. And then third, it's we might have weakness in labor market income in the short run, but there are indirect wealth effects. So, thinking about it this way in a richer general equilibrium context, these feedback effects matter a lot. So, the combination of if the labor market's disrupted, we get easing in monetary policy, maybe a fiscal response. There are new tasks, new jobs that are created for workers to rebalance to over time. And overall demand in the economy gets held up because wealth effects can offset some lost income. All of that is extremely important in our view that ultimately the U.S. economy can rebalance and handle the AI diffusion in a manageable way. We could be wrong, of course, but our main point here is you have to think about this in a richer context. You can't just simply, say, stack up workers and occupations and say, "Oh, we're going to lose a lot of employment." That's not the way innovation waves have worked in the past. We don't think they're going to work that way in the future. Robert Feldman: Mm-hmm. That's fascinating because the situation in the United States is so different from that in Japan, largely because of the demographic situation. Here in Japan, the key element is how much AI can ease the labor shortage. In fact, in some labor-intensive jobs now, we're seeing 6 percent wage increases, and that's great. As long as productivity rises fast enough that price hikes aren't necessary. Michael Gapen: So Robby, in your scenarios for Japan, the same 10 percent productivity gain can lead to very different outcomes. Deflation and weaker employment in one case. More inflation, higher wages, and more employment in another. What do you think drives the difference? Robert Feldman: Mm-hmm. Well, the crucial element really is the flexibility of goods and labor markets. With high flexibility, you get higher GDP, higher employment, and moderate inflation. With low flexibility, you may get a bit higher GDP, but employment plunges, and there's deflation of both prices and wages – more in wages. Now, in Japan, over the last two decades, we've seen monopoly power in key markets go down. For example, agriculture and energy. Labor markets are more flexible too, but lifetime employment system still applies to about two-thirds of the economy. And that deters people from trying to find better jobs and even from acquiring the skills needed for a new job. Michael Gapen: What conditions are needed for AI to be additive to Japan's economy? Robert Feldman: We need more reskilling. Japan is lucky because people are healthy, and they want to work into their 70s and beyond. But acquiring the skills to remain productive is a challenge, even though Japan's workforce is well-educated and still has a strong work ethic. So, to sum up, in the U.S., the race is between diffusion and absorption. But in Japan it's between labor scarcity and productivity. Is that fair? Michael Gapen: It is fair, and we come down on the side of optimism. We think diffusion will happen fast, but it'll happen at a pace that the U.S. economy can handle. So, we come down having a positive view overall. We do not lean in the direction of dystopian labor market outcomes. Robert Feldman: Mm-hmm. I agree with that as well for Japan. So, Mike, thanks for taking the time to talk. Michael Gapen: Great speaking with you, Robby-san. Robert Feldman: And thanks for listening, everyone. 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.

A changing macro backdrop is creating new opportunities across the equity market. Our CIO and Chief U.S. Equity Strategist Mike Wilson looks at what's driving the shift and where it may lead 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 discuss why I think the broadening out in equity markets can continue. It's Monday, July 6th at 11:30 am in New York. So, let's get after it. Let's talk about a market dynamic that's becoming harder to ignore. The broadening trade is back, and it's gaining momentum partly because one of the most crowded areas of the market – Semiconductors – is finally starting to lose some of its own. To be clear, this doesn't mean the AI cycle is over. However, trends don't move in straight lines, and leadership can ebb and flow; especially if there are fundamental reasons supporting it. In fact, we've seen this happen several times already over the past couple of years with the hyperscalers and semiconductors ebbing and flowing. This is based on positioning, the rate of change on expectations for capex and the returns on that capex. Meanwhile, our broadening call goes back to last November. Back then, we argued the economy had entered a new expansion after the rolling recession ended in the April of 2025. That view was based on a classic early-cycle setup where revenue growth returns to companies that had become cost efficient. That is the definition of operating leverage and that always leads to better than expected earnings growth – the core differentiation to our original outlook this year. The market started to discount that broadening late last year and into early this year. Then, the Iran war interrupted it. Oil prices surged, and the bond market went from pricing Fed cuts to pricing hikes, and investors crowded back into the obvious AI capex winners – especially Semiconductors. That made sense for a while. The revisions in Semis were spectacular. But when earnings revisions breadth gets pressed against historical extremes, the question becomes less about whether the story is good and more about whether the rate of change can keep improving. That's a much higher bar. And over the past few weeks, the market seems to be asking that question with semiconductor stocks fading. The underperformance in the hyperscalers was probably the first signal. Semis depend on hyperscaler capex, so when the spenders start to lag the beneficiaries, that divergence can't last forever. It usually ends up reconciling with hyperscalers' tempering capex guidance or indicating they are more focused on getting a return on that investment. META's announcement last week that it would begin selling excess capacity to outside customers fits right into that discussion. It doesn't kill the AI buildout, but it does change the market's perception of how linear that buildout will be. What matters for investors is how they should trade it. First, the market should continue to broaden out. Second, we continue to favor Consumer Discretionary Goods, Transports, Regional Banks, and now Biotech as part of that rotation. Discretionary Goods remains the cleanest expression, in my view, because the wallet-share shift from services back to goods is underway, goods pricing is improving, oil prices have fallen, and earnings revisions are strengthening. Transports are also showing better revisions, and Regional Banks still benefit from the broader recovery, improving loan growth dynamics and our call for a re-steepening of the yield curve. Biotech deserves more attention here, too. It is also one of the most rate-sensitive areas of the market, and our work shows it has historically done very well in falling-rate regimes. If the market's policy expectations are too hawkish – and I think they are – then Biotech offers an attractive risk-reward setup, particularly with an M&A cycle that continues to build. The Fed is part of this story as well. Chair Warsh's comments last week that inflation risks have come down should matter, especially after the weaker labor data that came out Thursday. The market had become too hawkish on policy. If falling energy prices and contained core inflation allow the Fed to stay on hold rather than hike, that should help lower rate expectations and further support broader leadership in equity markets. Bottom line, the major averages may stay choppy because Semis are a large part of the index and crowded. But, the message is improving beneath the surface. The broader market performance indicates a broader economic and earnings recovery may just be beginning. The best news is that this view is still out of consensus, which means the opportunity for investors remains significant. 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 CIO and Chief U.S. Equity Strategist Mike Wilson explains that gains in the stock market are expanding to more sectors and why investors should position quickly.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 changing equity market leadership.It's Tuesday, June 30th at 11:30am in New York.So, let's get after it.Something is happening in plain sight but still isn't fully appreciated by investors. The market's leadership is changing. And as usual, by the time everyone agrees that it's happening, the easier money will probably have already been made.Coming into this year, the primary differentiation to our view was that the economic and earnings outlook were much stronger than the consensus believed. That view was built around a few simple, but powerful ideas: easy comparisons after a three year rolling recession, lean cost structures, pent-up demand, fiscal support from capex incentives and tax cuts, deregulation for the banks, and a monetary backdrop that was increasingly supportive through the liquidity channel.Putting those together, the setup looked like a classic early cycle. Revenue growth returning on top of lean cost structures leads to strong operating leverage and well above trend earnings growth.Fast forward to today, and that's exactly what has happened. The median stock in the S&P 1500 is now growing earnings at a double-digit pace, the fastest since the post-COVID boom. Revenue growth has returned, with the median stock growing its top line by 7 percent. That is a rolling recovery showing up where many investors still aren't looking.For much of this year and particularly the past few months, most investors didn't want to hear that story. The Iran conflict pushed oil sharply higher. Rate-cut expectations turned into hike expectations. Faced with these headwinds, investors crowded back into the AI trade especially semiconductors and memory in particular. To be clear, the earnings revisions in semiconductors have been spectacular. The move wasn't irrational. But when something becomes the most owned, most loved, and most obvious area of the market, it becomes harder to surprise on the upside.That's where I think we are now. The hyperscalers have started to underperform, and that may be an early warning sign for semis, which are the key beneficiaries of the AI spending boom. Earnings revision breadth for semis is pressing against historical extremes. Again, this does not mean the AI cycle is over. But it does mean that the rate of change may be peaking, and when price momentum starts to fade in a crowded trade, it can lead to significant set-backs. It can also give other parts of the market room to breathe. In short, the broadening trade is back!The equal-weighted index and small caps are outperforming again. More importantly, the groups we have been recommending – Consumer Discretionary Goods, Transports, and Regional Banks – have already started to show relative strength over the past six weeks, even though positioning and sentiment remain neutral to negative. That's the kind of combination I like: better price action, improving earnings, and investors still skeptical.One reason I've been more constructive on the consumer than others is that I've also been more bearish on oil. That view was not dependent on a grand deal between the U.S. and Iran, although that obviously helps. The signals were already there. The Brent-WTI spread narrowed, and energy stocks began underperforming from the day the conflict started.The market was telling us something before the headlines confirmed it. And longer term, I think the conflict has put the world on notice: this choke point around the Strait of Hormuz must be solved. It's no longer a risk that the world is willing to tolerate. New routes, new supply, and new energy strategies are likely coming. Necessity is the mother of invention, and I would not underestimate the world's ability to adapt.A less problematic oil backdrop helps the broadening trade too. So does the Fed, at least on rates. The June FOMC meeting told us two things: forward guidance is going to be diminished, and the reaction function is now focused more squarely on inflation.My view is that falling energy prices, peaking tariff-related inflation, and contained services and housing inflation keep the Fed on hold rather than hiking this year. If that's right, lower than expected real rates could be a positive surprise for equities and another tailwind for the broadening of performance.The key variable to watch at this point is liquidity. This Fed is unlikely to be as proactive with balance sheet support, just as the real economy needs more capital for capex and the markets are dealing with more equity and credit supply. That's the near-term real risk, especially for popular momentum trades.Bottom line, the market may look choppy and even weak at the index level, over the next month, but the message underneath is improving. Earnings are broadening, oil is falling. The shift is already under way with crowded momentum trades wobbling, and the under-owned areas of the market starting to lead.Investors can either wait for it to become more certain – or position before it becomes obvious and fully priced.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 CIO and Chief U.S. Equity Strategist Mike Wilson reacts to Kevin Warsh's first Fed meeting, explaining why the new chair's credibility may require letting markets experience some short-term pain.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 my views on the New Fed Chair and how to interpret his FOMC meeting last week.It's Monday, June 22nd at 11:30 am in New York. So, let's get after it.I want to spend today on what I think was one of the more important market events of the year so far. Kevin Warsh's first Fed meeting as the Chair. Specifically, he is trying to fortify credibility at a very delicate moment. The economy is stronger than many expected. Inflation is still running above target. And markets have become accustomed to central banks telling them exactly what to think.Back in February, when Warsh was nominated, I argued that this was the right choice if the goal was to lift market credibility. At that time, precious metals were rising parabolically. To me that was a bad signal that markets were questioning whether policy makers could really run the economy hot without creating a disorderly move in the dollar or a broader inflation problem.Since Warsh's nomination, the S&P 500-to-gold ratio is up close to 40 percent, and I view that as a powerful vote of confidence from the markets. It suggests investors are giving Warsh the benefit of the doubt – that he can shake up the Fed, reduce reliance on the balance sheet as a policy tool, and solidify discipline that gives the administration some breathing room.But here's the catch. Enhancing credibility is not always painless. In fact, credibility must be earned by doing something markets don't immediately like. And last week had some of that flavor. Stocks weakened, the yield curve bear-flattened, the dollar strengthened, and precious metals sold off. From my perspective, that is not a failed first meeting. That is a good and necessary first step. What stood out to me most was Warsh's emphasis on the inflation mandate. He made it very clear that the Fed's primary responsibility is price stability – not managing every wiggle in the labor market, not smoothing every risk asset drawdown, and not hand-holding investors through every data point. And frankly, after five years of missing the inflation target, that message was overdue.The stronger economy and improving private payroll data give the Fed room to lean into that message. I don't think this means the Fed is about to hike rates immediately, or even necessarily this year. But it does mean the reaction function has changed, and markets do not like uncertainty around the Fed path.The other major shift was communication. Warsh appears to be moving away from excessive forward guidance, and I think that's a very healthy development. For years, I've argued that the Fed became too influential in shaping not only market behavior, but also how investors interpreted the data. When markets are only trying to guess what the Fed will say next, the Fed loses the value of market prices as an independent signal. That's backwards. Markets should be reacting to incoming information, and the Fed should be learning from those reactions – not vice versa.A little less Fed hand-holding may be uncomfortable, but ironically it is necessary to get to a more stable place. Investors may not like it in the short term, but the system works better when market prices are less impeded by policy manipulation. The wisdom of crowds is often better than the wisdom of committees.The near-term risk for equities is not rate hikes or even uncertainty. It's liquidity. Balance sheet support has already started to fade. The Reserve Management Program is down roughly 75 percent from its peak, Treasury buybacks have been reduced by 50 percent. And at the same time lending growth is accelerating because the real economy is using more capital. That combination means liquidity is tightening, and our work suggests that could remain a headwind for stocks into July.Bottom line, the market may test Warsh's resolve. That's what markets do. The key question is whether the Fed tolerates some short-term pain in order to strengthen longer-term credibility. My guess is that it tries to do exactly that, until funding markets, credit markets, or bond volatility forces its hand to add more liquidity and loosen financial conditions again. That argues for choppy and even corrective price action in equity markets in the near term until the earnings led bull market has its next leg higher. 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 Macro Strategy Matthew Hornbach and our Chief U.S. Economist Michael Gapen discuss the signals investors will be seeking from the new Fed Chair leading his first monetary policy meeting and possible implications for markets.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, markets are watching the Fed's next move. Are rate cuts delayed or could hikes possibly be back on the table? It's Tuesday, June 16th at 8:30am in New York. So, Mike, the FOMC meeting today and tomorrow is likely more about reading the signal rather than announcing a rate change. Markets will focus on inflation forecasts, the unemployment rate, and the growth outlook. But, of course, this will also be the first meeting after Powell ended his term as Fed chair in May. All eyes will be on Warsh. So, what are your thoughts before the press conference? Michael Gapen: A lot of thoughts, actually, before the press conference. I do think it's basically a foregone conclusion that the Fed will be changing its easing bias in favor of more neutral language. Seems clear the committee wants to do that, probably wanted to do that at the last meeting. And it does fit, I think, Warsh's preference for less communication, less guidance from the Fed. So, I do think that's largely a foregone conclusion, although obviously we need to see whether that happens and whether there are dissents. I think, as you noted, the forecasts will be important, but I think what's really important from my perspective – more than the modal outlook or the baseline that participants have – is their assessment of the balance of risks around the dual mandate. And I say that because obviously a year ago, the Fed eased policy when it felt that there were downside risks to the labor market that outweighed upside risk to inflation. This year, that seems to have flipped, where the labor market appears to have stabilized, labor demand has picked up a little bit, and it is inflation that looks persistent. So, if the Fed cut last year on downside risk to the labor market, I think the concern for markets is – maybe they hike in 2027 or later this year based on a changing balance of risks in the direction of firmer inflation. So, for me, that's really kind of key. In addition to what they're saying about growth inflation in the labor market, what is their assessment of the distribution of risks around that modal forecast? Matthew Hornbach: There's definitely going to be a lot of investor interest in the press conference itself. What exactly may result from the opening statement. Presumably, Chair Warsh will give an opening statement. How are you thinking about the back and forth between Warsh and the reporters that are asking questions? Are there certain questions that you would anticipate him getting asked, and how do you think he might respond? Michael Gapen: Well, I think certainly that if we are correct, and I think markets are correct, that they do change forward guidance in the statement to more neutral bias, that certainly opens up the possibility that the Fed will be hiking. So, the obvious first question is – is this the first step in the direction of hiking? What would get you to raise rates? Should investors be thinking about that? Is that the course of travel here? Now Warsh may not want to answer that if he, kind of, is consistent in the view of saying the Fed shouldn't give a lot of forward guidance. So maybe get some popcorn, Matt. It could be a situation where he gets asked questions about the future path of monetary policy, and maybe he decides, ‘I don't want to take that up right now. The data will tell us, and we'll do what's necessary.' And second, I think as you're noting and getting to about the structure of the press conference and what he might say is; past Federal Reserve chairs, let's say from Bernanke on, have found the press conference – the press conference statement, the questions, the format, the venue – as a way to control the narrative. And I think what will be interesting is to see whether Warsh has the same design. The risk, of course, is perhaps that he doesn't and pulls back the amount of communication guidance that he wants to give. And then we'll see what fills that vacuum. What narrative fills that vacuum? And is he okay with that? So, it may be that there's a new sheriff in town, and he chooses that there's some questions I'll answer, others I won't. And so, I do think that interaction with the press corps will be interesting. Hard to know exactly where it's going to come down until we see it in real time. Matthew Hornbach: During Chair Warsh's testimony to Congress, he alluded to the idea that potentially the Fed may not do a press conference at every meeting going forward. How are you thinking about that in the context of this idea that if you leave a void, somebody else may fill it? Michael Gapen: Obviously, the Fed used to not have press conferences at all, and then they moved to having them quarterly or four times a year. And they found that that was a little suboptimal because it became harder to make decisions and changes in the off-press conference meetings [be]cause they didn't have a venue to explain what they were doing and what they were thinking. So, they migrated to eight meetings. So, I think it's kind of twofold. Yes, it would mean that they speak less and therefore maybe their word doesn't carry as much weight. Or there's longer gaps for other narratives to come in. Like, do we lose forward guidance from the Fed, and is that replaced by forward guidance from the Treasury, for example? How do markets weigh those signals? And but then also I would say would that ultimately box in the Fed to only make decisions on quarterly meetings rather than eight times a year? Would the chair, for example… Let's assume that at some point in the future, the Fed decides it does want to raise interest rates. Historically, the Fed does not surprise on rate hikes. It's perfectly willing to surprise on rate cuts, when it comes to that. But if there is a world where the Fed does decide, ‘Hey, we do need to raise rates, but we don't have a press conference to explain our view.' Would they take the decision at that meeting or would they wait? So, does it reduce their opportunity set? Matthew Hornbach: I think this issue would certainly be an interesting one for investors to think about, which is why I'm bringing it up with you. Because to the extent that the plan going forward is to hold a press conference only once a quarter, as you alluded to – investors may interpret that as the Fed not being willing to raise rates at every single meeting going forward, which would certainly affect the pricing in the very short end of the interest rate market. But more broadly, on communication strategy, do you think that that would be something that Chair Warsh would take upon himself? Or do you think it would be more likely for him to organize a committee to discuss communications? Michael Gapen: I think the right thing to do… Again, our job is to say what we think he will do – not what he should do. But I'm going to answer this one in the question of what I think he should do. I do think he should create, say, a subcommittee on communication and reevaluate what the Fed does. [Be]ause as chair, he has almost unilateral control over communications. But obviously you work within a committee, the committee operates with consensus. So, I do think it would make sense to, kind of, work through a committee and try and get as much consensus as you can. And, here, what I would hope where they, kind of, ultimately land is – Warsh has been critical in the past of the Fed's forecast, the forecast being incorrect, providing maybe incorrect forward guidance. And I would argue that it's not really the sole job of the SEPs – the Summary of Economic Projections – to provide a forecast. But what you get out of them is more than just a forecast. You get a hint of the committee's reaction function. That if data are above or below certain thresholds on growth, inflation, and unemplyment, then expect our policy path to look different. So, is there a way that he could review the communication strategy, tamp down the elements that are, say, a pure forecast, but keep the items that communicate to the market what a reaction function is? That's where I think a review committee could be useful in reforming or revamping what they do. Matthew Hornbach: Absolutely. In terms of the things that are really the purview of the committee, can you walk us through what those are in the context of Chair Warsh coming in having to ultimately make decisions on monetary policy – both interest rate policy as well as balance sheet policy? What are the purview of the committee itself? Michael Gapen: Yeah. The two main tools of monetary policy, in this case interest rate policy and balance sheet policy, is both of those are under the purview of the Federal Open Market Committee. So, to change interest rates, to reduce the size of the balance sheet, to change the rollover rate, to buy assets, to sell assets – all of that is an FOMC decision. There are subcomponents of that world where the board can make certain decisions. Now, the Fed views communication broadly as a tool, but in this case, communication is not an FOMC decision. The evolution of the communication strategy grew kind of organically out of '08, '09. Chairman Bernanke kind of started that process. It continued through, through Yellen. And that's been more of what I'll call a consensus operation, but there's no formal vote. So, the chair has a lot of control over how the Fed communicates, how often it communicates. But the policy decisions are from the FOMC. Matthew Hornbach: I'm often asked about this idea that less communication may end up affecting the bond market in certain ways. And typically, the concern amongst investors is that with less communication from the Fed – whether it be the chair or whether it be from the committee as a whole through the Summary of Economic Projections and its interest rate dot plot – there's concern amongst investors that removing that type of guidance would raise bond yields, essentially through the term premium component of the term structure. And the way that we think about it is probably in this environment where interest rates have already been inching higher, and investors are concerned about the hiking cycle that may eventuate, it probably would raise term premia initially. But from a more medium-term perspective, the way I think about it is that, you know, term premia can be positive, it can also be negative. And if we have less forward guidance, I would generally expect that term premium component to be more volatile than it has been in the past. Not necessarily just in the upward direction. But it could also be in the downward direction if the macro environment ends up changing in some way. Michael Gapen: Yeah, I could see in the current context, the inflation surprises have been to the upside, so less communication may mean more term premium. But we went through almost a decade after '08, '09, where most of those surprises were to the downside. So, you can imagine that it could be a symmetric story rather than an asymmetric one. Matthew Hornbach: Absolutely. Well, thanks Mike. That's very interesting, and thanks for taking the time to talk ahead of this upcoming FOMC meeting. I'm looking forward to our next discussion around the following FOMC meeting. Michael Gapen: Great speaking with you, Matt. Matthew Hornbach: 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 CIO and Chief U.S. Equity Strategist Mike Wilson explains why the recent equity correction may be more reset than reversal and where investors may find the next opportunities.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: Possible opportunities to look out for in the equity correction over the past few weeks.It's Monday, June 15th at 1:30pm in New York. So, let's get after it.Sometimes the market changes direction or leadership not because the story has broken. Instead, it just needs to digest how quickly the story has evolved. Over the past few weeks, equities had their biggest correction since the important bottom in March. I don't view this as the end of the bull market though. I view it as a pause after an unsustainable acceleration in two key factors driving stocks higher this year: earnings revisions and liquidity. In my view, the market wasn't questioning the earnings bull market as much as it is questioning the speed at which earnings have been revised higher. These revisions have been particularly strong in leading sectors like semiconductors, which also corrected the most. When earnings revisions breadth gets north of 70 percent, it's reasonable to ask whether the second derivative is about to slow. That doesn't mean earnings estimates are going down. Instead, it means the rate of improvement is probably peaking, and in markets, it's always about the second derivative in growth. Such decelerations create corrections, not crashes. That distinction is important. Earnings revisions breadth may pause or roll over from extreme levels, but the next twelve-month earnings estimates are still likely to rise as we move through the year and roll forward toward 2027 numbers. That's why I remain convicted in our year-end S&P 500 target of 8000, even if the next few weeks remain choppy. Markets can correct while the earnings story remains intact. In fact, that's often exactly how healthy bull markets reset.The second part of this adjustment is liquidity. Earlier this year, liquidity was flowing strongly through the system as a means of regaining financial stability. Between the Fed's Reserve Management Program, reduced bank capital requirements, and Treasury buybacks, more than half a trillion dollars of liquidity was effectively added. But that pace is now slowing. The Reserve Management Program has fallen from roughly $40 billion a month in April to about $10 billion today; while Treasury buybacks have also slowed from the March and April highs. This rate of change slowdown matters at the margin, especially for crowded momentum trades that have been supported by abundant liquidity. Take note of these corrections in momentum because they often bring a change in leadership and that's the real opportunity. We've already seen a few leadership rotations this year – from precious and base metals, to rare earths, to energy and finally to semiconductors. Now I think the market may be ready to broaden again, much like it did late last year and in the first six weeks of this year.Importantly, our preferred sectors of Consumer Discretionary Goods, Transports, and Regional Banks are all up more than 10 percent over the past month while the S&P 500 was down modestly. Yet, sentiment toward these areas is still muted. That's exactly the kind of setup I like: improving fundamentals, better relative price action, and investors still skeptical.Another piece that should help this broadening. Macro variables that have been holding lower quality cyclicals back include interest rates, crude, and the dollar – they may all now be peaking. That fits nicely with the announced deal to reopen the Straits of Hormuz last night. If oil pressure eases and the bond market walks back the Fed hike it is currently pricing, interest rate sensitive groups should have room to extend their recent outperformance. Finally this week's Fed meeting matters too because it's Kevin Warsh's first as the Chair. I'll be watching less for the rate decision itself and more for how the bond market reacts. The key markers are still the same for me: 4.5 percent on the 10-year, while bond volatility and funding market stress need to remain calm. If the Iran deal holds, I think the Fed can lean less hawkish on rates – but I don't expect a proactive pivot to add more liquidity.Bottom line, markets have been digesting the peak rate of change in growth acceleration and liquidity. But that's far from the end of the cycle. The earnings driven bull market remains intact, but the leadership may be changing. As usual, the best opportunities may be hiding in the places investors don't believe in, yet.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 recent pressure on stocks, our CIO and Chief U.S. Equity Strategist Mike Wilson argues that earnings and AI's impact remain stronger than many investors appreciate.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 our bullish mid-year outlook and why stocks have been under pressure more recently. It's Tuesday, May 19th at 1:30 pm in New York. So, let's get after it. Every cycle has a moment when investors become so focused on the last risk that they miss the next opportunity. I think we're in one of those moments right now. The first half of this year has had a familiar feel to it. The market weakened under the surface well before the headlines got loud, investors discovered the new risks after prices had already moved, and sentiment got worse just as the forward setup was getting better. In other words, it's déjà vu all over again – but with some important twists. The biggest twist is where we are in the cycle. Last year, we were still coming out of the tail end of a rolling recession. Today, we're in a rolling recovery and that is still underappreciated. This matters, because it changes how we should interpret the correction earlier this year and a powerful rally. In the first quarter, many investors looked at the S&P 500's less-than-10 percent price decline and concluded the market was complacent. I think that really misses the point. Roughly half of the Russell 3000 saw drawdowns of 20 percent or more, and the S&P 500 forward Price Earnings multiple fell by 18 percent from its peak as forward earnings continued to rise. That is not complacency. That is a market doing what it does best – discounting risk before the narrative catches up. And those risks were not small. We had private credit concerns, and a major debate around AI disruption to labor markets as well as a new war that drove oil prices up by 100 percent. In many of the areas most directly exposed to these risks, the market delivered 40 percent-plus corrections. So the provocative question I would ask now is this: what if the biggest risk from here is not being too bullish, but being too cautious after the market has already done the work? We address these questions in our recently published mid-year outlook. Specifically, we raised our 12 month S&P 500 price target to 8,300 based solely on higher earnings forecasts. In fact, we assume some further valuation compression. We raised our S&P 500 EPS by approximately 5 percent as operating leverage from the rolling recovery, AI adoption, fiscal support and a capex cycle that continues to broaden. That earnings point is critical. In prior cycles when oil shocks ended the business cycle, earnings were already decelerating or contracting outright before the shock hit. Today, the opposite is happening. Earnings are accelerating from already strong levels. First-quarter median S&P 500 earnings surprise was 6 percent, the strongest in four years; and earnings revisions breadth has moved back up to 22 percent from just 5 percent at the start of reporting season. That is a very different backdrop than the traditional late-cycle oil shock playbook. AI is another area where I think the consensus has evolved. The labor market disruption narrative has moved faster than the actual implementation. The enterprise application layer is still early, and for now, AI looks more like a margin tailwind than a labor-market wrecking ball. Companies are running leaner, hiring less, and beginning to quantify real benefits rather than simply firing everyone. While true adoption of this technology is likely to be slower than anticipated, the apprehension to over-hire is real and that is driving higher profitability in an indirect way. Monetary policy and liquidity are still the main risks to this bull market rising unimpeded. With the Fed becoming less dovish and liquidity needs rising, interest rates are on the rise and the equity-rate correlation is negative again. The 4.5 percent level on the 10-year Treasury remains important for valuations. We don't need Fed cuts for the equity market to work. History suggests that when earnings growth is strong and the Fed is on hold, returns can still be very solid. The real risk is liquidity – whether the Fed and Treasury underestimates how much capital the private economy now needs to fund investment and recovery.Ultimately, the Fed and Treasury have tools to address these liquidity needs and they have been using them aggressively this year. However, these provisions can ebb and flow and we are currently in a window where it's going to ebb, leaving stocks vulnerable in the short term. If the correction persists, investors should use that as an opportunity to add exposure to the parts of the market that benefit from a rolling recovery, specifically Industrials, Financials, Consumer Discretionary Goods. The breadth of the earnings and capex cycle remains under-appreciated, not to mention the recovery from the rolling recession that ended with Liberation Day a year ago. The bottom line is simple. The correction earlier this year was more significant than most appreciate in terms of valuation and the earnings story is only getting better. The path won't be smooth, so use any corrections to position for the continued broadening in earnings that we believe will continue.Just remember, by the time the evidence feels obvious, the opportunity is usually gone. 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! And I wish my wife a happy birthday.

