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How Young People Think About Money
1 november 2024 · 4 min
Our US Fintech and Payments analyst reviews a recent survey that reveals key trends on how Gen Z and Millennials handle their personal finances. Lees meer
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Welcome to Thoughts on the Market. I’m James Faucette, Morgan Stanley’s Head of US Fintech and Payments. Today I’ll dig into the way young people in the US approach their finances and why it matters.
It’s Friday, November 1st, at 10am in New York.
You’d think that Millennials – also commonly known as Gen Y – and Gen Z would come up with new ways to think about money. After all, they live most of their lives online, and don’t always rely on their parents for advice – financial or otherwise. But a survey we conducted suggests the opposite may be true.
To understand how 16 to 43 year-olds – who make up nearly 40 per cent of the US population – view money, we ran an AlphaWise survey of more than 4,000 US consumers.
In general, our work suggests that both Millennials and Gen Z’s financial goals, banking preferences, and medium-term aspirations are not much different from the priorities of previous generations. Young consumers still believe family is the most important aspect in life, similar to what we found in our 2018 survey. They have a positive outlook on home ownership, college education, employment, and their personal financial situation. 28-to-43-year-olds have the second highest average annual income among all age cohorts, earning more than $100,000. They spend an average of $86,000 per year, of which more than a third goes toward housing.
Gen Y and Z largely expect to live in owned homes at a greater rate in five to 10 years, and younger Gen Y cohorts' highest priority is starting a family and raising children in the medium term. This should be a tailwind for many consumer-facing real estate property sectors including retail, residential, lodging and self-storage. However, Gen Y and Z are less mobile today than they were pre-pandemic. Compared to their peers in 2018, they intend to keep li…
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A Global Credit Tour
31 oktober 2024 · 5 min
With the US election as a backdrop, our Head of Corporate Credit Research Andrew Sheets tells three stories that help encapsulate the state of global credit markets. Lees meer
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Welcome to Thoughts on the Market. I'm Andrew Sheets, head of Corporate Credit Research at Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, today I'll go around the credit world in three short stories.
It's Thursday, October 31st at 2pm in London.
The US election next Tuesday continues to be a top issue on investor minds, and indeed is a top issue for us here at Thoughts on the Market, where it’s dominating your feed over this week.
For credit, our positive view this year has been closely tied to the idea that the asset class likes moderation. For example, in data released yesterday the US economy grew a solid 2.8 per cent in the third quarter, while core inflation moderated to just 2.2 per cent, close to the Fed’s target. And Morgan Stanley’s forecasts for the rest of this year and next see that pattern continuing: Solid US Growth, falling inflation, driving steady further rate cuts from the Federal Reserve and all creating a better-than-expected backdrop for credit that should support tighter than average spreads.
That idea that credit likes moderation is core to how we view the election. Outcomes that could drive larger changes in economic policy, domestic policy or foreign policy, are all larger risks. And outcomes that could drive more moderate outcomes across all of these factors are likely going to be better for credit, in our view.
But you may also be tired of hearing about the election. And so for you, here is a quick tour of the credit world in three non-election stories.
In Asia, Korea will be added to the FTSE World Government Bond Index, an important benchmark for global bond investors. This has significant implications across Korean assets, but for Credit, it may be most important for sparking more interest in Corporate Bonds …
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US Election: Waiting Out a Close Race
30 oktober 2024 · 4 min
Our Global Head of Fixed Income and Thematic Research, Michael Zezas, outlines how investors should navigate the closing days of the presidential campaign -- including a vote-counting period that could extend past Election Day. Lees meer
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Welcome to Thoughts on the Market. I’m Michael Zezas, Morgan Stanley’s Global Head of Fixed Income and Thematic Research. Today is going to be a little bit different. We’re exactly six days away from the US election. The race is neck-and-neck, and I want to sketch out what investors should expect in the next couple of weeks.
It’s Wednesday, October 30, at 10 AM in New York.
This is an historic election, and the outcome remains highly uncertain. What’s more, there’s a good chance we won’t know the winner on election night due to close vote counts. My colleagues and I have spent a lot of time on this show trying to give our listeners a sense of how the election might impact different economies around the word as well as markets, sectors, and specific industries. But today I want to take a step back and highlight a few things that investors should keep in mind right now.
To sum up what we’ve covered so far: The key policies at stake are taxes, tariffs, and immigration. Congressional composition will be critical in determining the extent of tax cut extensions in either win outcome. Domestic, consumer-oriented sectors are most exposed to tax changes, while clean-tech is the most exposed to potential efforts at a repeal of the Inflation Reduction Act. Macro impacts vary depending on the scope of policies and their sequencing, but we see downside risks to growth in a Republican win outcome.
As our listeners know, a candidate needs 270 Electoral College votes to win. Former President Trump’s most likely path to victory is through the Sun Belt – Arizona, North Carolina and Georgia; while Vice President Harris’ most likely path to victory is through the so-called Blue Wall – Michigan, Wisconsin and Pennsylvania.
In terms …
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The U.S. Election and Tax Policy
29 oktober 2024 · 8 min
Our U.S. Public Policy and Valuation, Accounting & Tax strategists assess the possible scenarios in the upcoming elections, and what they could mean for both taxpayers and the market. Lees meer
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Ariana Salvatore: Welcome to Thoughts on the Market. I'm Ariana Salvatore, Morgan Stanley's US public policy strategist.
Todd Castagno: And I'm Todd Costagno, Head of Global Valuation, Accounting, and Tax Research at Morgan Stanley.
Ariana Salvatore: With less than a week to go until the US election, the race is still neck and neck. Today, we dig into a key issue voters care about: Taxes.