Is this a resilient labor market, or a fragile one? In this episode of Making Sense, Mike Feroli, Chief U.S. Economist at J.P. Morgan, joins Lauren Brice from the North America Rates Sales team to break down the April jobs report and discuss what it means for the health of the U.S. economy in 2026. They discuss the data on claims, AI's impact on construction and other sectors, and what this report might suggest about the projected path of Fed rate cuts going forward.   This episode was recorded on April 8, 2026.   This communication is provided for information purposes only. Please visit www.jpmm.com/research/disclosures for important disclosures. JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively, J.P. Morgan) normally make a market and trade as principal in securities, other financial products and other asset classes that may be discussed in this communication. This communication has been prepared based upon information from sources believed to be reliable, but J.P. Morgan does not warrant its completeness or accuracy except with respect to any disclosures relative to J.P. Morgan and/or its affiliates and an analyst's involvement with any company (or security, other financial product or other asset class) that may be the subject of this communication. Any opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This communication is not intended as an offer or solicitation for the purchase or sale of any financial instrument. J.P. Morgan Research does not provide individually tailored investment advice. Any opinions and recommendations herein do not take into account individual circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies. You must make your own independent decisions regarding any securities, financial instruments or strategies mentioned or related to the information herein. Periodic updates may be provided on companies, issuers or industries based on specific developments or announcements, market conditions or any other publicly available information. However, J.P. Morgan may be restricted from updating information contained in this communication for regulatory or other reasons. This communication may not be redistributed or retransmitted, in whole or in part, or in any form or manner, without the express written consent of J.P. Morgan. Any unauthorized use or disclosure is prohibited. Receipt and review of this information constitutes your agreement not to redistribute or retransmit the contents and information contained in this communication without first obtaining express permission from an authorized officer of J.P. Morgan. © 2026, JPMorganChase & Co. All rights reserved.

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!

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!

Dan Nathan and Guy Adami welcome Morgan Stanley's Chief U.S. Equity Strategist Mike Wilson back to the Risk Reversal Podcast to discuss his career at the firm and his current market outlook. Wilson argues markets have largely priced in bad news and likely put in the year's lows near the 6,500 range, citing capitulation signals, positioning, and sentiment, though geopolitical risk from the Iran conflict remains. He sees earnings strength and broadening beyond the “Mag Seven,” with opportunities in small caps, consumer discretionary, financials, and industrials, while noting AI-driven hyperscalers became cheaper and can still work. Key risks include bond volatility and a loss of control of long-end rates amid heavy refinancing needs and a Fed leadership transition. They also cover AI CapEx returns, energy constraints, U.S.-China competition, private credit's limited systemic threat, consumer affordability issues, and Wilson's 7,800 S&P 500 target within 9 to 12 months. Show Notes Earnings Insight (FactSet) China's surging chip tool imports from south-east Asia (FT) —FOLLOW USYouTube: @RiskReversalMediaInstagram: @riskreversalmediaTwitter: @RiskReversalLinkedIn: RiskReversal Media

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!

This hour: how to navigate the morning's biggest market moving headlines - including the latest out of Iran, new consumer data on inflation and sentiment, and the renewed AI concerns hitting software stocks. David Faber, Carl Quintanilla, and Seema Mody broke down the action with market veterans including hedge funder Dan Greenhaus, Goldman's Chief U.S. Economist, and more.  Elsewhere in the hour: the bank stocks to bet on ahead of earnings next week, details on the President's promotion of one defense name, and a deep-dive on what's driving Coreweave shares higher in the early trade. Squawk on the Street Disclaimer Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

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!

In this episode of Making Sense, Mike Feroli, Chief U.S. Economist at J.P. Morgan, joins Sam Azzarello, head of Content Strategy, to unpack the March jobs report and what it signals beneath the headline. They discuss the rebound in hiring after February's data, early signs that AI may be reshaping the labor market, and what higher energy prices could mean for consumer momentum. The conversation closes with Feroli's outlook on how the data may shape the Fed's near-term policy stance and his base-case outlook for the U.S. economy.   This episode was recorded on April 3, 2026.  This communication has been prepared based upon information from sources believed to be reliable, but J.P. Morgan does not warrant its completeness or accuracy except with respect to any disclosures relative to J.P. Morgan and/or its affiliates and an analyst's involvement with any company (or security, other financial product or other asset class) that may be the subject of this communication. Any opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This communication is not intended as an offer or solicitation for the purchase or sale of any financial instrument. J.P. Morgan Research does not provide individually tailored investment advice. Any opinions and recommendations herein do not take into account individual circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies. You must make your own independent decisions regarding any securities, financial instruments or strategies mentioned or related to the information herein. Periodic updates may be provided on companies, issuers or industries based on specific developments or announcements, market conditions or any other publicly available information. However, J.P. Morgan may be restricted from updating information contained in this communication for regulatory or other reasons. This communication may not be redistributed or retransmitted, in whole or in part, or in any form or manner, without the express written consent of J.P. Morgan. Any unauthorized use or disclosure is prohibited. Receipt and review of this information constitutes your agreement not to redistribute or retransmit the contents and information contained in this communication without first obtaining express permission from an authorized officer of J.P. Morgan. © 2026, JPMorganChase & Co. All rights reserved.

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 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.

My guest today is Mike Wilson, Morgan Stanley's Chief U.S. Equity Strategist and Chief Investment Officer. In today's episode, Mike Wilson explains how a rolling recession has given way to a staggered recovery, and why he expects leadership to broaden beyond mega-cap stocks into small caps, cyclicals, and international markets. He highlights growing risks from AI disruption, private credit weakness, and the Iran conflict. To close, Mike discusses a shift beyond the traditional 60/40 portfolio toward a more flexible 60/20/20 approach that includes assets like gold. (0:00) Starts (1:31) Mike Wilson on rolling recessions and rolling recoveries (5:28) Market implications of Iran conflict (9:52) Market cap weight vs. equal weight indices (15:41) Is 60/20/20 the new 60/40? (23:23) Geopolitical shocks (35:48) AI's impact and bullish on healthcare (42:03) Outlook for global economic recovery ----- Follow Meb on X, LinkedIn and YouTube For detailed show notes, click here To learn more about our funds and follow us, subscribe to our mailing list or visit us at cambriainvestments.com ----- Sponsor: Register for Alpha Architect's LIVE HIDE webinar on March 26th ⁠here⁠. Want to Learn More about Alpha Architect? Visit ⁠www.funds.alphaarchitect.com⁠ Follow The Idea Farm: X | LinkedIn | Instagram | TikTok ----- Interested in sponsoring the show? Email us at Feedback@TheMebFaberShow.com ----- Past guests include Ed Thorp, Richard Thaler, Jeremy Grantham, Joel Greenblatt, Campbell Harvey, Ivy Zelman, Kathryn Kaminski, Jason Calacanis, Whitney Baker, Aswath Damodaran, Howard Marks, Tom Barton, and many more.  ----- Meb's invested in some awesome startups that have passed along discounts to our listeners. Check them out here!  ----- Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com). Learn more about your ad choices. Visit megaphone.fm/adchoices

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 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!

Andrew Walworth, Tom Bevan and Carl Cannon discuss the fallout from Tuesday's State of the Union address and Vice President JD Vance's new assignment to head the Administration's “War on Fraud". Then, they discuss today's meeting in Geneva between Chief U.S. negotiator Steve Witkoff, Trump son-in-law Jared Kushner, and Iranian diplomats. Next, they discuss Cuban authorities reporting that a boat carrying ten Cuban nationals residing in the US was intercepted by Cuban authorities last night. Four were killed in a firefight that also left one Cuban sailor wounded. Then finally, they talk about new data from Emerson College Polling showing Trump's disapproval rate rising. Also, new numbers on potential Democratic presidential candidates in 2028, and a new poll from Pew Research that shows an increasing number of Americans are reluctant to discuss politics. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Our CIO and Chief U.S. Equity Strategist Mike Wilson explains why he still believes in a growth cycle for equity markets, even as investors show growing concerns around AI.Mike Wilson: 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 recent concerns around AI disruption. It's Tuesday, February 24th at 1pm in New York. So, let's get after it. Last week you could feel it, that anxious undercurrent in the market. The headlines were noisy, volatility ticked higher, and AI disruption, once again, dominated investor conversations. But beneath the surface level unease something important happened. The S&P 500 Equal Weight Index pushed to a new relative high, keeping our broadening thesis alive and well. On one hand, investors are worried about AI driven disruption, CapEx intensity, and potential labor force reductions. On the other hand, capital is still flowing into formerly lagging areas of the market, just as the median stock is seeing its strongest earnings growth in four years. Let's unpack this. First, there's concern AI will lead to job losses. But even if that's the case, there's typically a phase-in period. Companies don't just eliminate labor overnight. Importantly, before these productivity gains are fully realized, we need broad enterprise adoption. That means building out the agentic application layer, integrating AI into workflows, retraining systems and processes. That takes time, and it is still early days in that regard. Second, what we're seeing now is typical of a major investment cycle. Volatility increases as markets challenge the pace of unbridled spending. Dispersion increases as investors debate winners and losers. Leadership rotates, sometimes sharply. There's also something different this time compared to the internet bubble of the late 1990s. Today we're in an early cycle earnings backdrop. We've just emerged from what was effectively a rolling recession between 2022 and 2025. So, as capital rotates out of the perceived structural losers, it's not just chasing long-term AI beneficiaries, it's also finding classic cyclical winners. On the losing side is long duration services-oriented sectors, particularly software. These areas are more sensitive to uncertainty around longer term cash flows. This area also has a large overhang of private capital deployed over the last 10 to 15 years. There are other forces at play too. Small cap growth, arguably the longest duration segment of the market, began breaking down in late January around the time Kevin Warsh was nominated as Fed chair. While major indices barely reacted, more speculative areas may be responding to expectations of tighter liquidity given Warsh's, reputation as a balance sheet hawk. Finally, equity markets are typically more volatile when new Fed chairs assume office. Bottom line, our broader thesis of an early cycle rolling recovery remains intact. Market internals are supportive even if index level action feels choppy. That said, near term volatility is likely to persist as we enter a weaker seasonal window for retail demand, while liquidity remains ample, but far from abundant. With this backdrop, a quality cyclical barbell with healthcare makes sense. In small caps, the higher quality S&P 600 looks more attractive than the Russell 2000. And any short-term volatility could present opportunities to add exposure in preferred cyclical areas like Consumer Discretionary Goods, Industrials, and Financials. Of course, risks remain. AI adoption could accelerate faster than expected, pressuring labor markets more abruptly. Pricing power could erode as efficiency spread, and policy makers could react in ways that slow the CapEx cycle while crowded momentum positioning remains vulnerable. Nevertheless, the signal from the internals is clear. Beneath the volatility this looks less like a market rolling over, and more like one that is confirming an early cycle economic expansion. 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.

Goldman's Chief U.S. Equity strategist explains why despite fears surrounding AI disruption, recent earnings reports have shown solid growth. Why he's standing by his 7,600 year-end S&P 500 target. Then the CEO of Wheaton Precious Metals on the price action in gold and silver, and how that's impacting his business. Wheaton just announcing a big deal with a top global miner. And the CEO of Carvana reacts to earnings and responds to recent short seller reports surrounding the company's financials. Why he says they have no merit.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The jury is still out for many analysts on the outlook for economic growth, inflation and the labor market this year.Some see lots of reasons for concern for the road ahead.Others are much more convinced 2026 is going to be a blockbuster year.Which is more likely?To find out, we have the good fortune to talk today with Dr Anna Wong, Chief U.S. Economist for Bloomberg Economics. Prior to her current role, Anna also worked at the Federal Reserve Board, the White House Council of Economics Advisers, and the U.S. Treasury.Anna and her team started the year quite bullish, seeing many of last year's headwinds turning into tailwinds in 2026.But, in light of recent developments, she's starting to turn more cautious.To find out why, watch this video.Follow Anna on Bloomberg by typing BECO + "Go"Or on X at @AnnaEconomistREGISTER FOR THOUGHTFUL MONEY'S SPRING ONLINE CONFERENCE AT THE EARLY BIRD DISCOUNT PRICE at https://www.thoughtfulmoney.com/conference#gdp #inflation #unemploymentrate _____________________________________________ Thoughtful Money LLC is a Registered Investment Advisor Promoter.We produce educational content geared for the individual investor. It's important to note that this content is NOT investment advice, individual or otherwise, nor should be construed as such.We recommend that most investors, especially if inexperienced, should consider benefiting from the direction and guidance of a qualified financial advisor registered with the U.S. Securities and Exchange Commission (SEC) or state securities regulators who can develop & implement a personalized financial plan based on a customer's unique goals, needs & risk tolerance.IMPORTANT NOTE: There are risks associated with investing in securities.Investing in stocks, bonds, exchange traded funds, mutual funds, money market funds, and other types of securities involve risk of loss. Loss of principal is possible. Some high risk investments may use leverage, which will accentuate gains & losses. Foreign investing involves special risks, including a greater volatility and political, economic and currency risks and differences in accounting methods.A security's or a firm's past investment performance is not a guarantee or predictor of future investment performance.Thoughtful Money and the Thoughtful Money logo are trademarks of Thoughtful Money LLC.Copyright © 2026 Thoughtful Money LLC. All rights reserved.