Todd Castagno: It's Tuesday, October 29th at 10am in New York.
So, Ariana. Taxes are an issue that impact both businesses and individuals. It's a key component of both candidates plans and proposals. How have they evolved over the campaign?
Ariana Salvatore: I'd say in general we do tend to see a lot of overlap between Harris' proposals and the ones that the Democrats were campaigning on before she took over the mantle from President Biden in July. That being said, in some instances, her plans go beyond what was requested in the president's fiscal year [20]25 budget request.
For example, that $6,000 credit for newborns and the $25,000 homebuyer tax credit. These are areas where we've seen her campaign go beyond the scope of what Biden was campaigning on while he was still in the race. Of course, it's important to remember that any of these proposals would have to pass muster in a Democrat controlled or a split Congress – meaning that there will be some tempering of these plans at the margin.
Todd Castagno: So former President Trump campaigned in his first election on tax policy. He's campaigning on tax policy in his current campaign. What are his plans and views?
Ariana Salvatore: We've been talking about the Republican sweep outcome as the most deficit expansionary from tax policy changes because Republicans understandably have more fealty to the 2017 Tax Cuts and Jo…
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Markets Uncertain Ahead of U.S. Election
29 oktober 2024 · 5 min
As the U.S. presidential race continues to be neck and neck according to opinion polls, our Chief Fixed Income Strategist considers the possible market implications if some policies proposed during this campaign are implemented. Lees meer
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Welcome to Thoughts on the Market. I am Vishy Tirupattur, Morgan Stanley’s Chief Fixed Income Strategist. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about understanding market dynamics against the backdrop of U.S. elections.
It's Monday, Oct 28th at 1 pm in New York.
The outcome of the U.S. elections, now just over a week away, has been at the center of every discussion I have had in the last several days. There have been significant moves, not so much in the opinion polls – but in prediction markets. In the opinion polls, the presidential race remains tight and neck-to-neck in key swing states with poll numbers well within the margin of error. But some prediction markets have shifted meaningfully toward Republicans in the contests for both the presidency and control of Congress.
Financial markets have also moved a lot. Stocks exposed to a Republican win outcome have risen a fair bit.
To understand the potential policy changes that can have an impact on markets, I think it is crucial to understand the sequencing of those policy changes.
Given the moves in the prediction markets, let us first frame a Trump win scenario. It seems reasonable to bucket the possible shifts into three categories – fiscal policy, immigration controls, and tariffs.
Meaningful changes in fiscal policy require control of both houses of Congress; and even in a Republican sweep, scenario legislation would still be time-consuming and likely come last. We don’t really have many details on how changes to immigration policy would be implemented and so their timing remains very unclear. On the other hand, given broad presidential discretion on trade policy, Trump’s expressed intentions in his campaig…
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A $10 Trillion Opportunity in US Reshoring
25 oktober 2024 · 3 min
After decades of offshoring, the pendulum for US manufacturing is swinging back toward domestic production. Our US Multi-Industry Analyst Chris Snyder looks at what’s behind this trend. Lees meer
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Welcome to Thoughts on the Market. I’m Chris Snyder, Morgan Stanley’s US Multi-Industry Analyst. Today I’ll discuss the far-reaching implications of shifting industrial production back to the United States.
It’s Friday, October 25th, at 10am in New York.
Global manufacturing is undergoing a seismic shift, and the United States is at the epicenter of this transformation. After decades of offshoring and relying on international supply chains, the pendulum is swinging back toward domestic production. This movement – known as reshoring – is not just a fleeting trend but a strategic realignment of manufacturing capabilities that is indicative of the “multipolar” theme playing out globally.
In fact, we believe the US is entering the early innings of re-Industrialization – a multi-decade opportunity that we size at $10 trillion and think has the potential to restore growth to the US industrial economy following more than 20 years of stagnation.
The reshoring of manufacturing to the US is fueled by a combination of factors that are making domestic production both viable and lucrative. While the initial sparks were ignited by policy changes, including tariffs and trade agreements, the COVID-19 pandemic laid bare the risks of elongated supply chains and over-dependence on foreign manufacturing.
Meanwhile, the diffusion of cutting-edge technologies, such as automation, artificial intelligence, and advanced robotics, has diminished the cost advantages of low-wage countries. The US -- with its robust tech sector and innovation ecosystem -- is uniquely positioned to leverage technology to revitalize its manufacturing base.
Who are the direct beneficiaries? High-tech sectors, such as semiconductors, pharmaceuticals, and advanced manufacturing systems, are likely to b…
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Retirement in the Age of Higher Life Expectancy
24 oktober 2024 · 9 min
Morgan Stanley’s European Head of Research Product Paul Walsh speaks to Betsy Graseck, Global Head of Banks and Diversified Finance, and Bruce Hamilton, European Asset Managers Diversified Financials Analyst, about the implications of increasing life expectancy for the financial industry. Lees meer
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Paul Walsh: Welcome to Thoughts on the Market. I'm Paul Walsh, Morgan Stanley's European Head of Research Product, and today we dig into a topic that really affects us all. Retirement.
Life cycles are extending as people are living longer, healthier lives. Coupled with government pension funds that are increasingly under pressure, this means that consumers will need to build much more robust investment plans to substitute for salaries to carry them through a longer retirement.
And to understand more about the changing financial needs and challenges of an aging population, I'm delighted to be joined by my colleagues, Betsy Graseck, Global Head of Banks and Diversified Finance, and Bruce Hamilton, our European Asset Managers Diversified Financials Analyst.
It's Thursday, October the 24th at 3pm in London.
Betsy Graseck: And it's 10 am in New York.