Our Global Head of Macro Strategy Matthew Hornbach and Chief U.S. Economist Michael Gapen discuss the path for U.S. interest rates after the nomination of Kevin Warsh for next Fed chair.Read more insights from Morgan Stanley.----- Transcript -----Matthew Hornbach: Welcome to Thoughts on the Market. I'm Matthew Hornbach, Global Head of Macro Strategy. Michael Gapen: And I'm Michael Gapen, Morgan Stanley's Chief U.S. Economist. Matthew Hornbach: Today we'll be talking about the Federal Open Market Committee meeting that occurred last week.It's Thursday, February 5th at 8:30 am in New York.So, Mike, last week we had the first Federal Open Market Committee meeting of 2026. What were your general impressions from the meeting? And how did it compare to what you had thought going in? Michael Gapen: Well, Matt, I think that the main question for markets was how hawkish a hold or how dovish a hold would this be. As you know, it was widely expected the Fed would be on hold. The incoming data had been fairly solid. Inflation wasn't all that concerning, and most of the employment data suggested things had stabilized. So, it was clear they were going to pause. The question was would they pause or would they be on pause, right? And in our view, it was more of a dovish hold. And by that, it suggests to us, or they suggested to us, I should say, that they still have an easing bias and rates should generally move lower over time. So, that really was the key takeaway for me. Would they signal a prolonged pause and perhaps suggest that they might be done with the easing cycle? Or would they say, yes, we've stopped for now, but we still expect to cut rates later? Perhaps when inflation comes down and therefore kind of retain a dovish bias or an easing bias in the policy rate path. So, to me, that was the main takeaway. Matthew Hornbach: Of course, as we all know, there are supposed to be some personnel changes on the committee this year. And Chair Powell was asked several questions to try to get at the future of this committee and what he himself was going to do personally. What was your impression of his response and what were the takeaways from that part of the press conference? Michael Gapen: Well, clearly, he's been reluctant to, say, pre-announce what he may do when his term is chair ends in May. But his term as a governor extends into 2028. So, he has options. He could leave normally that's what happens. But he could also stay and he's never really made his intentions clear on that part. I think for maybe personal or professional reasons. But he has his own; he has his own reasons and, and that's fine. And I do think the recent subpoena by the DOJ has changed the calculus in that. At least my own view is that it makes it more likely that he stays around. It may be easier for him to act in response to that subpoena by being on staff. It's a request for additional information; he needs access to that information. I think you could construct a reasonable scenario under which, ‘Well, I have to see this through, therefore, I may stay around.' But maybe he hasn't come to that conclusion yet. And then stepping back, that just complicates the whole picture in the sense that we now know the administration has put forward Kevin Warsh as the new Fed chair. Will he be replacing the seat that Jay Powell currently sits in? Will he be replacing the seat that Stephen Myron is sitting in? So yes, we have a new name being put forward, but it's not exactly clear where that slot will be; and what the composition of the committee will look like. Matthew Hornbach: Well, you beat me to the punch on mentioning Kevin Warsh… Michael Gapen: I kind of assumed that's where you were going. Matthew Hornbach: It was going to be my next question. I'm curious as to what you think that means for Fed policy later this year, if anything. And what it might mean more medium term? Michael Gapen: Yeah. Well, first of all, congratulations to Mr. Warsh on the appointment. In terms of what we think it means for the outlook for the Fed's reaction function and interest rate policy, we doubt that there will be a material change in the Fed's reaction function. His previous public remarks don't suggest his views on interest rate policy are substantively outside the mainstream, or at least certainly the collective that's already in the FOMC. Some people would prefer not to ease. The majority of the committee still sees a couple more rate cuts ahead of them. Warsh is generally aligned with that, given his public remarks. But then also all the reserve bank presidents have been renominated. There's an ongoing Supreme Court case about the ability of the administration to fire Lisa Cook. If that is not successful, then Kevin Warsh will arrive in an FOMC where there's 16 other people who all get a say. So, the chair's primary responsibility is to build a consensus; to herd the cats, so to speak. To communicate to markets and communicate to the public. So, if Mr. Warsh wanted to deviate substantially from where the committee was, he would have to build a consensus to do that. So, we think, at least in the near term, the reaction function won't change. It'll be driven by the data, whether the labor market holds up, whether inflation, decelerates as expected. So, we don't look for material change. Now you also asked about the medium term. I do think where his views differ, at least with respect to current Fed policy is on the size of the Fed's balance sheet and its footprint in financial markets. So, he has argued over time for a much smaller balance sheet. He's called the Fed's balance sheet bloated. He has said that it creates distortions in markets, which mean interest rates could be higher than they otherwise would be. And so, I think if there is a substantive change in Fed policy going forward, it could be there on the balance sheet. But what I would just say on that is it'll likely take a lot of coordination with Treasury. It will likely take changes in rules, regulations, the supervisory landscape. Because if you want to reduce the balance sheet further without creating volatility in financial markets, you have to find a way to reduce bank demand for it. So, this will take time, it'll take study, it'll take patience. I wouldn't look for big material changes right out of the box. So Matt, what I'd like to do is, if I could flip it back to you, Warsh was certainly one of the expected candidates, right? So, his name is not a surprise. But as we knew financial markets, one day we're thinking it'd be one candidate. The next day it'd be thinking at the next it was somebody else. How did you see markets reacting to the announcement of Mr. Warsh? For the next Fed share, and then maybe put that in context of where markets were coming out of the last FOMC meeting. Matthew Hornbach: Yeah, so the markets that moved the most were not the traditional, very large macro markets like the interest rate marketplace or the foreign exchange market. The markets that moved the most were the prediction markets. These newer markets that offer investors the ability to wager on different outcomes for a whole variety of events around the world. But when it comes to the implications of a Kevin Warsh led Fed – for the bigger macro markets like interest rates and currencies, the question really comes down to how? If the Fed's balance sheet policies are going to take a while to implement, those are not going to have an immediate effect, at least not an effect that is easily seen with the human eye. But it's other types of policy change in terms of his communication policy, for example. One of the points that you raised in your recent note, Mike, was how Kevin Warsh favored less communication than perhaps some of the recent, Federal Open Market Committees had with the public. And so, if there is some kind of a retrenchment from the type of over-communication to the marketplace, from either committee members or non-voters that could create a bit more volatility in the marketplace. Of course, the Fed has been one of the central banks that does not like to surprise the markets in terms of its monetary policy making. And so, that contrasts with other central banks in the G10. For example, the Swiss National Bank tends to surprise quite a lot. The Reserve Bank of Australia tends to surprise markets. More often, certainly than the Fed does. So, to the extent that there's some change in communication strategy going forward that could lead to more volatile interest rate in currency markets. And that then could cause investors to demand more risk premium to invest in those markets. If you previously were comfortable owning a longer duration Treasury security because you felt very comfortable with the future path of Fed policy, then a Kevin Warsh led Fed – if it decides to change the communication strategy – could naturally lead investors to demand more risk premium in their investments. And that, of course, would lead to a steeper U.S. Treasury curve, all else equal. So that would be one of the main effects that I could see happen in markets as a result of some potential changes that the Fed may consider going forward. So, Mike, with that said, this was the first FOMC meeting of the year, and the next meeting arrives in March. I guess we'll just have to wait between now and then to see if the Fed is on hold for a longer period of time or whether or not the data convinced them to move as soon as the March meeting. Thanks for taking time to talk, Mike. Michael Gapen: Great speaking with you, Matt. Matthew Hornbach: 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 CIO and Chief U.S. Equity Strategist Mike Wilson discusses how the nomination of Kevin Warsh to lead the Fed could move markets.Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley's CIO and Chief U.S. Equity Strategist. Today on the podcast: The implications of Kevin Warsh's nomination as the next Fed Chair. It's Monday, February 2nd at 10 am in New York. So, let's get after it.Last Friday, President Trump officially nominated Kevin Warsh to be the next Chair of the Fed. The prevailing narrative around Warsh is fairly straightforward: he's seen as more hawkish on the size of the Fed's balance sheet, potentially more flexible on interest rates, and less comfortable with open-ended liquidity support than the current leadership. That characterization is fair, but it doesn't answer the more important question—why pick Warsh now, and what problem is this nomination trying to solve?In my view, the answer starts with markets, not politics. Over the past several months, we've witnessed parabolic moves in precious metals alongside persistent weakness in the U.S. dollar. While this administration has been very clear that a weaker dollar is not inherently a bad thing—especially as part of a broader economic rebalancing strategy—there's an important distinction between a controlled decline and a disorderly one.To understand why this matters so much, you need to zoom out. The administration is attempting to rebalance the U.S. economy across three dimensions simultaneously, all with the same ultimate goal—growing out of an enormous debt burden that's been building for more than two decades. At this point, simply cutting spending isn't realistic, economically or politically. Nominal growth is the only viable path forward.The current strategy is more supply side driven. It focuses on rebalancing trade through tariffs and a weaker dollar, shifting the economy away from over-consumption and toward investment, and addressing inequality through immigration enforcement and deregulation. The goal is to let companies—not the government—make capital allocation decisions, while boosting income through wages rather than entitlements. If it works, the result should be higher nominal growth with a healthier mix of real growth driven by productivity.Markets, to some extent, have already started to price this in. Since last spring, cyclical stocks have outperformed, market breadth has improved, and leadership has begun to rotate away from the mega-cap names that dominated the last cycle. Small and mid-cap stocks are working again too. That's exactly what you'd expect in the middle stages of a ‘hotter but shorter' expansion, my core view. At the same time, the surge in gold tells us something else is going on. Precious metals don't move like that unless investors are questioning the endgame.That's where Kevin Warsh comes in. His nomination appears designed to restore credibility around the balance sheet and slow the momentum of that skepticism. Based on Friday's price action, it worked. Gold and silver sold off sharply, the dollar strengthened modestly, and equities and rates stayed relatively stable. That combination buys time—and time is exactly what this strategy needs to work.One of the best ways to track whether markets are buying into this story is by watching the ratio of the S&P 500 to gold. It's a simple but powerful proxy for confidence in productive growth. The recent collapse was driven mostly by gold rising—and Friday's sharp reversal was mainly gold prices falling, one of the largest on record.That doesn't mean skepticism has been eliminated. Instead, it tells me the administration is paying attention and understands they need to restore confidence. If the ratio continues to recover, it will likely come first through lower gold prices and tighter liquidity expectations, and later through stronger earnings growth driven by productivity gains. That could mean near term risk for other risk assets, including equities. Bottom line, the current ‘run it hot' approach has a better chance of delivering sustainable growth than prior policy mixes—but it won't be smooth, and confidence will ebb and flow along the way. Watching how markets respond, especially through signals like gold, the dollar, and capital spending trends, will tell us whether this strategy ultimately succeeds. My view is that it's the best approach which keeps me bullish on 2026 even if the near term is more rocky.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 their two-part roundtable, Seth Carpenter and Morgan Stanley's top economists break down the forces influencing growth across different regions.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 yesterday I sat down with my colleagues, Michael Gapen, our Chief U.S. Economist, Chetan Ahya, our Chief Asia Economist, and Jen Eisenschmidt, our Chief Europe Economist. And we spent a lot of time talking about monetary policy around the world. Today, let's go back to them, talk about the real side of the economy. It's Friday, January 23rd at 10am in New York. Jens Eisenschmidt: And 4pm in Frankfurt. Chetan Ahya: And 9pm in Hong Kong. Seth Carpenter: Michael, let me start with you, back on the U.S. And when I think about the U.S. economy, we have to start by talking about the U.S. consumer. Walk us through what investors need to understand about consumer spending in the U.S. What's driving it, what's going to hold it up, and where are the risks? Michael Gapen: I think the primary thing to remember here is that the upper income consumer drives about 40 percent or more of total spending. So, there can be higher inflation that eats into real labor market income growth. There can be inflation dispersion, which hits lower income households more than upper income households. We can have tariffs that get applied to goods and lower- and middle-income households buy goods more than upper income households. But when asset markets continue to appreciate, when home prices hold on to their prior gains, sometimes that doesn't matter in the aggregate statistics because that upper income household keeps spending.I do think that's a lot of what happened in 2025. So, there is a K-shaped economy. I think one of the main risks about the U.S. is that its expansion is narrowly driven. We think that will broaden out in 2026. If we're right, that inflation comes down and we're past, kind of, the peak effect of tariffs, then we think that lower- and middle-income household can have a little more residual spending power. And you might get the consumer operating on two fronts, rather than one. Seth Carpenter: Another part of domestic spending that gets a lot of attention is business investment spending, CapEx spending. First would you agree with that statement that CapEx spending last year was characterized by AI CapEx spending? Second, should we feel confident that that underlying sort of momentum in CapEx spending should continue for this year? And then third, what's it going to take for there to be a broadening out, maybe like what you said about consumers, but a broadening out of investment spending so that it's not just the AI story that's driving CapEx. Michael Gapen: I do agree that the primary, almost exclusive story in 2025 for business spending was AI. So, when you look at residential and non-residential spending, unrelated to AI, that I think did feel the effects of policy uncertainty in a changing environment. what keeps kind of sustainability around business spending? Obviously, it's a multi-year investment story around AI. There's a level versus growth rate argument here where you can have a heck of a lot of CapEx spending. May not always show up in GDP because some of it is intermediate goods, some of it is imported. But that doesn't diminish, I think, the quality of the overall story. What gets business spending to broaden out, I do think is related to whether consumer spending broadens out. Most business spending kind of follows demand with a lag. So, AI is a different story, but there's a cyclical component to business spending. There could be a housing related component, if mortgage rates come down and stimulate at least a little more turnover in the housing market. So, if the recovery does broaden out, we see greater real income growth in low- and middle-income households. The labor market stabilizes. Maybe mortgage rates come down a little bit, then I think you could get carry through momentum to non-AI related business spending. That would look more like a cyclical upswing for the economy. May be a heavy lift, but that's what I think it would take to get there. Seth Carpenter: So, Jens, let me come to you. We talked yesterday about the ECB possibly easing more on disinflation. But when I think of disinflation, I think of a weak economy. And that's maybe not really the case. So, I guess the first question to you would you characterize euro area economic growth as strong, or a little bit more complicated? Jens Eisenschmidt: A little bit more complicated. And that's always the right answer for an economist – I think it depends. Well, it is strong in some quarters. And these quarters will change from where it has been in the past.So concretely, we think the German economy has most potential to catch up and actually accelerate, and that's due to fiscal stimulus mainly. While we have other quarters, the French and the Italian one, which will be below potential and so weak – each of them for their own reason. And then we have the Spanish economy, which performs exceptionally and is really strong, but it's only a small part of the euro area economy. If we had everything together, I think the outlook is an economy that's accelerating mildly and only towards the end of our projection horizon, which is [20]27. So, in say two years, hits growth rates that are above potential. Here we are really talking about quarterly increments above 0.3. So, we are currently between 0.1 and 0.2. So, you sort of get the picture of a mildly accelerating economy that goes from 0.15 to 0.035 say in the span of two years. Seth Carpenter: One of the key narratives in markets is about fiscal policy in Germany, potentially driving growth. I know in equity markets it's been a key investing theme. So how excited should people be about the possibility of fiscal policy in Germany driving a resilient European economy? Jens Eisenschmidt: Pretty excited, I would say, in a sense that the positioning of the German government for its economy is actually exceptional in terms of the amount of fiscal space that exists and that has been made available. It's just that, of course, the connection of that sort of abstract excitement that we economists have to what actually happens in markets is sometimes a little bit loose; in the sense that equity [markets would like to see everything coming online tomorrow, and that's going to be a more drawn-out process. So, to my point before, it will take some time. We do have implementation lags. We do have lags in say, for instance, on defense procurement. There is maybe not as much capacity in the economy to deliver into everything. But the direction of travel is clear and up. So, from that perspective, I have no doubts that the future is better for the German economy over the medium term for all the reasons mentioned, but it won't be immediate. And we have just seen in recent headlines, Germany is the most trade exposed European economy. If we get more friction in global trade, that's not great. So, you could even have short term, more negative news on GDP than positive ones. Seth Carpenter: Chetan, I'm going to turn to you. Yesterday when we talked about Asia, we focused on Japan. But, of course, when it comes to the real side of the economy, the big mover in Asia is China.So, let's talk a little bit about how you see China evolving. What the key themes are for China. Last year in particular, we talked a lot about the deflationary cycle in China and how it was protracted. It wasn't going away. That policy was not sufficient to drive a huge surge in demand to push things away. Are we in the same place for China in 2026? What kind of growth should we expect and what sort of policy reactions should we be expecting from China? Chetan Ahya: Well, I think the macro backdrop for China we think will still be challenging in 2026. But at the same time, we expect the micro positives to continue. Now on the macro backdrop, when I say it's going to remain challenging because the number one issue that we are focused on from a macro perspective in China is deflation. Now we do expect some easing of deflationary pressures, but [the] economy will still stay in deflation in 2026. And on the micro front what we've seen is that China is emerging from a situation where it is making inroads into advanced manufacturing, and that's enabling it to increase market share in global goods exports. And it's also one of the reasons why when you see the numbers coming out from China on exports, they seem to be outperforming. Even just the latest month number as we saw, China's exports were surprising on the upside relative to market expectations. And that's the micro story – that you'll see China continuing to gain market share in global goods export. And that supports the corporate micro positive story. Seth Carpenter: We know collectively that export is a key part of China's economy. The productive capacity, as you point out, important for China. When you think about exports from China, the currency has to come in. And recently the renminbi has been appreciating. Lots of questions from clients here or there. How important is the renminbi in reflating or rebalancing the China economy? Can you walk us through a little bit some of these considerations about the role that the currency is playing now and over the next few quarters for China and its economic outlook. Chetan Ahya: Yeah, that's right, Seth. Actually, I've been getting a number of clients calling me and asking whether PBOC is going to allow a significant appreciation in RNB. We've seen it appreciate quite a lot in the last few days. And then whether this will mean China's economy will rebalance faster towards consumption. Look, on the first point, we don't think PBOC will allow a significant currency appreciation because, as I just mentioned earlier, the deflation problem is still there. It's not gone. While we see reduced deflationary pressures, as long as the economy is in deflation, it'll be very difficult for PBOC to allow significant currency appreciation. And what we are also watching on RMB is to see what is happening to the trade weighted RMB. The RMB basket, if you were to call it. That interestingly has been in a stable range since 2016, and we don't think that changes. We've learned from Japan's experience in the nineties that if you have deflation problem, you shouldn't be taking up currency appreciation. And we think PBOC pretty much follows that rule book. On the rebalancing part, look, I think when you have deflation and if currency appreciation is going to add to deflation pressures, that will mean corporate sector revenue suffers. They will actually be cutting wage growth and therefore that has a negative impact on consumption. And so, in our view, instead of helping rebalancing currency appreciation with China's current macro backdrop, we'll actually be making rebalancing more difficult. Seth Carpenter: And of course, we're used to China being a key driver of the economy, not just in Asia, but around the world. But if we think about then broadening out from China, what should we be expecting in terms of growth for the other economies in Asia? Chetan Ahya: For the other economies in the region, I think the most important driver will be what happens to exports more broadly. In 2025, Asia did benefit from better tech exports, but because of tariffs and also what was happening in the U.S. in terms of its own domestic demand, we'd seen that there was significant weakness in non-tech exports. So, from an outlook perspective in 2026, we think that that non-tech export story turns around and that will help the recovery in the region to broaden out from it just being tech exports to non-tech exports, to improvement in CapEx, job growth and consumption. So, I think that the whole region is going to see the benefit from this turnaround. But particularly the non-China part of the region will be seeing a meaningful improvement in their export growth, real GDP growth and normal GDP growth in 2026. Seth Carpenter: I'm getting ready to wrap things up. But before I do, I'm going to ask each of the three of you, one last rapid-fire question. Michael, I'm going to start with you. AI is on everyone's lips. If we were to see a rapid adoption of AI technology across all the economies. What would it mean for the Fed? Michael Gapen: Well, I think that would mean a substantial uptick in productivity growth. Maybe closer to 3 percent like we saw in the tech boom in the nineties. So faster real growth. But probably still disinflation. You can argue the Fed could even lower rates in that environment. It may take them a while to figure it out [be]cause they'd be balancing incoming data that shows a lot of strong growth. But probably further evidence that inflation's coming down. So, if it's supply side driven, then I think you could still probably get some rate cuts out of the Fed to normalize policy as inflation comes down. But I'd be thinking those cuts could even come much later. Seth Carpenter: Okay, Jens to you, a lot of discussion in the news about possible additional tariffs from the U.S. on Europe in some of the negotiations. Suppose some of the announcements, 10 percent tariffs rising to 25 percent tariffs later. Suppose those were actually put in place. What does that mean for European growth? Jens Eisenschmidt: So, I would say 10 percent additional tariffs, we have a framework for that. Pointing to drag on GDP growth somewhere between 30 and 60 basis points. So roughly half of what we think 2026 will bring in growth. Now, for sure the answer is additional tariffs are not great for growth. Big question mark here is though whether we get any retaliation from the European side, which we think this time around if we get additional tariffs from the U.S. side is more likely. And that would just increase the downside risk for Europe here from that additional round of trade or tariff uncertainty. Seth Carpenter: Chetan, I'm going to end up with you. When we think about China, when we think about policy, what do you think it would take for there to be a fundamental shift in policy out of Beijing to get a real full blown, demand driven fiscal stimulus? Or is that just not in the cards whatsoever? Chetan Ahya: Well, in our base case, we don't think that's likely to happen in our forecast horizon. But if we do get a big social stability challenge emerging in China, then we could get that big pivot from [a] policy response perspective, where policy makers move towards consumption. And our recommendation there is to boost social welfare spending, particularly targeted towards migrant workers, which could be taken up if you get that social stability risk event materializing. Seth Carpenter: Mike, Chetan, Jens, thank you so much for joining today. And for the listener, thank you for joining us. 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.