Paul Walsh: Now Bruce, let's start with you. As people live longer, they will likely spend more time in retirement. Managing and ensuring retirement income over a longer duration could have a significant impact on asset management. What are the broad trends you're seeing in the industry right now?
Bruce Hamilton: So, the asset management industry in large part has focused on the accumulation phase of investors journey. Whilst this remains critical as people build assets for retirement – and we see growing allocations from affluent investors to private markets as a trend which is likely to be reinforced by the aging theme – there's a significant need for decumulation products and solutions that can offer returns and income over a prolonged retirement.
We see a lot of innovation as asset managers look to devel…
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Europe’s Demographic Dilemma
23 oktober 2024 · 10 min
Our Chief Europe Economist Jens Eisenschmidt and Europe Equity Strategist Regiane Yamanari discuss the strain of an aging population on the future of Europe’s economy and markets. Lees meer
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Jens Eisenschmidt: Welcome to Thoughts on the Market. I'm Jens Eisenschmidt, Morgan Stanley's Chief Europe Economist.
Regiane Yamanari: And I’m Regiane Yamanari from the European Equity Strategy Team.
Jens Eisenschmidt: Today we are discussing one of the most urgent challenges Europe is facing right now, a declining working age population – and its implication for Europe's economy and potential solutions.
It’s Wednesday, October 23rd, at 3 pm in Frankfurt.
Regiane Yamanari: And 2 pm in London.
So Jens, people are getting older around the world, living longer. Although the rate of change is different from country to country, can you tell us what's the situation in Europe right now?
Jens Eisenschmidt: Yes, Europe faces a declining working age population, so much is sure. We have just put out a big report, where we come up with numbers around this issue. We think for the large four Euro area countries – Germany, France, Italy, and Spain – we see a decline in Euro area working population by 2040 by 6.4 per cent. People also get older, so that doesn't necessarily mean the overall population is declining by as much. It simply means that working age population, as a sort of most direct, relevant measure for the economy, is declining.
Regiane Yamanari: Why does an aging population hamper economic growth?
Jens Eisenschmidt: So, think about the economy producing, in a very stylized sense, with two factors. One is capital and the other one is labor. And typically, these two factors are connected. So, you can't really produce just with one factor. Typically, you need at least some labor to produce something or at least some machinery to produce something with labor.
So we just; I mean, it's a very simple way of looking at the economy, but typically very powerful in e…
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Mind Meets Machine in Brain-Computer Interfaces
22 oktober 2024 · 4 min
Our Medical Technology expert analyzes the medical potential and market opportunity in technology that allows direct communication between the human brain and an external device. Lees meer
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Welcome to Thoughts on the Market. I’m Kallum Titchmarsh, from Morgan Stanley’s U.S. Medical Technology Team. On today’s episode – a dive into a topic that sounds like it’s straight out of science fiction. Brain Computer Interfaces, or BCIs.
It’s Tuesday, October 22, at 10 AM in New York.
The latest version of Tony Stark – better known as his alter ego Iron Man – is a good example of a brain computer interface. When the billionaire businessman-inventor is critically wounded, he builds an armor suit that gives him superhuman abilities. Flying through air. Clearing out obstacles with repulsor blasts. Shooting enemies with guided missiles. All controlled by his brain.
This, of course, is the stuff of science fiction. Real world examples of brain computer interfaces – or BCIs – aren’t fantastical. But they are fascinating. Translating thoughts into actions like generating text on a screen or moving a robotic limb.
BCIs have been in development for more than a century, but recent advances have brought them much closer to becoming a reality. We expect to see BCIs in commercial medical use in about five years, at which point they can help treat a wide range of health disorders, from motor neuron disease – such as ALS – to depression.
The market opportunity for BCIs looks enormous – $400 billion of total addressable market – or TAM – in the US alone. This figure includes two types of BCIs: enabling BCIs, which facilitate behaviors like moving a cursor on a screen, and preventive BCIs, which can prevent adverse events like depressive states or epileptic seizures.
We divide the BCI healthcare opportunity into two segments: early TAM and intermediate TAM. The early TAM includes individuals with critical upper limb impairment and select variants of neurological condition…
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What’s Boosting Cyclical Stocks?
22 oktober 2024 · 4 min
Our CIO and Chief U.S. Equity Strategist explains his preference for cyclical stocks amid a rise in global money supply and current US election dynamics. Lees meer
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Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief US Equity Strategist. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about our recent upgrade of quality cyclicals and how it will be affected by the US election and liquidity.
It's Monday, Oct 21st at 11:30am in New York.
So let’s get after it.
We continue to have conviction in our recent cyclical shift and Financials upgrade. Indeed, cyclicals traded well last week as most economic data came in stronger than expected. It’s worth noting we recommend investors stay up the quality curve within the cyclical space, however. While Financials have been the best performing sector in the S&P 500 since our upgrade, institutional investors remain under-exposed to Financials based on our data suggesting the sector can run further.
In addition to better economic data, there are other factors affecting pro-cyclical stocks. We are focused on two, in particular. The election and global liquidity.
We believe a Trump win with a split Congress would provide a pro-cyclical bias with small caps keeping pace with large caps. The markets seem to agree, with the recent cyclicals outperformance led by financials. Meanwhile, consumer stocks negatively exposed to tariff risks under a Trump win have underperformed. Interestingly, there is some overlap between this recent leadership and the post Biden debate period in early July as well as the months surrounding the 2016 election. Finally, we've also witnessed higher interest rates and a stronger US Dollar more recently, which is something to watch closely as a possible headwind for liquidity post election and into 2025.
While some argue a Trump win would be a headwind for growth and equity markets, due to tariff risks and slower immigrati…
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How the US Election Could Upset Credit Markets
18 oktober 2024 · 4 min
Our Head of Corporate Credit Research Andrew Sheets discusses why uncertainty around the election’s outcome could be detrimental for credit investors. Lees meer
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Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, today I'll discuss the US Election, and how it might matter for Credit.
It's Friday, October 18th, at 4pm in London.
Morgan Stanley’s positive view on credit this year has been anchored on a simplistic thesis. Credit is an asset class that hates extremes, as it faces losses if a company fails, but doesn’t earn extra if that company’s profits double or even triple. Credit, to an unusual degree, is an asset class that loves moderation.
And here at Morgan Stanley, we’ve been forecasting … a lot of moderation. Moderate growth for the U.S. and Europe. Moderating inflation, that continues to fall into next year. And a moderation of central bank interest rates, rather than the type of sharp declines that you tend to see around recessions; as we think Fed funds will settle in a little bit below three-and-a-half per cent by the middle of next year. This moderate economy, coupled with moderate levels of corporate aggressiveness should be music to a credit investor’s ears, and support richer-than-average valuations, in our view.
So how does the upcoming U.S. election on November 5th fit into this otherwise benign picture?
Who runs a government matters, especially when it’s the government of the world’s largest and strongest economy. This election is also notable for the differences between the two candidates, who are presenting sharply contrasting visions of economic, domestic and foreign policy. Against this backdrop, we suggest credit investors try to keep a few things top of mind.
First, and most broadly, the idea that “credit likes moderation” remains our north star. Outcomes that could drive larger changes of economic polic…
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Could the US Election Reshape the Energy Sector?
17 oktober 2024 · 7 min
Our expert panel explains whether the US election will impact energy policy, including how the Inflation Reduction Act’s possible fate and increased tariffs could transform the sector. Lees meer
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Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Thematic Research.
David Arcaro: I'm Dave Arcaro, Morgan Stanley's US Power and Utilities Analyst.
Andrew Percoco: And I'm Andrew Percoco, the North American Clean Tech Analyst here at Morgan Stanley.
Michael Zezas: And today we're discussing another key election related topic that generates a lot of political and market debate: Energy policy.
It's Thursday, October 17th at 10am in New York.
The outcome of the 2024 election will likely determine the direction of U.S. climate policy for years to come. David, what are the key focus areas for investors as they evaluate the various election outcomes on the utilities and clean energy industries?
David Arcaro: Yeah, Mike, investors are highly focused on the Inflation Reduction Act, the IRA, especially as it pertains to the election and the clean energy space. This was a law that was passed in 2022, and it really has supportive policies across the entire clean energy spectrum. It's got tax credits and incentives for solar, wind, offshore wind, green, hydrogen, nuclear, you name it. Battery storage. And some of those tax credits go all the way to 2032 and beyond in some cases.
So, it's a very supportive policy when it comes to the clean energy industry and the growth outlook. So, the big question is what's going to happen to the Inflation Reduction Act – depending on which administration is in place following the election.
Our core view is that the IRA stays in place; that the core wind, solar storage and nuclear tax credits all remain, regardless of the outcome of the election. And then separately, investors are focused on tariff policy as it pertains to clean energy. It is a global industry.…
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What Does The Fed Rate Cut Mean For Mortgages?
16 oktober 2024 · 8 min
Mortgage rates aren’t directly influenced by Federal Reserve policy. However, the Fed’s recent cut likely will have a domino effect on the US housing market, say our Co-Heads of Securitized Products Research Jay Bacow and James Egan. Lees meer
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Jay Bacow: Welcome to Thoughts on the Market. I'm Jay Bacow, Co-Head of Securitized Products Research at Morgan Stanley.
James Egan: And I'm Jim Egan, the other Co-Head of Securitized Products Research at Morgan Stanley. And on this episode of the podcast, we're going to discuss the impacts of a 50-basis point cut from the Fed on the US housing and mortgage markets.
It's Wednesday, October 16th at 1 pm in New York.
Now, Jay, the Fed cut 50 basis points at its last meeting. What are your views on the mortgage market in the aftermath of that cut?
Jay Bacow: We think that is constructive for mortgages and we recommended a long mortgage basis versus rates. The healthy economy and a Fed that doesn't want to fall behind the curve should be good for risk assets in general. We think there's a likelihood of vol possibly falling and that is constructive for agency mortgages in particular.
Now it's a positive narrative. But, the valuations matter, and we have to admit that the valuations are not that compelling with spreads on agency mortgages trading near the tights since the regional bank crisis. However, if you look further back, mortgages start to look attractive, particularly relative to other high quality fixed-income assets.
For instance, agency mortgages are basically trading at the average spread they've traded at since the GFC. Corporate credit, on the other hand, is trading within a few basis points of the tights since the GFC. If risk assets are going to do well, and we're certainly seeing that in corporate credit and in the stock market, we think mortgages are particularly priced attractively relative to most of them.
James Egan: Alright, so relative value for mortgages makes sense, but can you talk a …
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South Korea’s ‘Super-Aging’ Challenge
15 oktober 2024 · 5 min
Our Chief Korea and Taiwan Economist discusses the reforms needed to overcome Korea’s urgent demographic crisis. Lees meer
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Welcome to Thoughts on the Market. I’m Kathleen Oh, Morgan Stanley’s Chief Korea and Taiwan Economist. Today I’ll discuss what’s needed to overcome Korea’s aging population crisis.
It’s Tuesday, Oct 15th, at 4 PM in Hong Kong.
South Korea faces some of the world's most challenging demographics and will officially become a super-aged society next year – that’s more than 20 percent of the population 65 or older. The implications of this are so significant that the Korean government recently declared a national emergency, and we don’t think this is overstating the case.