Our Global Chief Economist Seth Carpenter joins our chief regional economists to discuss the outlook for interest rates in the U.S., Japan and Europe.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 today we're kicking off our quarterly economic roundtable for the year. We're going to try to think about everything that matters in economics around the world. And today we're going to focus a little bit more on central banking. And when we get to tomorrow, we'll focus on the nuts and bolts of the real side of the economy. I'm joined by our chief regional economists. Michael Gapen: Hi, Seth. I'm Mike Gapen, Chief U.S. Economist at Morgan Stanley. Chetan Ahya: I'm Chetan Ahya, Chief Asia economist. Jens Eisenschmidt: And I'm Jens Eisenschmidt, Chief Europe economist. Seth Carpenter: It's Thursday, January 22nd at 10 am in New York. Jens Eisenschmidt: And 4 pm in Frankfurt. Chetan Ahya: And 9 pm in Hong Kong. Seth Carpenter: So, Mike Gapen, let me start with you as we head into 2026, what are we thinking about? Are we going into a more stable expansion? Is this just a different phase with the same amount of volatility? What do you think is going to be happening in the U.S. as a baseline outlook? And then if we're going to be wrong, which direction would we be wrong? Michael Gapen: Yeah, Seth, we took the view that we would have more policy certainty. Recent weeks have maybe suggested we're incorrect on that front. But I still believe that when it comes to deregulation, immigration policy and fiscal policy, we have much more clarity there than we did a year ago. So, I think it's another year of modest growth, above trend growth. We're forecasting something around 2.4 percent for 2026. That's about where we finished 2025. I think what's key for markets and the outlook overall will be whether inflation comes down. Firms are still passing through tariffs to the consumer. We think that'll happen at least through the end of the first quarter. It's our view that after that, inflation pressures will start to diminish. If that's the case, then we think the Fed can execute one or two more rate cuts. But we have those coming [in] the second half of the year. So, it looks like growth is strong enough. The labor market has stabilized enough for the Fed to wait and see, to look around, see the effects of their prior rate cuts, and then push policy closer to neutral if inflation comes down. Seth Carpenter: And if we go back to last year to 2025, I will give you the credit first. Morgan Stanley did not shift its forecast for recession in the U.S. the way some of our main competitors did. On the other hand, and this is where I maybe tweak you just a little bit. We underestimated how much growth there would be in the United States. CapEx spending from AI firms was strong. Consumer spending, especially from the top half of the income distribution in the U.S. was strong. Growth overall for the year was over 2 percent, close to 2.5 percent. So, if that's what we just came off of, why isn't it the case that we'd see even stronger growth? Maybe even a re-acceleration of growth in 2026? Michael Gapen: Well, some of that, say, improvement vis-à-vis our forecast, the outperformance. Some of that I think comes mechanically from trade and inventory variability. So, . I'm not sure that that says a lot about an improving trend rate of growth. Where there was other outperformance was, as you noted, from the consumer. Now our models, and I don't mean to get too technical here, but our model suggests that consumption is overshooting its fundamentals. Which I think makes it harder for the economy to accelerate further. And then AI; it's harder for AI spending to say get incrementally stronger than where it is. So, we're getting a little extra boost from fiscal. We've got that coming through. And I just think what it is, is more of the same rather than further acceleration from here. Seth Carpenter: Do you think there's a chance that the Fed in fact does not cut rates like you have in your forecast? Michael Gapen: Yes, I do think... Where we could be wrong is we've made assumptions around the One Big Beautiful Bill and what it will contribute to the economy. But as you know, there's a lot of variability around those estimates. If the bill is more catalytic to animal spirits and business spending than we've assumed, you could get, say, a demand driven animal spirits upside to the economy, which may mean inflation doesn't decelerate all that much. But I do think that that's, say, the main upside risk that we're considering. Markets have been gradually taking out probabilities of Fed cuts as growth has come in stronger. So far, the inflation data has been positive in terms of signaling about disinflation, but I would say the jury's still out on how much that continues. Seth Carpenter: Chetan, When I think about Japan, we know that it's been the developed market central bank that's been going in the opposite direction. They've been hiking when other central banks have been cutting. We got some news recently that probably put some risk into our baseline outlook that we published in our year ahead view about both growth and inflation in Japan. And with it what the Bank of Japan is going to do in terms of its normalization. Can you just walk us through a little bit about our outlook for Japan? Because right now I think that the yen, Japanese rates, they're all part of the ongoing market narrative around the world. Chetan Ahya: Yeah, Seth. So, look, I mean, on a big picture basis, we are constructive on the Japan macro-outlook. We think normal GDP growth remains strong. We are expecting to see the transition for the consumers from them seeing, you know, supply side inflation. Keeping their real wage growth low to a dynamic where we transition to real wage growth accelerating. That supports real consumption growth, and we move away from that supply side driven inflation to demand side driven inflation. So broadly we are constructive, but I think in the backdrop, what we are seeing on currency depreciation is making things a bit more challenging for the BOJ. While we are expecting that demand side pressure to build up and drive inflation, in the trailing data, it is still pretty much currency depreciation and supply side factors like food inflation driving inflation. And so, BOJ has been hesitant. So, while we had the expectation that BOJ will hike in January of 2027, we do see the risk that they may have to take up rate hike earlier to manage the currency not getting out of hand and adding on to the inflation pressures. Seth Carpenter Would I be right in saying that up until now, the yen has swung pretty widely in both directions. But the weakening of the yen until now hasn't been really the key driver of the Bank of Japan's policy reaction. It's been growth picking up, inflation picking up, wanting to get out of negative interest rates first, wanting to get away from the zero lower bounds. Second, the weaker yen in some sense could have actually been seen as a positive up until now because Japan did go through 25 years of essentially stagnant nominal growth. Is this actually that much of a fundamental change in the Bank of Japan's thinking – needing to react to the weakness of the yen? Chetan Ahya: Broadly what you're saying is right, Seth, but there is also a threshold of where the currency can be. And beyond a point, it begins to hurt the households in form of imported inflation pressures. And remember that inflation has been somewhat high, even if it is driven by currency depreciation and supply side factors for some time. And so, BOJ has to be watchful of potential lift in inflation expectations for the households. And at the same time, they are also watching the underlying inflation impact of this currency depreciation – because what we have seen is that over period workers have been demanding for higher wages. And that is also influenced by what happens to headline inflation, which is driven by currency depreciation. So, I would say that, yes, it's been true up until now. But, when currency reaches these very high levels of range, you are going to see BOJ having to act. Seth Carpenter: Jens, let's shift then to Europe. The ECB had been on a cutting cycle. They came to the end of that. President Lagarde said that she thought the disinflationary process had ended. In your year ahead forecast and a bunch of your writing recently, you've said maybe not so fast. There could still be some more disinflationary, at least risk, in the pipeline for Europe. Can you talk a little bit about what's going on in terms of European inflation and what it could mean for the European Central Bank? Because clearly that's going to be first order important for markets.Jens Eisenschmidt: I think that is right. I think we have a crucial inflation print ahead of us that comes out on the 4th of February. So, early February we get some signal, whether our anticipated fall of headline inflation here below the ECB's target is actually materializing. We think the chances for this are pretty good. There's a mix why this is happening. One is energy. Energy disinflation and base effects. But the other thing is services inflation resets always at the beginning of the year. January and February are the crucial month here. We had significant services upward pressure on prices the last years. And so just from base effects, we think we will see less of that. Another picture or another element of that picture is that wage disinflation is proceeding nicely. We have notably a significant weakness in the export-oriented manufacturing sector in Germany, which is a key sector of setting wages for the country. The country is around 30 percent of the euro area GDP. And here we had seen significant wage gains over the last year. So, the disinflationary trend coming from lower wage gains from this country, that will be very important. And an important signal to watch. Again, that's something we don't know. I think soon we have to watch simply monthly prints here. But a significant print for the first quarter comes out in May, and all of that together makes us believe that the ECB will be in a position to see enough data or have seen enough data that confirms the thesis of inflation staying below target for some time to come. So that they can cut in June and September to a terminal rate of 1.5 percent. Seth Carpenter: That is, I would say, out of consensus relative where the market is. When you talk to investors, whether they're in Europe or around the world, what's the big pushback that you get from them when you are explaining your view on how the ECB is going to act? Jens Eisenschmidt: There are two essential pushbacks. So, one is on substance. So, 'No, actually wages will not come down, and the economy will actually start overheating soon because of the big fiscal stimulus.' That, in a nutshell is the pushback on substance. I would say here, as you would say before, not so fast. Because the fiscal stimulus is only in one country. It's 30 percent. But only 30 percent of the euro area.Plus, there is another pushback, which is on the reaction function of the ECB. Here we tend to agree. So far, we have heard from policy makers that they feel rather comfortable with the 2 percent rate level that they're at. But we think that discussion will change. The moment you are below target in an actual inflation print; the burden of proof is the opposite. Now you have to prove: Is the economy really on a track that inflation will get back up to target without further monetary stimulus? We believe that will be the key debate. And again, happy to, sort of, concede that there is for now not a lot of signaling out of the ECB that further rate cuts are coming. But we believe the first inflation print of the year will change that debate significantly. Seth Carpenter: Alright, so that makes a lot of sense. However, looking at the clock, we are probably out of time for today. So, for now, Michael, Chetan, Jens, thank you so much for joining today. And to the listener, thanks for listening. And be sure to tune in tomorrow for part two of our conversation. And I have to say, 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.

Dan Nathan and Guy Adami host Mike Wilson, Chief U.S. Equity Strategist and CIO at Morgan Stanley. The conversation covers the impact of inflation on stocks, the Federal Reserve's stance on interest rates, and the current state of the employment market. Mike emphasizes the Fed's priority on funding the deficit and job growth over controlling inflation. The discussion includes the role of AI in corporate productivity, sector-specific investment opportunities, and the intricacies of the IPO and M&A markets. Mike also addresses potential deflationary forces, equity risk premiums, and the broader economic implications of industrial and consumer good sectors. Throughout, they highlight the importance of staying tactical and adaptable in investment strategies. —FOLLOW USYouTube: @RiskReversalMediaInstagram: @riskreversalmediaTwitter: @RiskReversalLinkedIn: RiskReversal Media

Our CIO and Chief U.S. Equity Strategist Mike Wilson discusses key catalysts that investors may be missing, but that are likely to boost U.S. equities in 2026.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 converging market forces bolstering our bullish outlook for 2026. It's Monday, January 5th at 11:30am in New York. So, let's get after it. The New Year is usually a time to look forward. But today, I want to take a step back and talk about what the market is missing. A series of bullish catalysts are lining up at the same time, and the market is still underestimating their collective impact. There's been a lot of focus on individual positives—solid earnings growth, further Fed easing—but in our view, the real story is how these forces are reinforcing one another. Deregulation, positive operating leverage, accommodative monetary policy, and increasingly supportive fiscal policy are all working in the same direction. And as we head into mid-term elections later this year, these policy levers are likely to stay supportive.Importantly, this isn't a market that's already priced for the outcomes I envision. Positioning in cyclical trades remains relatively light, and sentiment in economically sensitive areas is far from exuberant. That combination—of improving fundamentals with cautious positioning—is exactly what tends to characterize the early stages of a recovery. I continue to believe these tailwinds are most underappreciated in cyclical areas like Consumer Discretionary Goods, Financials, Industrials, and small- and mid-cap stocks. Many of the indicators we track are only just beginning to turn higher. This doesn't look late-cycle to me—it looks early in what I have deemed to be a rolling recovery. One reason investors have been hesitant is the sluggishness of traditional business-cycle indicators, particularly the ISM Manufacturing Purchasing Managers Index. There's been a reluctance to press cyclical trades until those gauges clearly re-accelerate; and beneath that hesitation is a lingering anxiety that the U.S. economy could even slip back into a growth scare. My view is different. I believe a three year rolling recession ended with Liberation Day. If that's true, then the moderate softness we're now witnessing in lagging labor data is constructive for equities because it keeps the Fed leaning dovish for longer and more aggressive—a positive for equities. I see the second half of 2025 as the bottoming process for key macro indicators; with 2026 shaping up as a year of re-acceleration. Longer-cycle analysis supports this. Specifically, the 45-month cycle of the ISM Manufacturing Purchasing Managers Index points to a rebound. That recovery has been delayed—but not cancelled. Another tailwind that doesn't get nearly enough attention is energy prices. Gasoline prices in particular are sitting near five-year lows, which is providing real economic relief for lower- and middle-income consumers. That cushion matters, especially as other parts of the economy firm. This past weekend's events in Venezuela argue for lower oil prices for longer. From a sector standpoint, Financials stand out as the key beneficiary of deregulation and these stocks have been great performers over the past year in anticipation of these changes. I think there is more to go in 2026. Housing could be another important piece of the recovery. Subdued wage growth and falling rents may pressure home prices, while some builders are prioritizing volume over margins. While that may cap profitability for the builders, it could unlock housing velocity and feed into a more dovish inflation backdrop. Of course, there are also risks. Liquidity has been our top concern since September, and markets have reflected that through weakness in speculative assets. The good news is that the Fed has responded by ending quantitative tightening early and restarting asset purchases through the Reserve Management Program. This effectively adds liquidity to a system that was showing signs of stress this past several months. Another risk is a renewed slowdown in AI CapEx, particularly as markets demand clearer payback from debt-funded spending. And geopolitically, the U.S. intervention in Venezuela raises new questions. Strategically, it reinforces U.S. influence in the Western Hemisphere and supports our ‘Run It Hot' thesis—but the key wildcard remains whether China chooses to react. Net-net, we think the balance of risks and rewards still favor leaning into this early-cycle recovery and our bullish outlook for US equities in 2026. 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!

Original Release Date: November 25, 2025Our Chief U.S. Economist Michael Gapen breaks down how growth, inflation and the AI revolution could play out in 2026.Read more insights from Morgan Stanley.----- Transcript -----Michael Gapen: Welcome to Thoughts on the Market. I'm Michael Gapen, Morgan Stanley's Chief U.S. Economist.Today I'll review our 2026 U.S. Economic Outlook and what it means for growth, inflation, jobs and the Fed.It's Tuesday, November 25th, at 10am in New York.If 2025 was the year of fast and furious policy changes, then 2026 is when the dust settles.Last year, we predicted slow growth and sticky inflation, mainly because of strict trade and immigration policies – and this proved accurate. But this year, the story is changing. We see the U.S. economy finally moving past the high-uncertainty phase. Looking ahead, we see a return to modest growth of 1.8 percent in 2026 and 2 percent in 2027. Inflation should cool but it likely won't hit the Fed's 2 percent target. By the end of 2026, we see headline PCE inflation at 2.5 percent, core inflation at 2.6 percent, and both stay above the 2 percent target through 2027. In other words, the inflation fight isn't over, but the worst is behind us.So, if 2025 was slow growth and sticky inflation, then 2026 and [20]27 could be described as moderate growth and disinflation. The impact of trade and immigration policies should fade, and the economic climate should improve. Now, there are still some risks. Tariffs could push prices higher for consumers in the near term; or if firms cannot pass through tariffs, we worry about additional layoffs. But looking ahead to the second half of 2026 and beyond, we think those risks shift to the upside, with a better chance of positive surprises for growth.After all, AI-related business spending remains robust and upper income consumers are faring well. There is reason for optimism. That said, we think the most likely path for the economy is the return to modest growth. U.S. consumers start to rebound, but slowly. Tariffs will keep prices firm in the first half of 2026, squeezing purchasing power for low- and middle-income households. These households consume mainly through labor market income, and until inflation starts to retreat, purchasing power should be constrained.Real consumption should rise 1.6 percent in 2026 and 1.8 [percent] in 2027 – better, but not booming. The main culprit is a labor market that's still in ‘low-hire, low-fire' mode driven by immigration controls and tariff effects that keep hiring soft. We see unemployment peaking at 4.7 percent in the second quarter of 2026, then easing to 4.5 percent by year-end. Jobs are out there, but the labor market isn't roaring. It'll be hard for hiring to pick up until after tariffs have been absorbed.And when jobs cool, the Fed steps in. The Fed is cutting rates – but at a cost. After two 25 basis point rate cuts in September and October, we expect 75 basis points more by mid 2026, bringing the target range to 3.0-3.25 percent. Why? To insure against labor market weakness. But that insurance comes with a price: inflation staying above target longer. Think of it as the Fed walking a tightrope—lean too far toward jobs, and inflation lingers; lean too far toward inflation, and growth stumbles. For now the Fed has chosen the former.And how does AI fit into the macro picture? It's definitely a major growth driver. Spending on AI-related hardware, software, and data centers adds about 0.4 percent to growth in both 2026 and 2027. That's roughly 20 percent of total growth. But here's the twist: imports dilute the impact. After accounting for imported tech, AI's net contribution falls sharply. Still, we expect AI to boost productivity by 25-35 basis points by 2027, over our forecast horizon, marking the start of a new innovation cycle. In short: AI is planting the seeds now for bigger gains later.Of course, there are risks to our outlook. And let me flag three important ones. First, demand upside – meaning fiscal stimulus and business optimism push growth higher; under this scenario inflation stays hot, and the Fed pauses cuts. If the economy really picks up, then the Fed may need to take back the risk management cuts it's putting in now. That would be a shock to markets. Second, there's a productivity upside – in which case AI delivers bigger productivity gains, disinflation resumes, and rates drift lower. And lastly, a potential mild recession where tariffs and tight policy bite harder, GDP turns negative in early 2026, and the Fed slashes rates to near 1 percent. So in summary: 2026 looks to be a transition year with less drama but more nuance, as growth returns and inflation cools, while AI keeps rewriting the playbook.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.