Korea’s low fertility rate is the primary culprit. In 2023 it plummeted to the lowest level globally and currently sits at 0.72. For reference, the total fertility rate of 2.1 children per woman is what’s necessary to maintain a stable population in general. By next year, Korea’s population will start declining and is projected to shrink by a third over the next 40 years as the working population halves. At this pace, the Bank of Korea forecasts that Korea’s potential growth could enter negative territory by 2040, down from 2 per cent in [20]24-25.
So why does Korea have such a record-low fertility rate? In the short term, there are two key drivers: First, the declining number of marriages during the pandemic drove a rapid drop in births; having children out of wedlock is taboo in Korea. Once weddings resumed in 2022, Korea saw a slight but insufficient rebound in births.
Second, housing prices have gone up 80 per cent in the past decade, which has discouraged young couples from having families. Families with first children feeling extra financial burdens to have [a] second child. Beyond the short term, structural factors have also played a role. After a compressed period of rapid economic growth, Koreans feel uncertain about the employment conditions and housin…
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Markets Spin Toward Cyclicals
14 oktober 2024 · 4 min
A slump in tech stocks may explain the market rotation – but it’s the earnings season that investors need to watch, says CIO and Chief US Equity Strategist Mike Wilson. Lees meer
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Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief US Equity Strategist. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about the recent rotation toward more cyclical parts of the equity market.
It's Monday, Oct 14th at 11:30am in New York.
So let’s get after it.
Last Monday, we upgraded cyclicals relative to defensives after taking profits in our defensive overweight two weeks prior. These calls come on the back of September's strong jobs report and our economists' expectation for the Fed to still cut interest rates into next year. The resilient labor report effectively reverses the softness we saw in labor markets over the summer which had re-introduced hard landing risks into the markets, driving big outperformance in bonds and defensive stocks. In short, it was a good time to lock in profits after an historically good run.
Indeed, cyclical stocks have delivered better performance with these improved macro data. Importantly, the rates market is confirming this move. Oftentimes, the rates market tends to hold onto growth risks longer than the equity market. Thus, the recent move higher in yields following resilient data suggests the bond market pricing is shedding some of its growth concerns, and giving us more confidence in our cyclicals upgrade.
Furthermore, our cyclical overweights at the sector level in Industrials, Financials and Energy are all exhibiting a positive correlation to rates. Conversely, defensives are exhibiting a negative correlation to yields. In other words, good macro data is still good for many large cap cyclical stocks, while it's bad for defensives. Thus, further stabilization in the economic surprise index should continue to support quality cyclicals' relative performance…
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US Economy: What Could Go Wrong
11 oktober 2024 · 12 min
Our Head of Corporate Credit Research and Global Chief Economist explain why they’re watching the consumer savings rate, tariffs and capital expenditures. Lees meer
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Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley.
Seth Carpenter: And I'm Seth Carpenter, Morgan Stanley's Global Chief Economist.
Andrew Sheets: And today on this special episode of the podcast, we'll be discussing what could cause our optimistic view on the economy and credit to go wrong.
Andrew Sheets: It’s Friday, Oct 11th at 4pm in London.
Seth Carpenter: And as it turns out, I'm in London with Andrew.
Andrew Sheets: So, Seth you and your global economics team have been pretty optimistic on the economy this year. And have been firmly in the soft-landing camp. And I think we’ve seen some oscillation in the market's view around the economy over the course of the year, but more recently, we've started to see some better data and increasing confidence in that view.
So, this is actually maybe the perfect opportunity to talk about – well, what could go wrong? And so, what are some of the factors that worry you most that could derail the story?
Seth Carpenter: We have been pretty constructive all along the whole hiking cycle. In fact, we've been calling for a soft- landing. And if anything, where we were wrong with our forecast so far is that things have turned out even better than we dare hoped. But it's worth remembering part of the soft-landing call for us, especially for the US is that coming out of COVID; the economy rebounded employment rebounded, but not proportionally. And so, for a long time, up until basically now, US firms had been operating shorthanded. And so, we were pretty optimistic that even if there was something that caused a slowdown, you were not going to see a wave of layoffs. And that's usually what contributes to a recession. A slowdown, then people get laid off, laid off people spend less…
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How Safe is AI?
10 oktober 2024 · 5 min
Mike Canfield, Morgan Stanley’s Head of Europe Sustainability Research, discusses why ensuring safe and responsible artificial intelligence is essential to the AI revolution. Lees meer
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Mike Canfield: Welcome to Thoughts on the Market. I'm Mike Canfield, Morgan Stanley's Europe, Middle East and Africa Head of Sustainability Research.
Today I'll discuss a critical issue on a hot topic: How safe is AI?
It's Thursday 10th of October at 2pm in London.
AI is transforming the way that we live, work, and connect. It's really got the potential at every level and aspect of society, from personal decisions to global security. But as these systems become ever more integrated into our critical functions – whether that's healthcare, transportation, finance, or even defense – we do need to develop and deploy safe AI that keeps pace with the velocity of technological advances.
Market leaders, academic think tanks, NGOs, industry bodies, intergovernmental organizations have all attempted to codify what safe or responsible AI should look like. But at the most fundamental level, the guidelines and standards we've seen so far share a number of clear similarities. Typically, they focus on fostering innovation in practical terms, as well as supporting economic prosperity – but also asserting the need for AI systems to respect fundamental human rights and values and to demonstrate trustworthiness.
So where are we now in terms of regulations around the world?
The EU's AI Act leads the way with its detailed risk-based approach. It really focuses on transparency as well as risks to people and fundamental rights. In the USA, while there's no comprehensive federal regulation or legislation, there are some federal laws that offer some sector specific guidance on AI applications. Things like the National Defense Authorization Act of 2019 and the National AI Initiative Act of 2020. Alongside those, President Biden's published an executive order on AI, promoting safety, respo…
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US Elections: The Outlook For Asia
9 oktober 2024 · 6 min
Our Global Head of Fixed Income and Thematic Research Michael Zezas and Chief Asia Economist Chetan Ahya discuss how the upcoming US elections might impact economic policies in Asia. Lees meer
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Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Thematic Research.
Chetan Ahya: And I'm Chetan Ahya, Morgan Stanley's Chief Asia Economist.
Michael Zezas: Today, we'll talk about what the US election means for Asia's economy.
It's Wednesday, October 9th at 10am in New York.
Chetan, we're less than a month now from the US election, and when I think about what it means for Asia, perhaps the most immediate and direct impact would be via tariffs.
Now, our colleagues have already addressed some of this on the podcast, but I'm eager to hear your thoughts. And in the case of a Trump win and a significant tariff increase on China, how big of an impact do you think this policy would have on China's economy, and what particular areas of the economy might be most affected?
Chetan Ahya: Well, Mike, I think firstly the tariff numbers being floated, i.e. that if it is 60 per cent, it would mean an increase in tariff of about 35 percentage points over an existing number, which is at 25 per cent. So, the amount of tariffs that we're talking about this time are larger than what we saw in 2018-19. And in terms of implications, of course, it will depend upon exactly what is the magnitude of tariff that is being imposed, but we definitely think there will be a significant downside to China's growth; and we expect an increase in deflationary pressures.
Just to give you a bit of perspective of what happened in 2018-19, tariff resulted into China's growth slowing by a full percentage point from 6.9 per cent to 5.9 per cent; and at the same time, we saw that there was downward pressure on China's inflation dynamic. And the timing of tariffs this time does not seem to be great. China is going through an existi…
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Economics Roundtable: US Election And Tariffs
9 oktober 2024 · 7 min
The rhetoric around the US elections is heating up, and tariffs have become a central theme – to rally for or against. In Part II of our roundtable discussion, our chief economists break down national and global implications of this policy lever. Lees meer
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Seth Carpenter: Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist.
On this special episode of the podcast, we're going to continue our third roundtable discussion with Morgan Stanley's economists from around the world as we enter the fourth quarter of 2024.
It's Tuesday, October 8th at 10am in New York.
Jens Eisenschmidt: And 3pm in London.
Seth Carpenter: All right, so yesterday we covered topics about central banks, inflation, reflation, deflation, China's stimulus policies – a whole set of things. But today I really want to focus on the upcoming US elections and some of the possible implications around the world.
As of this recording, the race between Vice President Harris and former President Trump is essentially in a dead heat and it has left policymakers and market participants with few clear signals about what policy is going to be going forward.
One key policy lever is tariffs; and so Diego, I’m going to come to you. What has the US team said about tariffs and what it might mean for the economy?
Diego Anzoategui: Yes, I think the three key policy levers to consider are tariffs, as you mentioned Seth, immigration policy, and fiscal policy. Tariffs, in particular, are basically a presidential authority, so the outcome of the election is going to be very important there.
Fiscal policy will depend not only on the White House, but also on the Congress, which most polls suggest that it will be split between the two parties. So, we don't expect much there. And immigration policy is tricky because if you take a look at the data, immigration flows have been decreasing. And the key question here is whether the new policy is going to affect that alr…
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Economics Roundtable: Central Banks Turn the Corner
7 oktober 2024 · 10 min
Morgan Stanley’s chief economists take stock of a resilient global economy that has weathered a recent period of market volatility, in Part I of our two-part roundtable. Lees meer
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Seth Carpenter: Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist. And on this special episode of the podcast, we'll hold our third roundtable discussion focusing on Morgan Stanley's global economic outlook as we enter the final quarter of 2024.
I am joined today by our economics team from three regions.
Chetan Ahya: I’m Chetan Ahya, Chief Asia Economist.
Jens Eisenschmidt: I’m Jens Eisenschmidt, Chief Europe Economist.
Diego Anzoategui: I’m Diego Anzoategui from the US Economics team.
It's Monday, October 7th at 10 am in New York.
Jens Eisenschmidt: And 3 pm in London.
Seth Carpenter: I have to say, a lot has happened since the last time we held this roundtable. To say the very least, we've had volatility in financial markets. But on balance, I kind of have to say the global economy has more or less performed the way we expected.
The US economy is cruising towards a soft landing. The labor market maybe is a touch softer than we expected, but consumer spending has remained resilient. In Asia, Japan's reflation story is largely intact, while China is still confronting that debt deflation cycle that we've talked about. And in Europe, the tepid growth we had envisioned -- well, it's continuing. Inflation is falling, but the ECB seems to be accelerating its rate cuts. So, let's get into the details.
Diego, I'm going to start with you and the US. The Fed cut interest rates in September for the first time this cycle, and they cut by 50 basis points instead of the 25 basis points that some people -- including us -- were expecting. So, the big question for you is, where does the Fed go from here?
Diego Anzoategui: So, we are looking for a string of 25 basis point cuts from the Fed as long as labor markets hold up. Inflation has…
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Why the Fed’s Next Move May Matter Less
4 oktober 2024 · 4 min
Following the US Federal Reserve’s September rate cut, labor data may have more impact on markets than further cuts. Andrew Sheets, Head of Corporate Credit Research, explains why. Lees meer
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Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, head of Corporate Credit Research at Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, today I'll discuss why what the Fed does next might not matter all that much.
It’s Friday, October 4th, at 2 pm in London.