Original Release Date: November 19, 2025Our CIO and Chief U.S. Equity Strategist Mike Wilson explains why he continues to hold on to an out-of-consensus view of a growth positive 2026, despite near-term risks.Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley's CIO and Chief U.S. Equity Strategist. Today I'll discuss our outlook for 2026 that we published earlier this week. It's Wednesday, Nov 19th at 6:30 am in New York. So, let's get after it. 2026 is a continuation of the story we have been telling for the past year. Looking back to a year ago, our U.S. equity outlook was for a challenging first half, followed by a strong second half. At the time of publication, this was an out of consensus stance. Many expected a strong first half, as President Trump took office for his second term. And then a more challenging second half due to the return of inflation. We based our differentiated view on the notion that policy sequencing in the new Trump administration would intentionally be growth negative to start. We likened the strategy to a new CEO choosing to ‘kitchen sink' the results in an effort to clear the decks for a new growth positive strategy. We thought that transition would come around mid-year. The U.S. economy had much less slack when President Trump took office the second time, compared to the first time he came into office. And this was the main reason we thought it was likely to be sequenced differently. Earnings revisions breadth and other cyclical indicators were also in a phase of deceleration at the end of 2024. In contrast, at the beginning of 2017—when we were out of consensus bullish—earnings revisions breadth and many cyclical gauges were starting to reaccelerate after the manufacturing and commodity downturn of 2015/2016. Looking back on this year, this cadence of policy sequencing did broadly play out—it just happened faster and more dramatically than we expected. Our views on the policy front still appear to be out of consensus. Many industry watchers are questioning whether policies enacted this year will ultimately lead to better growth going forward, especially for the average stock. From our perspective, the policy choices being made are growth positive for 2026 and are largely in line with our ‘run it hot' thesis. There's another factor embedded in our more constructive take. April marked the end of a rolling recession that began three years prior. The final stages were a recession in government thanks to DOGE, a rate of change trough in expectations around AI CapEx growth and trade policy, and a recession in consumer services that is still ongoing. In short, we believe a new bull market and rolling recovery began in April which means it's still early days, and not obvious—especially for many lagging parts of the economy and market. That is the opportunity. The missing ingredient for the typical broadening in stock performance that happens in a new business cycle is rate cuts. Normally, the Fed would have cut rates more in this type of weakening labor market. But due to the imbalances and distortions of the COVID cycle, we think the Fed is later than normal in easing policy, and that has held back the full rotation toward early cycle winners. Ironically, the government shutdown has weakened the economy further, but has also delayed Fed action due to the lack of labor data releases. This is a near-term risk to our bullish 12-month forecasts should delays in the data continue, or lagging labor releases do not corroborate the recent weakness in non-govt-related jobs data. In our view, this type of labor market weakness coupled with the administration's desire to ‘run it hot' means that, ultimately, the Fed is likely to deliver more dovish policy than the market currently expects. It's really just a question of timing. But that is a near-term risk for equity markets and why many stocks have been weaker recently. In short, we believe a new bull market began in April with the end of a rolling recession and bear market. Remember the S&P [500] was down 20 percent and the average S&P stock was down more than 30 percent into April. This narrative remains underappreciated, and we think there is significant upside in earnings over the next year as the recovery broadens and operating leverage returns with better volumes and pricing in many parts of the economy. Our forecasts reflect this upside to earnings which is another reason why many stocks are not as expensive as they appear despite our acknowledgement that some areas of the market may appear somewhat frothy. For the S&P 500, our 12-month target is now 7800 which assumes 17 percent earnings growth next year and a very modest contraction in valuation from today's levels. Our favorite sectors include Financials, Industrials, and Healthcare. We are also upgrading Consumer Discretionary to overweight and prefer Goods over Services for the first time since 2021. Another relative trade we like is Software over Semiconductors given the extreme relative underperformance of that pair and positioning at this point. Finally, we like small caps over large for the first time since March 2021, as the early cycle broadening in earnings combined with a more accommodative Fed provides the backdrop we have been patiently waiting for. We hope you enjoy our detailed report published earlier this week and find it helpful as you navigate a changing marketplace on many levels. Thanks for tuning in. 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 CIO and Chief U.S. Equity Strategist Mike Wilson explains the significance of the Fed's decision to resume buying $40 billion of Treasury bills monthly. 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 Fed's decision last week and what it means for stocks.It's Monday, December 15th at 11:30am in New York. So, let's get after it.Last week's Fed meeting provided incremental support for our positive 2026 outlook on equities. The Fed delivered on its expected hawkish rate cut but also indicated it would do more if the labor market continues to soften. More important than the rate cut was the Fed's decision to restart asset purchases. More specifically, the Fed intends to immediately begin buying $40 billion of T-Bills per month to ensure the smooth operation of financial markets. Based on our conversations with investors prior to the announcement, this amount and timing of bill buying exceeded both consensus, and my own expectations. It also confirms a key insight I have been discussing for months and highlighted in our Year Ahead Outlook. First, the Fed is not independent of markets, and market stability often plays a dominant role in Fed policy beyond the stated dual mandate of full employment and price stability.Second, given the size of the debt and deficit, the Fed has an additional responsibility to assist Treasury in funding the government, and will likely continue to work more closely with Treasury in this regard.Finally, the decision to intervene in funding markets sooner and more aggressively than expected may not be ‘Quantitative Easing' as defined by the Fed. However, it is a form of debt monetization that directly helps to reduce the crowding out from the still growing Treasury issuance, especially as Treasury issues more Bills over Bonds.At the Fed's October meeting, it indicated some concern about tightening liquidity which I have discussed on this podcast as the single biggest risk to the bull market in stocks. Evidence of this tightness can be seen in the performance of asset prices most sensitive to liquidity, including crypto currencies and profitless growth stocks.While the Fed probably isn't too concerned about the performance of these asset classes, it does care about financial stability in the bond, credit and funding markets. This is what likely prompted it to restart asset purchases sooner and in a more significant way than most expected.We view this as a form of debt monetization as I mentioned, given the Treasury's objective to issue more bills going forward. More importantly, these purchases provide additional liquidity for markets, and in combination with rate cuts, suggest the Fed is likely less worried about missing its inflation target. This is very much in line with our run it hot thesis dating back to early 2021. As a reminder, accelerating inflation is positive for asset prices as long as it doesn't force the Fed's hand to take the punch bowl away like in 2022. Ironically, the risk in the near-term is that this larger than expected asset purchase program may be insufficient if the Fed has materially underestimated the level of reserves necessary for markets to operate smoothly. This is what happened in 2019 and why the Fed created the Standing Repo Facility in the first place. However, this is more of a tool that is used on an as-needed basis. What the markets may want or need is a larger buffer if the Fed has underestimated the level of reserves required for smoothly functioning financial markets.To be clear, I don't know what that level is, but I do believe markets will tell us if the Fed has done enough with this latest provision. Liquidity-sensitive asset classes and areas of the equity market will be important to watch in this regard, particularly given how weak they traded last Friday and this morning.Bottom line, the Fed has reacted to the markets' tremors over the past few months. Should markets wobble again, we are highly confident the Fed will once again react until things calm down. Last week's FOMC meeting only increases our conviction in that case and keeps us bullish over the next 6-12 months, and our 7800 price target on the S&P 500. We would welcome a correction in the short term as a buying opportunity. 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 Macro Strategy Matthew Hornbach and Chief U.S. Economist Michael Gapen discuss the Fed's path as inflation remains above its target and the labor market continues cooling.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: Yesterday, the FOMC meeting delivered another quarter percentage point rate cut. Today we're here to discuss what happens next.It's Thursday, December 11th at 8:30 AM in New York. So, Mike, once again, the Fed cut rates by 25 basis points. That outcome was not a surprise, and the markets reacted positively. But there were some surprises. A bit of a divided FOMC, if you will. How did things play out during the meeting and what are some important takeaways to keep in mind? Michael Gapen: Yeah, well certainly Matt, it is a divided committee. I think that's clear. I think one key takeaway for me is the idea that the Fed is done with risk management rate cuts, and now we're back to data dependent. So, what does that mean? I mean, a risk management rate cut isn't necessarily about the data you have in hand and the data you see; it's your view about the distribution of risks around that. So, in some ways, you're not data dependent when you're making those cuts. Now, I think the challenge at this press conference for Powell was to say, ‘Well, now things are different.' And it was a nuance in the sense that cuts from here, if and when they come, will be data dependent. But I think at the same time he did not want to communicate that the bar for those rate cuts were exceptionally high. But I think he threaded the needle quite well in transitioning from risk management cuts, which aren't data dependent to an outlook, which is now more data dependent. And I thought he did that artfully well. So, for me, that's the big key. Secondarily I'd add a takeaway for me was he seems fairly confident that inflation will be coming down, and I think he still believes the labor market is cooling. The blend of that came across as a bit dovish to me. And then the third thing I would add is he fairly explicitly ruled out the risk of rate hikes. So, I think the combination of those three things: data dependence, still concerns about cooling in the labor market, and chopping off the upper half of the rate path distribution – those were kind of the key takeaways from my point. Matthew Hornbach: So, Mike, with respect to the labor market, Chair Powell did address it in a couple of different ways. But one of the ways that stood out to my ears was how he described some technical factors that people are well aware of – that could mean the economy is actually shedding jobs to the tune of about 20,000 per month. I was wondering if you could just briefly address what those factors – that are supposedly so well known – might be. Michael Gapen: Sure. So, obviously the data that gets released, there are the initial releases and then there are revisions. And in the labor market, there are what are called annual benchmark revisions. So, the BLS released a preliminary estimate of that benchmark revision several months ago, and if you apply that initial estimate, it would suggest that job growth in 2025 could be about 60,000 jobs per month, less than has already been reported. But at the same time, we know immigration controls are slowing growth in the labor force. So, this is what Powell is calling the really curious balance. How can you have employment growth basically zero, maybe even negative, after these revisions come in – and the unemployment rate relatively stable. Yes, it's gone up a few tenths, but not like you would normally expect that rise would be if we were shedding jobs. So that to me is why he… You know; the technical factors about revisions and things that lead them to be, I think, very unsure about where the labor market is; and lean in the direction of thinking lower rates are better to manage those risks than where they were six months ago. Matthew Hornbach: One of the points that you raised in your opening explanation of the meeting was about inflation. And Chair Powell mentioned an expectation that the inflation related to tariffs would be peaking in the first quarter of the year. That sounded very familiar to me because I believe that's your expectation as well. I'm curious. How are you looking at tariffs and the inflation related to tariffs today? And do you agree with Chair Powell still? Michael Gapen: We do. Our modeling of the tariff pass through and our conversations with clients and firms and what we hear on corporate earnings calls suggests that this is a long process. Meaning tariffs go in place, prices don't go up the next month. Firms make pricing decisions that take time to implement. So, we agree that the tariff pass through story will extend into 2026 and likely through the end of the first quarter. And if that's true, then goods prices should continue to move higher. The year-on-year rate of inflation should move higher, peaking at 3 percent or a little above in the first quarter of the year. And then tat effect should we think be over, which would open the door for overall inflation to start coming back down. So, I will use the dreaded T-word. We think ultimately inflation from tariffs will be transitory. And I agree with the Chair's timeline; inflation should peak in the first quarter of the year and then start to trend down. That said, we think inflation will be above the Fed's 2 percent target into 2027, and this is the cost of providing insurance to the labor market. Matthew Hornbach: So finally, all things considered, what is your outlook for Fed policy in 2026? Michael Gapen: Yeah, and the key here, Matt, is that exactly what you just implied about tariffs and inflation still going on into 2026, right? Because what we know is while firms are gauging exactly where they should be pricing, they've been offsetting tariffs through lower demand for labor. So, we think the Fed will be cutting again in January. We have three months of employment data that come across two employment reports between now and the January meeting. We think they will show continued cooling in the labor market. And then we have a second cut next year in in April. So, while tariffs are getting passed through, we think the labor market will continue to cool. And this Fed will be biased to cutting rates to provide support to the labor market in the process. That would mean the federal funds rate gets to 3 – 3.25 percent in the second quarter of 2026, where we think it'll stay.So Matt, I'd like to ask you a question. What I noticed was the rate market backed up going into the meeting, despite the fact that market participants were projecting a cut. And then the rate market rallied, in my view, significantly during the meeting and right after. What do you think was happening there? Matthew Hornbach: So, there's a phenomenon that happens in all markets where investors often speculate on a potential outcome. And if the outcome is then delivered, the follow-on price action is underwhelming. That is colloquially known as buying the rumor and selling the fact. So, I think going into this meeting kind of in line with your expectations, investors were forming very similar expectations about how the FOMC statement itself would change and the implications that that might have for the future of Fed policy. When that hawkish cut was delivered almost exactly as you had expected, Mike, I think, investors started thinking about the future in a slightly different way. Now that their expectations were met with the meeting outcome, they started to consider, the data that is forthcoming. And whenever, officials at the Fed talk about data in the way that Chair Powell spoke about the data – and by which I mean labeled the labor market as potentially losing jobs at the moment, and labeling inflation as transitory, that we'd be past the peak of tariff related inflation after the first quarter of the year. Investors can kind of look at those factors and extrapolate going forward, what that may mean for Fed policy in the first half of 2026. So, I think similar to your expectations for policy after this meeting, investors probably became a bit more confident in your outlook for Fed policy that we would see additional rate cuts in the first half of next year. And then, of course, after the April meeting, the baton will be passed to the next Fed chair, and I think investors are considering what policy might look like under that new regime at the Fed. And on the margin, the view is that the next Fed chair would be more likely than not to continue the process of lowering policy rates. So, I think all of those factors played into the post press conference, and even during the press conference reaction. Michael Gapen: Okay Matt, one last question, if I may. How did the events of the FOMC this week and the market reaction, how does that dovetail with how you're thinking about longer term rates, in particular where you see 10-year yields going? And the dollar? Matthew Hornbach: So, 10-year yields are relatively close to 4 percent at this juncture, and we expect them to drift modestly lower in the first half of 2026, as the Fed continues this process of lowering the policy rate. One point that's very important to make here is that the longer-term Treasury yields today are now sitting well above the Fed's policy rate, and that hasn't been the case for many, many years now. A lot of investors with whom we speak think that longer term yields can head a lot higher from here. But we're skeptical – because the higher that those yields go relative to the Fed's policy rate, the more attractive those bonds become for other investors to buy. So, we don't expect a big increase in longer term interest rates. Unlike some investors, we are expecting interest rates in the long end to remain relatively stable with a downward bias.On the dollar, similarly, we have the dollar continuing its depreciation trend, which it began in January of 2025, earlier this year. We expect that depreciation trend to continue in the first half of 2026 before – similar to the interest rate path – we see a little bit of dollar strength in the second half of the year. And so, you know this being the last FOMC meeting of the year, Mike, I guess we're going to have to take a wait and see approach until the FOMC reconvenes in the new year. Thanks a lot for taking the time to talk about the Fed with me this year. Michael Gapen: Great speaking with you Matt. See you in 2026. Matthew Hornbach: 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.