Over recent months the Federal Reserve has been at the center of the global market debate. After keeping policy rates unchanged at the end of July, a decision the markets initially cheered, a string of weak data in early August drove concerns that Fed policy was behind schedule. The Fed then responded with a larger-than-expected half-percent interest rate cut in September. And so, given these swings, a common question for investors is, understandably: What will the Fed do next?
But what if the Fed’s next move doesn’t matter all that much?
Monetary policy is both powerful and weak. Powerful, because interest rates impact so many decisions across the economy, from buying a home, to financing equipment, to acquiring a competitor. And it’s also weak, because how interest rates impact these decisions can have a long and variable lag. It can be six to twelve months before the full impact of an interest rate cut is felt in the economy. And so that half percentage point cut by the Fed last month might not be fully felt in the US economy until June of 2025.
That lag is one reason why the Fed’s next move may matter less. The second reason is what we think the market is worried about. We think a lot of the market’s volatility over the last two months has been driven by concerns that the US economy, particularly the labor market, is weakening right now.
If interest rates are too high and the labor market is weakening, then cutting more rapidly in the coming months …
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Can China’s Stimulus Shift Its Economy?
3 oktober 2024 · 8 min
Our Chief China Economist Robin Xing and Chief China Equity Strategist Laura Wang discuss how markets have responded to rate cuts and commitments to government spending, and what they could mean over the long term. Lees meer
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Laura Wang: Welcome to Thoughts on the Market. I'm Laura Wang, Morgan Stanley's Chief China Equity Strategist.
Robin Xing: And I'm Robin Xing, Morgan Stanley's Chief China Economist.
Laura Wang: All eyes have been on China this past week, and today we'll discuss why recent news from China's policymakers have commanded the attention of global markets.
It's Thursday, October the 3rd, at 4pm in Hong Kong.
So, Robin, China has been wrestling with the triple macro challenge of debt deflation and demographics -- what we call the three Ds -- for some time now. Last week, China's central bank, PBOC, announced a stimulus package that exceeded market expectations. And then later in the week, top China Communist Party officials, known as the Politburo, focused their monthly meeting on economics, which is not their usual practice.
This meeting was a positive surprise to both us and the market. Let's start with the PBOCs easing package. For listeners who haven't been following China's economy closely, what's our current view on China's economy and can you walk us through the policy measures that the central bank introduced?
Robin Xing: China's economy has been struggling lately and that's pushed the Beijing to pivot approach. Over the last 18 months, they have tried smaller, reactive measures. But now, they are doing something much bigger. On September 24, the People's Bank of China, PBOC, made a bold move, cutting interest rates and introducing new tools to support the stock market.
Now, these cuts might sound small, just 20 basis points, but they are pretty rare in China. They also cut the reserve requirement ratio, which is a fancy way of saying banks can lend more money by 50 basis points. And for the first time, the central bank g…
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What Could the Dockworkers’ Strike Mean for Growth and Inflation?
2 oktober 2024 · 5 min
Thousands of U.S. dockworkers have gone on strike along the East Coast and Gulf Coast. Our Global Head of Fixed Income and Thematic Research Michael Zezas joins U.S. economist Diego Anzoategui to discuss the potential consequences of a drawn-out work stoppage. Lees meer
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Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income and Thematic Research for Morgan Stanley.
Diego Anzoategui: And I'm Diego Anzoategui from the US Economics team.
Michael Zezas: And today, we'll be talking about the implications of this week's US dockworker strike on the US economy.
It's Wednesday, October 2nd, at 11am in New York.
Diego, as most of our listeners likely know, yesterday roughly 45,000 US dockworkers went on strike for the first time in perhaps decades at 36 US ports from Maine to Texas. And so, I wanted to get your initial read on the situation because we're obviously getting a lot of questions from clients concerned about what this could mean for growth and inflation.
Diego Anzoategui: Yeah, of course, there's a lot of uncertainty about this situation because we don't know how long the strike is going to last. But the strike can in principle hit economic growth and boost inflation -- but only if it is long lasting, right. Local producers and retailers, they typically have inventories of final and intermediate goods, so the disruption needs to be long enough so that those inventories go down to critical levels in order to see a meaningful macroeconomic impact.
But if the strike is long enough, we might see an important impact on economic activity and inflation. If we look at trade flows data, roughly 30 per cent of all goods imports and exports are handled by the East and Gulf ports.
Michael Zezas: So then let's drill down on that a bit. If the strike continues long enough and inventories decline, what are the shocks to economic growth that you're considering?
Diego Anzoategui: Yeah, I would think that there are tw…
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The Potential Domino Effect of US Tariffs
1 oktober 2024 · 11 min
Our US public policy and global economics experts discuss how an escalation of US tariffs could have major domestic and international economic implications. Lees meer
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Ariana Salvatore: Welcome to Thoughts on the Market. I'm Ariana Salvatore, Morgan Stanley's US Public Policy Strategist.
Arunima Sinha: And I’m Arunima Sinha, from the Global Economics team.
Ariana Salvatore: Today we're talking tariffs, a major policy issue at stake in the US presidential election. We'll dig into the domestic and international implications of these proposed policies.
It's Tuesday, October 1st at 10am in New York.
In a little over four weeks, Americans will be going to the polls. And as we've noted on this podcast, it's still a close race between the two presidential candidates. Former president Donald Trump's main pitch to voters has to do with the economy. And tariffs and tax cuts are central to many of his campaign speeches.
Arunima Sinha: You're right, Ariana. In fact, I would say that tariffs have been the key theme he keeps on coming back to. You've recently written a note about why we should take the Republicans proposed policies on tariffs seriously. What's your broad outlook in a Trump win scenario?