Mike Wilson, our CIO and Chief U.S. Equity Strategist, and Dan Skelly, Senior Investment Strategist at Morgan Stanley Wealth Management, discuss the outlook for the U.S. stock market in 2026 and the most significant themes for retail investors. Read more insights from Morgan Stanley.----- Transcript -----Mike Wilson: Welcome to Thoughts on the Market. I'm Mike Wilson. Morgan Stanley's CIO and Chief U.S. Equity Strategist. Daniel Skelly: And I'm Dan Skelly, Senior Investment Strategist for Morgan Stanley Wealth Management. Mike Wilson: Today we're going to have a conversation about our views on the U.S. stock market in 2026, and what matters most to retail investors in particular. It's Monday, December 8th at 9am in New York. So, let's get after it. Dan, it's great to see you. We always talk about the markets together. I think this is a great opportunity for us to share those thoughts with listeners. Our view coming into this year is still pretty bullish for 2026. We've been bullish on [20]25 as you have, probably for, you know, similar – maybe some slightly different reasons. I think one of our differentiating views is that we do think inflation is still a major risk for individual investors. And institutional investors, quite frankly, which is why stocks have done so much better. A concept, I think you're well aware of. And I think, you know, the risk for retail is that there's going to be; it's going to be volatile. So, point-to-point, we're still bullish as you are. How are you thinking about managing that point-to-point path? And how are you structuring your portfolio as we go into 2026 with a bullish outlook – but understanding that it's not always going to be smooth. Daniel Skelly: So, like you said, we've also shared this view that next year's going to be positive, albeit there's going to be more volatility. And when I think about the two main risks that retail investors are facing today, one of them is definitely inflation. We're seeing that in services. We're seeing that in housing. We've had the labor market shrink over the recent couple of quarters, so who knows if wage inflation pops up again. But there are ways to definitely hedge against that in an equity portfolio. We think, for instance, owning parts of the AI infrastructure cohort is one of the ways of hedging, whether that be in utilities, pipelines, energy infrastructure in general. These are areas that we think are a necessary hedge against inflation risk. And number two are a positive diversifier. And second key point, Mike, just thinking about that diversification comment. Look, we all know that in many ways the Mag 7 – and the technology strength that we've seen this past year – has driven a fairly concentrated market. I think what people, particularly on the individual side, are recognizing less is just how much AI cuts across many other sectors in parts of the market. And again, we think that risk of over concentration is still out there. And we like the idea of thinking of embedding natural diversification into the equity portfolio. Mike Wilson: Yeah. I mean, it's interesting. Inflation, you know, is part of that story too because AI is somewhat disinflationary or deflationary. I think, you know, investing in things that can drive higher productivity even away from AI can mitigate some of that risk in the economic outlook. But if I think about, you know, the Mag 7 dominance, and just this concentrated market risk, which you spoke about. If inflation re-accelerates next year, which, you know, is one of our core views as the economy improves – doesn't that broaden out the opportunity set? And you know, like there's been this idea that, ‘Oh, you have to own these seven stocks and nothing else.' I mean, part of our view for next year is that we think the market's going to broaden out. How are you set up for that broadening out? And how are you thinking about picking stocks and new themes that can work – that maybe people aren't paying attention to right now? Daniel Skelly: Yeah, it's a great point, Mike. And so, on the first topic, we do think there's broadening, and that's a combination of factors. Number one is just the market becoming more convicted about the Fed cutting path, which we've talked about, and the firm's view reaffirms for next year. Number two is starting to see some of the benefits of deregulation, right, which should impact maybe some of the more cyclical sectors out there – Financials, Energy being two of them. Maybe seeing more M&A activity too as a byproduct of deregulation. And that should bode better for mid- and maybe small caps as well as they receive a M&A premia in the valuations. And I know you've talked about small caps recently in your commentary. But last point I'll make Mike, and it comes back to AI. It almost feels like AI is this huge inflationary ramp at first to get to that deflationary nirvana down the road – with productivity. I think one of the key factors we think about, in terms of a bottom-up perspective, which is what we focus on in across the portfolio, is definitely pricing power. Who owns the pricing power and the key data and the key AI adoption outlook in order to absorb all the different tools and technology diffusion we've seen in the last three years. And that's going to play out, Mike, as you well know, across a variety of sectors and themes. So, agreed, we should see broadening for all those varying reasons. Mike Wilson: So, I mean, there are a couple areas I think, where we overlap. Financials…Daniel Skelly: Yep. Mike Wilson: Industrials, Healthcare, some of the themes that I think we both; we share our bullish views. And what do you think those areas are, within those sectors? You think that you have a differentiated view maybe than the consensus being Financials, Industrials, Healthcare? That the market may be missing, which offers more upset? Daniel Skelly: Sure. I'll start with Financials, which has been an overweight call for us for some time, as I know it has for you as well. And I think that kind of cyclical re-acceleration in the economy is one part. I think the Fed cutting is another part. I think deregulation is clearly another driver. Fourth Capital Markets recovery, which we have seen now. We had a little bit of a technical lull with the government shutdown in terms of filings and issuance, but we see all of the pipeline indicators, indicating green lights for next year in terms of recovery. I think the one thing I would argue that I've observed in looking at all of our vast data sets is that despite all these different bullish factors, this still maybe has been a theme or a sector that investors have traded in and out of, right? I don't think I've even seen like a real strong, consistent overweight. So, I think number one, that's an opportunity. And last point is, listen, there's different sub-sector bifurcation going on, as you know, within the industry, whereas money centers and large banks are performing really well. The same is not the case of regionals and alts managers. And there are varying reasons for that. But we would even argue, Mike, there could be catchup trades within the sector next year. Mike Wilson: Yeah, I would agree on that. I mean, the regional over money centers and actually regionals over alt managers, because I mean – I think the Treasury Secretary has talked about this, you know. Trying to get the regulated banking system kind of back in the game may actually be an opportunity to take share back from some of those alt managers, which have actually done quite well. What about on Healthcare? We upgraded that back in the summer. I think you've been constructive on parts of Healthcare, right. Wwhat do you think people are missing there and why could that be a good sector for next year? Daniel Skelly: Yeah. We were definitely, I'll say, earlier than you and wrong. You had really good timing in terms of your Healthcare upgrade last summer. And look, the sector was out of favor for two years. What we think we observed in the kind of July-August period is: First and foremost, I think we got past the point of maximum policy concern and risk. And ironically, we saw some kind of nominal or surface level deal signed with the government around most favored nation pricing. And it was really, not a lot to write home about. It wasn't as egregious as a policy inflection as some had feared. So, I think that was the first key catalyst. Second, we just saw a really good revisions breadth. And I know this is a comment you make a lot in your work. But we saw across big pharma, tools and life science, medical technology, and devices. We saw really good positive earnings revisions coming out of third and even starting the second quarter. Thirdly, I think if you're talking about an M&A in capital markets recovery, you can't not talk about Healthcare. I think that's a space that'll be ripe for deal making. And then just fourth, right? Look, as the market broadens out, and as people are stopping or maybe slowing the crowding and the key leadership, they're going to go again from AI enablers to AI adopters. And we think AI is going to be a vector that cuts across the Healthcare industry in a really positive way. Mike Wilson: Yeah, I mean, the efficiencies that are, you know, possible in the Healthcare sector seem immense. I mean, it, it appears to me that that's going to be an area where there's probably some new solutions, some new companies we don't even know about yet. So, to me that's a very exciting area that's been dormant for quite a while. What about Consumer, Dan? It's been this K economy. It's been very bifurcated, you know, high-end versus middle-income, lower-income. I mean, what are the themes within consumer that you're finding in putting to work in your portfolio? Daniel Skelly: Yeah. We've talked a lot, Mike, in the last year or so about playing Consumer platforms, particularly domestically oriented versus global consumer brands. And there's a couple of key drivers behind that. But first, when you look at what's going on in consumer land, and Simeon Gutman's been a really good, kind of, analyst looking at this theme over time. In many ways it's starting to resemble the Mag 7 in terms of winner take all phenomena. If you look at some of the major consumer big box platforms, they're taking 50- 60 percent of share of total retail sales. Just a couple of companies. So, number one, we're really focused on platforms where market share gains, free cash flow and revenue – recurring revenue – in particular, are leading to even stronger competitive moats, particularly in a capital-intensive industry. And what we've observed about retail is that as those leaders in big box areas take more share, they can reinvest that winning capital in their advertising growth in their online channel and widen their moats even more. Secondly though, in order to have a positive theme, I've always said you got to fund it from somewhere. And so, what we've observed again over the last year or so is – when I think about some of the even highest quality global brands they've suffered seeing less traction in China. And that's amid less of a willingness from Chinese consumers to own American and European brands. There's a lot to that, but I think culturally, obviously the trade war, the AI war for prominence leading to maybe some of that lack of cultural traction. Secondly, we've also, I think, started to see the growth of AI tools start to weigh on established brands. I think what makes a brand cool and the barriers to entry in terms of creating brands is going to go down in the future because of AI influencing and advertising tools. And so, simply put, we continue to like, Mike, the big box consumer platforms across, clothing and food, housing, across e-commerce. That continues to be one of our higher conviction themes. Mike Wilson: All right, Dan, I want to come back to, kind of, AI infrastructure. I mean, AI spending has been the big, big theme. But there's other types of infrastructure spend and CapEx. It's been dormant, quite frankly, and with the [One] Big Beautiful Bill [Act] perhaps incentivizing some of that. How does that play into your thought process around other industrial stocks that could benefit? Daniel Skelly: Absolutely, Mike. You cited the AI infrastructure spending. We think continues kind of unimpeded going into next year. Number two, we think the Fed cutting, just creating better financing conditions in terms of bigger projects. You mentioned as well, the fiscal incentives. And look, I think Chris Snyder has been spot on the last year or so talking about reshoring production wins coming back to the U.S. I don't think this is certainly as cognizant on the – or on the minds of individual investors. Maybe not even institutional investors. But the U.S. is winning manufacturing production share and has been for some time. And we've seen that no doubt ramp up post the announcement of the [One] Big Beautiful Bill {Act]. No doubt. But we think that has implications, Mike, for stocks and stock picking within what we would call, kind of, shorter cycle themes. And I think whether that be in Logistics and Transports or HVAC or some of the Non-Resi, Non-Datacenter related verticals. There are a whole bunch of stocks that have been kind of dormant for two to three years as we've been in this ISM recession that we think could certainly wake up next year as things broaden out. Mike Wilson: Yeah, we would agree with that. And I guess lastly, you know, there's always this Johnny come lately, you know, fear factor of, ‘Well … stocks are up a ton. My neighbor's bragging how much money they're making. So, I must have missed it all.' And I think embedded within that is this fear of valuation. The valuations are now very rich. What's your response to individual clients about – it's not too late, they haven't missed it. It's still a bull market. In fact, we would argue a new bull market began in April with a new economic cycle. What is your response to those folks who have that angst? Daniel Skelly: Two things. One is the market today looks totally different than it did in the past, and AI is no doubt one big part of that. The composition of the market in many ways is higher quality, less debt, more recurring revenue. Big call option on productivity coming from AI earnings, power, et cetera. So, we think the market should trade at richer levels than it did in the past, point number one. Point number two, we would say whereas most people say time is your friend – for individual investors, they would also say valuation is no short term or short run indicator, but it's the best long run indicator. And looking at today's, again, extended levels of valuation relative to history – they would say that's not going to play out well over the long run. I would actually take the other side of that. I think that the earnings and the economic potential unleashed not just from AI, but some of these fiscal and monetary policies could create tremendous margin earnings potential in the long run. And so, I think today we're looking at a level of multiples that appears artificially high. And based on what could be a big earnings inflection point in that multi-year timeframe could frankly just be superficially high. Mike Wilson: Well, Dan, it's always great to get your perspective. I always enjoyed chatting with you. Daniel Skelly: Likewise. Mike Wilson: Thanks for coming on the show and sharing it with our listeners. It's great to see you. Daniel Skelly: Thanks Mike. Mike Wilson: And thanks to our listeners. Thanks for tuning in and 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 U.S. Economist Michael Gapen breaks down how growth, inflation and the AI revolution could play out in 2026.Read more insights from Morgan Stanley.----- Transcript -----Michael Gapen: Welcome to Thoughts on the Market. I'm Michael Gapen, Morgan Stanley's Chief U.S. Economist.Today I'll review our 2026 U.S. Economic Outlook and what it means for growth, inflation, jobs and the Fed.It's Tuesday, November 25th, at 10am in New York.If 2025 was the year of fast and furious policy changes, then 2026 is when the dust settles.Last year, we predicted slow growth and sticky inflation, mainly because of strict trade and immigration policies – and this proved accurate. But this year, the story is changing. We see the U.S. economy finally moving past the high-uncertainty phase. Looking ahead, we see a return to modest growth of 1.8 percent in 2026 and 2 percent in 2027. Inflation should cool but it likely won't hit the Fed's 2 percent target. By the end of 2026, we see headline PCE inflation at 2.5 percent, core inflation at 2.6 percent, and both stay above the 2 percent target through 2027. In other words, the inflation fight isn't over, but the worst is behind us.So, if 2025 was slow growth and sticky inflation, then 2026 and [20]27 could be described as moderate growth and disinflation. The impact of trade and immigration policies should fade, and the economic climate should improve. Now, there are still some risks. Tariffs could push prices higher for consumers in the near term; or if firms cannot pass through tariffs, we worry about additional layoffs. But looking ahead to the second half of 2026 and beyond, we think those risks shift to the upside, with a better chance of positive surprises for growth.After all, AI-related business spending remains robust and upper income consumers are faring well. There is reason for optimism. That said, we think the most likely path for the economy is the return to modest growth. U.S. consumers start to rebound, but slowly. Tariffs will keep prices firm in the first half of 2026, squeezing purchasing power for low- and middle-income households. These households consume mainly through labor market income, and until inflation starts to retreat, purchasing power should be constrained.Real consumption should rise 1.6 percent in 2026 and 1.8 [percent] in 2027 – better, but not booming. The main culprit is a labor market that's still in ‘low-hire, low-fire' mode driven by immigration controls and tariff effects that keep hiring soft. We see unemployment peaking at 4.7 percent in the second quarter of 2026, then easing to 4.5 percent by year-end. Jobs are out there, but the labor market isn't roaring. It'll be hard for hiring to pick up until after tariffs have been absorbed.And when jobs cool, the Fed steps in. The Fed is cutting rates – but at a cost. After two 25 basis point rate cuts in September and October, we expect 75 basis points more by mid 2026, bringing the target range to 3.0-3.25 percent. Why? To insure against labor market weakness. But that insurance comes with a price: inflation staying above target longer. Think of it as the Fed walking a tightrope—lean too far toward jobs, and inflation lingers; lean too far toward inflation, and growth stumbles. For now the Fed has chosen the former.And how does AI fit into the macro picture? It's definitely a major growth driver. Spending on AI-related hardware, software, and data centers adds about 0.4 percent to growth in both 2026 and 2027. That's roughly 20 percent of total growth. But here's the twist: imports dilute the impact. After accounting for imported tech, AI's net contribution falls sharply. Still, we expect AI to boost productivity by 25-35 basis points by 2027, over our forecast horizon, marking the start of a new innovation cycle. In short: AI is planting the seeds now for bigger gains later.Of course, there are risks to our outlook. And let me flag three important ones. First, demand upside – meaning fiscal stimulus and business optimism push growth higher; under this scenario inflation stays hot, and the Fed pauses cuts. If the economy really picks up, then the Fed may need to take back the risk management cuts it's putting in now. That would be a shock to markets. Second, there's a productivity upside – in which case AI delivers bigger productivity gains, disinflation resumes, and rates drift lower. And lastly, a potential mild recession where tariffs and tight policy bite harder, GDP turns negative in early 2026, and the Fed slashes rates to near 1 percent. So in summary: 2026 looks to be a transition year with less drama but more nuance, as growth returns and inflation cools, while AI keeps rewriting the playbook.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 investors might want to reassess their portfolios, keeping in mind the gap between market moves and monetary policy.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, why the Fed may hold the key for both near term and medium-term stock market performance. It's Monday, November 24th at 1pm in New York. So, let's get after it. At the end of September, we discussed the building tension between the Fed and markets in terms of both the fed funds rate and liquidity, suggesting this had the potential to lead to a correction in the short-term. This scenario is playing out with high momentum and low-quality stocks responding more to tightening liquidity back in September, while the high-quality S&P 500 and Nasdaq 100 responded more to the incremental hawkishness on rate cuts relayed at the October 29th Fed meeting.While downside for the S&P 500 has been limited to just 5 percent, the damage under the surface has been more significant with two-thirds of the largest 1000 stocks seeing more than a 10 percent drawdown and one quarter down more than 20 percent. Similarly, Bitcoin is down close to 30 percent and topped even earlier than high momentum stocks. Gold also felt the impact of tighter liquidity earlier than the S&P 500, as one would expect.We're staying vigilant around this dynamic related to monetary policy and can't rule out more index-level downside in the short-term, especially if breadth remains weak. Having said that, we think the weakness under the hood is a sign that we're closer to the end of this correction than the beginning for the weaker areas of the market. Historically, the Generals tend to fall the most at the end of corrections. As I said on this podcast back in September, we would view this type of correction and reset on expectations as an opportunity to double down on our rolling recovery thesis which remains out of consensus.From our perspective, private labor data are showing signs of weakness that suggest the Fed should be cutting rates more aggressively. This is very much in line with my core view that the rate of change trough in the labor data occurred back in April with the lows in the equity market. The official government labor data that the Fed is waiting for is lagging and will simply confirm what we, and the markets, already know. With the official October jobs data cancelled due to the shutdown and the November series not available until December 16th, the equity market may continue to wrestle with the Fed that dragging its feet and delaying rate cuts.The good news is that we expect a meaningful decline in the Treasury's General Account in the coming weeks as the government re-opens. This should help to provide a much-needed boost to liquidity at the same time the Fed ends quantitative tightening. The question is whether these changes will be enough to improve liquidity conditions in a durable way. In my view, the clearest indication will be if we see relief in areas of the equity market and asset classes most sensitive to these dynamics over the next two weeks. That means low quality profitless growth stocks in the equity world should rally the most.Bottom line, I remain convinced in our bullish 12-month outlook for the S&P 500 and stocks more broadly. Initial feedback from investors to our recently published 2026 outlook indicates that several of our core views for 2026 remain out of consensus. More specifically, our early cycle narrative versus consensus thinking that we're late cycle; 17 percent earnings growth next year versus the consensus at 14 percent. And finally, our upgrades of small/mid cap stocks and consumer discretionary goods to overweight. Use near term weakness related to a Fed that is moving too slow for the markets' liking to reposition portfolio to sectors and stocks that have lagged behind for most of the past several years – but will benefit the most from the more aggressive Fed action that we expect to come.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 CIO and Chief U.S. Equity Strategist Mike Wilson explains why he continues to hold on to an out-of-consensus view of a growth positive 2026, despite near-term risks.Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley's CIO and Chief U.S. Equity Strategist. Today I'll discuss our outlook for 2026 that we published earlier this week. It's Wednesday, Nov 19th at 6:30 am in New York. So, let's get after it. 2026 is a continuation of the story we have been telling for the past year. Looking back to a year ago, our U.S. equity outlook was for a challenging first half, followed by a strong second half. At the time of publication, this was an out of consensus stance. Many expected a strong first half, as President Trump took office for his second term. And then a more challenging second half due to the return of inflation. We based our differentiated view on the notion that policy sequencing in the new Trump administration would intentionally be growth negative to start. We likened the strategy to a new CEO choosing to ‘kitchen sink' the results in an effort to clear the decks for a new growth positive strategy. We thought that transition would come around mid-year. The U.S. economy had much less slack when President Trump took office the second time, compared to the first time he came into office. And this was the main reason we thought it was likely to be sequenced differently. Earnings revisions breadth and other cyclical indicators were also in a phase of deceleration at the end of 2024. In contrast, at the beginning of 2017—when we were out of consensus bullish—earnings revisions breadth and many cyclical gauges were starting to reaccelerate after the manufacturing and commodity downturn of 2015/2016. Looking back on this year, this cadence of policy sequencing did broadly play out—it just happened faster and more dramatically than we expected. Our views on the policy front still appear to be out of consensus. Many industry watchers are questioning whether policies enacted this year will ultimately lead to better growth going forward, especially for the average stock. From our perspective, the policy choices being made are growth positive for 2026 and are largely in line with our ‘run it hot' thesis. There's another factor embedded in our more constructive take. April marked the end of a rolling recession that began three years prior. The final stages were a recession in government thanks to DOGE, a rate of change trough in expectations around AI CapEx growth and trade policy, and a recession in consumer services that is still ongoing. In short, we believe a new bull market and rolling recovery began in April which means it's still early days, and not obvious—especially for many lagging parts of the economy and market. That is the opportunity. The missing ingredient for the typical broadening in stock performance that happens in a new business cycle is rate cuts. Normally, the Fed would have cut rates more in this type of weakening labor market. But due to the imbalances and distortions of the COVID cycle, we think the Fed is later than normal in easing policy, and that has held back the full rotation toward early cycle winners. Ironically, the government shutdown has weakened the economy further, but has also delayed Fed action due to the lack of labor data releases. This is a near-term risk to our bullish 12-month forecasts should delays in the data continue, or lagging labor releases do not corroborate the recent weakness in non-govt-related jobs data. In our view, this type of labor market weakness coupled with the administration's desire to ‘run it hot' means that, ultimately, the Fed is likely to deliver more dovish policy than the market currently expects. It's really just a question of timing. But that is a near-term risk for equity markets and why many stocks have been weaker recently. In short, we believe a new bull market began in April with the end of a rolling recession and bear market. Remember the S&P [500] was down 20 percent and the average S&P stock was down more than 30 percent into April. This narrative remains underappreciated, and we think there is significant upside in earnings over the next year as the recovery broadens and operating leverage returns with better volumes and pricing in many parts of the economy. Our forecasts reflect this upside to earnings which is another reason why many stocks are not as expensive as they appear despite our acknowledgement that some areas of the market may appear somewhat frothy. For the S&P 500, our 12-month target is now 7800 which assumes 17 percent earnings growth next year and a very modest contraction in valuation from today's levels. Our favorite sectors include Financials, Industrials, and Healthcare. We are also upgrading Consumer Discretionary to overweight and prefer Goods over Services for the first time since 2021. Another relative trade we like is Software over Semiconductors given the extreme relative underperformance of that pair and positioning at this point. Finally, we like small caps over large for the first time since March 2021, as the early cycle broadening in earnings combined with a more accommodative Fed provides the backdrop we have been patiently waiting for. We hope you enjoy our detailed report published earlier this week and find it helpful as you navigate a changing marketplace on many levels. Thanks for tuning in. 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 CIO and Chief U.S. Equity Strategist Mike Wilson unpacks why stocks are likely to stay resilient despite uncertainties related to Fed rates, government shutdown and tariffs.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 recent concerns for equities and how that may be changing. It's Monday, November 10th at 11:30am in New York. So, let's get after it.We're right in the middle of earnings season. Under the surface, there may appear to be high dispersion. But we're actually seeing positive developments for a broadening in growth. Specifically, the median stock is seeing its best earnings growth in four years. And the S&P 500 revenue beat rate is running 2 times its historical average. These are clear signs that the earning recovery is broadening and that pricing power is firming to offset tariffs. We're also watching out for other predictors of soft spots. And over the past week, the seasonal weakness in earnings revision breath appears to be over. For reference, this measure troughed at 6 percent on October 21st, and is now at 11 percent. The improvement is being led by Software, Transports, Energy, Autos and Healthcare. Despite this improvement in earnings revisions, the overall market traded heavy last week on the back of two other risks. The first risk relates to the Fed's less dovish bias at October's FOMC meeting. The Fed suggested they are not on a preset course to cut rates again in December. So, it's not a coincidence the U.S. equity market topped on the day of this meeting. Meanwhile investors are also keeping an eye on the growth data during the third quarter. If it's stronger than anticipated, it could mean there's less dovish action from the Fed than the market expects or needs for high prices.I have been highlighting a less dovish Fed as a risk for stocks. But it's important to point out that the labor market is also showing increasing signs of weakness. Part of this is directly related to the government shutdown. But the private labor data clearly illustrates a jobs market that's slowing beyond just government jobs. This is creating some tension in the markets – that the Fed will be late to cut rates, which increases the risk the recovery since April falls flat. In my view, labor market weakness coupled with the administration's desire to "run it hot" means that ultimately the Fed is likely to deliver more dovish policy than the market currently expects. But, without official jobs data confirming this trend, the Fed is moving slower than the equity market may like. The other risk the market has been focused on is the government shutdown itself. And there appears to be two main channels through which these variables are affecting stock prices. The first is tighter liquidity as reflected in the recent decline in bank reserves. The government shutdown has resulted in fewer disbursements to government employees and other programs. Once the government shutdown ends which appears imminent, these payments will resume, which translates into an easing of liquidity.The second impact of the shutdown is weaker consumer spending due to a large number of workers furloughed and benefits, like SNAP, halted. As a result, Consumer Discretionary company earnings revisions have rolled over. The good news is that the shutdown may be coming to an end and alleviate these market concerns. Finally, tariffs are facing an upcoming Supreme Court decision. There were questions last week on how affected stocks were reacting to this development. Overall, we saw fairly muted relative price reactions from the stocks that would be most affected. We think this relates to a couple of variables. First, the Trump administration could leverage a number of other authorities to replace the existing tariffs. Second, even in a scenario where the Supreme Court overturns tariffs, refunds are likely to take a significant amount of time, potentially well into 2026.So what does all of this all mean? Weak earnings seasonality is coming to an end along with the government shutdown. Both of these factors should lead to some relief in what have been softer equity markets more recently. But we expect volatility to persist until the Fed fully commits to the run it hot strategy of the administration. 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 U.S. Economist Michael Gapen and Global Head of Macro Strategy Matthew Hornbach discuss potential next steps for the FOMC and the risks to their views from the U.S. government shutdown. 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: The October FOMC meeting delivered a quarter percent rate cut as widely expected – but things are more complicated, and policy is not on a preset path from here.It's Friday, November 7th at 10am in New York.So, Mike, the Fed did cut by 25 basis points in October, but it was not a unanimous decision. And the Federal Open Market Committee decided to end the reduction of its balance sheet on December 1st – earlier than we expected. How did things unfold and does this change your outlook in any way?Michael Gapen: Yeah, Matt, it was a surprise to me. Not so much the statement or the decision, but there were dissents. There was a dissent in favor of a 50-basis point cut. There was a dissent in favor of no cut. And that foreshadowed the press conference – where really the conversation was about, I think, a divided committee; and a committee that didn't have a lot of consensus on what would come next.The balance sheet discussion, which we can get into, it came a little sooner than we thought, but it was largely in line with our view. And I'm not sure it's a macro critical decision right now. But I do think it was a surprise to markets and it was certainly a surprise to me – how much Powell's tone shifted between September and October, in terms of what the market could expect from the Fed going forward.So, what he said in essence, the key points, you know. The policy's not on a preset path from here. Or [a] cut in December is maybe not decidedly part of the baseline; or certainly is not a foregone conclusion. And I think what that reflects is a couple of things.One is that they're recalibrating policy based on a risk management view. So, you can cut almost independent of the data, at least in the beginning. And so now I think Powell's saying, ‘Well, at least from here, future cuts are probably more data dependent than those initial cuts.' But second, and I think most importantly is the division that appeared within the Fed. I think there's one group that's hawkish, one group that's dovish, and I think it reflects the division and the tension that we have in the economic data.So, I think the hawkish crowd is looking at strong activity data, strong AI spending, an upper income consumer that seems to be doing just fine. And they're saying, ‘Why are we cutting? Financial conditions for the business community is pretty easy. Maybe the neutral rate of interest is higher. We're probably less restrictive than you think.' And then I think the other side of the committee, which I believe still that Chair Powell is in, is looking at a market slowdown in hiring a weak labor market. What that means for growth in real income for those households that depend on labor market income to consume; there's probably some front running of autos that artificially boosted growth in the third quarter.So, I think that the dissents, or I should say the division within the FOMC, I think reflects the tension in the underlying data. So, to know which way monetary policy evolves, Matt, it's essentially trying to decide: does the labor market rebound towards the activity data or does the activity data decelerate at least temporarily to the labor market?Matthew Hornbach: Mike, you talked a lot about data just now, and we're not exactly getting a lot of government data at the moment. How are you thinking about the path for the data in terms of its availability between now and the December FOMC meeting? And how do you think that may affect the Fed's willingness to move forward with another rate cut in the cycle?Michael Gapen: Right. So that's key and critical to understanding, right? We're operating under the assumption, of course the federal government shutdowns going to end at some point. We're going to get all this back data released and we can assess where the economy is or has been. I think the way markets should think about this is if the government shutdown has ended in the next few weeks, say before Thanksgiving – then I think we, markets, the Fed will have the bulk of the data in front of them and available to assess the economy at the December FOMC meeting.They may not have it all, but they should get at least some of that data released. We can assess it. If the economy has moderated and weakened a bit, the labor market has continued to cool, the Fed can cut. If it shows maybe the labor market rebounding downside risk to employment being diminished, maybe the Fed doesn't cut.So that's a world and it is our expectation the shutdown should end in the next few weeks. We're already at the longest shutdown on record, so we will get some data in hand to make the decision for December. Perhaps that's wishful thinking, Matt, and maybe we go beyond Thanksgiving, and the shutdown extends into December.My suspicion though, is if the government is still shut down in December, I can't imagine the economy's getting better. So, I think the Fed could lean in the direction of taking one more step.Matthew Hornbach: This is going to be very critical for how the markets think about the outlook in 2026 and price the outlook for 2026. The last FOMC meeting of the year has that type of importance for markets – pricing, the path of Fed policy, and the path of the economy into 2026. Because if we end up receiving a rate cut from the Fed, the dialogue in the investment community will be focused on when might the next cut arrive. Versus if we don't get that rate cut in December, the dialogue will focus on, maybe we will never see another rate cut in the cycle. And what if we see a rate hike as we make our way through the second half of 2026? So that can have a dramatic impact on the U.S. Treasury market and how investors think about the outlook for policy and the economy.Michael Gapen: So, I think that's right. And as you know, our baseline outlook is at least through the first quarter, if not into the second quarter. The private sector will still be attempting to pass through tariffs into prices. And I think in the meantime, demand for labor and the hiring rate will remain low.And so, we look for additional labor market slack to build. Not a lot, but the unemployment rate moving to more like 4.6, maybe 4.7 – and that underpins our expectation the Fed will be reducing rates in in 2026. But I think as you note, and as I mentioned earlier, there is this tension in the data and it's not inconceivable that the labor market accelerates. And you get, kind of, an animal spirits driven 2026; where a combination of momentum in the data, AI-related business spending, wealth effects for upper income consumers and maybe a larger fiscal stimulus from the One Big Beautiful Bill Act, lead the economy to outperform.And to your point, if that is happening, it's not farfetched to think, well, if the Fed put in risk management insurance cuts, perhaps they need to take those out. And that could build in a way where that expectation, let's say towards the second half or the fourth quarter maybe of 2026, maybe it takes into 2027. But I agree with you that if the Fed can't cut in December because the economy's doing well and the data show that, and we learn more of that in 2026, you're right.So, it would… And may maybe to put it more simply, the more the Fed cuts, the more you need to open both sides of the rate path distribution, right? The deeper they cut, the greater the probability over time, they're going to have to raise those rates. And so, if the Fed is forced to stop in December, yeah, you can make that argument.Matthew Hornbach: Indeed, a lot of the factors that you mentioned are factors that are coming up in investor conversations increasingly. The way I've been framing it in my discussions is that investors want to see the glass as half full today, versus in the middle of this year the glass was looking half empty. And of course, as we head into the holiday season, the glass will be filled with something perhaps a bit tastier than water. And so…Michael Gapen: Fill my glass please.Matthew Hornbach: Indeed. So, I do think that we could be setting up for a bright 2026 ahead. And so, with that, Mike, look forward to seeing you again in December – with a glass of eggnog perhaps. And a decision in hand for the meeting that the Fed holds then. Thanks for taking the time to talk.Michael Gapen: Great speaking with you, Matt.Matthew Hornbach: 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 CIO and Chief U.S. Equity Strategist Mike Wilson looks at buying opportunities approaching year-end, as U.S. trade policy and the Fed find middle ground. Read more insights from Morgan Stanley.----- Transcript ----- Mike Wilson: 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 recent macro events and third quarter earnings results.It's Monday, November 3rd at 11:30am in New York. So, let's get after it.Last week marked the passage of two key macro events: the meeting on trade between Presidents Trump and Xi and the October Fed meeting. On the trade front, the U.S. agreed to cut tariffs on China by 10 percent and delay newly proposed tech export controls for a year. In exchange, China agreed to pause its proposed export controls on rare earths, and resume soybean purchases while cracking down on fentanyl. This is a major positive relative to how developments could have gone following the sharp escalation a few weeks ago, and markets have responded accordingly.With respect to the Fed meeting, Powell suggested policy is not on a preset course which took the bond market probability of a December rate cut down from 92 percent before the meeting to 68 percent currently. It also led to some modest consolidation in equity prices while breadth remained very weak. In my view, the market is saying that if growth holds up but the Fed only cuts rates modestly, leadership is likely to remain narrow and up the quality curve.Over the next 6 to 12 months, we think moderate weakness in lagging labor data, and a stronger than expected earnings backdrop ultimately sets the stage for a broadening in market leadership. However, we are also respectful of the signals the markets are sending in the near term. This means it's still too early to press the small cap/low quality/deep cyclical rotation trade until the Fed shows a clear willingness to get ahead of the curve. Perhaps just as important for markets was the Fed's decision to end Quantitative Tightening, or QT, in December.Recently, Jay Powell has acknowledged the potential for rising stress in the funding markets and indicated the Fed could end QT sooner rather than later. Over the past month, expectations for the timing of this QT termination ranged from immediately to as late as February. Powell seemed to split the difference at last week's meeting and this could be viewed as disappointing to some market participants.In order to monitor this development, I will be watching how short-term funding markets behave. Specifically, overnight repo usage has been on the rise and if that continues along with the widening spreads between the Secured Overnight Financing Rate and fed funds, I believe equity markets are likely to trade poorly, especially in some of the more speculative areas. In short, we think higher quality areas of the market are likely to continue to outperform until this dynamic is settled.Meanwhile, earnings season is in full swing and the real standout has been the upside in revenue surprises, which is currently more than double the historical run-rate. We think this could provide further support that our rolling recovery thesis is under way which leads to much better earnings growth than most are expecting.Bottom line, we are gaining more confidence in our core view that a new bull market began in April with the end of the rolling recession and the beginning of a new cycle. This means higher and broader earnings growth in 2026 and a potentially different leadership in the equity market. The full broadening out to lower quality, smaller capitalization stocks is being held back by a Fed that continues to fight inflation; perhaps not realizing how much the private economy and average consumer needs lower rates for this rolling recovery to fully blossom. Last week's Fed meeting could be disappointing in that regard in the short run for equity markets. As a result, stay up the quality curve until we get more clarity on the timing of a more dovish path by the Fed and look for stress in funding markets as a possible buying opportunity into year end.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!