Ariana Salvatore: Well, first and foremost, I think it's important to note that the President has quite a bit of discretion when it comes to trade policy. That's why we recommend that investors should take seriously a number of these proposals. Many of the authorities are already in place and could be easily leveraged if Trump were to win in November and follow through on those campaign promises. He did it with China in 2018 to 2019, leveraging Section 301 Authority, and many of that could be done easily if he were to win again.
Arunima Sinha: And could you just walk us through some of the specifics of Trump's tariff proposals? What are the options at the President's disposal?
Ariana Salvatore: Sure. So, he's floated a number of tariff proposals -- whether i…
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The Impact of Central Bank Pivots
1 oktober 2024 · 4 min
Our CIO and Chief US Equity Strategist Mike Wilson takes a closer look at the potential ramifications of the sharp central bank policy shifts in the U.S., Japan and China. Lees meer
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Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief US Equity Strategist. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about what to expect from the sharp pivot in global monetary and fiscal policy.
It's Monday, Sept 30th at 11:30am in New York.
So let’s get after it.
Over the past few months, Fed policy has taken on a more dovish turn. To be fair, bond markets have been telling the Fed that they are too tight and in many respects this pivot was simply the Fed getting more in line with market pricing. However, in addition to the 50 basis point cut from the Fed, budget deficits are providing heavy support; with August’s deficit nearly $90b higher than expected. Meanwhile, financial conditions continue to loosen and are now at some of the most stimulative levels seen over the past 25 years.
Other central banks are also cutting interest rates and even the Bank of Japan, which recently raised rates for the first time in years, has backed off that stance – and indicated they are in no hurry to raise rates again. Finally, this past week the People’s Bank of China announced new programs specifically targeting equity and housing prices. After a muted response from markets and commentators, the Chinese government then followed up with an aggressive fiscal policy stimulus. Why now?
Like the US, China is highly indebted but it has entered full blown deflation with both credit and equity markets trading terribly for the past several years. There is an old adage that markets stop panicking when policy makers start panicking. On that score, it makes perfect sense why China equity and credit markets have responded the most favorably to the changes made last week. European equity markets were also stronger than…
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Keeping the Faith For A Soft Landing
27 september 2024 · 5 min
Credit likes moderation, and the Fed’s rate cut indicates its belief that the economy is heading for a soft landing. Our Chief Fixed Income Strategist warns that markets still need to keep an eye on incoming data. Lees meer
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Welcome to Thoughts on the Market. I am Vishy Tirupattur, Morgan Stanley’s Chief Fixed Income Strategist. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about the implications of the Fed’s 50 basis points interest rate cut for corporate credit markets.
It's Friday, Sep 27th at 10 am in New York.
For credit markets, understanding why the Fed is cutting is actually very critical. Unlike typical rate cutting cycles, these cuts are coming when the economic growth is still decelerating but not falling off the cliff. Typically, rate cuts have come in when the economy is already in a recession or approaching recession. Neither is the case this time. So the US expanded by 3 per cent in the second quarter; and the third quarter, it is tracking well over 2 per cent.
So, these cuts do not aim to stimulate the economy but really to acknowledge that there’s been significant progress on inflation, and move the policy towards a much more normalized policy stance. In some way, this really reflects the Fed’s confidence in the inflation path. So that means, not cutting now would mean restraining the economy further through high real interest rates. So, this cut really reflects a growing faith by the Fed in achieving a soft landing. Also, the size of the cut, the 50 basis point cut as opposed to 25 basis points, shows the Fed’s willingness to go big in response to weaker data, especially in labor markets.
So since the beginning of the year, we have been pretty constructive on spread products across the board, particularly corporate credit and securitized credit, even though valuations have been tightening. Our stance is based on the idea that credit fundamentals will stay reasonably healthy even if economi…
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How Long Until Consumers Feel Rate Cut Benefits?
26 september 2024 · 5 min
Our US Consumer Economist Sarah Wolfe lays out the impact of the Federal Reserve’s rate cut on labor market and consumers, including which goods could see a rise in spending over the next year. Lees meer
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Welcome to Thoughts on the Market. I’m Sarah Wolfe, from the Morgan Stanley US Economics Team.
Today, a look at what the Fed cut means for US consumers.
It’s Thursday, September 26, at 2 PM in Slovenia.
Earlier this week, you heard Mike Wilson and Seth Carpenter talk about the Fed cut and its impact on markets and central banks around the world. But what does it actually mean for US consumers and their wallets? Will it make it easier to pay off credit card debt and secure mortgages? We explore these questions in this episode.
Looking back to last week, the FOMC cut rates by a larger chunk than many anticipated as risks from inflation have come down significantly while labor market risks have risen. Now, with inflation wrangled in, it’s time to start reducing the restrictiveness of policy to prevent a rise in the unemployment rate and a slump in economic growth. In fact, my colleague Mike Wilson believes the US labor data will be the most important factor driving US equities for the next three to six months.
Despite potential risks, the current state of the U.S. labor market is still solid and that’s where the Fed wants it to stay. The health of the labor market, in my opinion, is best reflected in the health of consumer spending. If we look at this quarter, we’re tracking over 3 per cent growth in real consumption, which is a strong run rate for consumption by all measures. And if we look at how the whole year has been tracking, we’ve only seen a very modest slowdown in real consumer spending from 2.7 per cent last year to 2.5 per cent today.
For a bit of perspective, if we go back to 2018 and 2019, when rates were much lower than they are today, and we had a tight labor market, consumption was running closer to 2 to 2.3 per cent. So we can def…
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US Elections: The Wait for Clarity
25 september 2024 · 3 min
With the US presidential race being as closely contested as it is, Michael Zezas explains why patience may be a virtue for investors following Election Day. Lees meer
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Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Thematic Research.
Along with my colleagues bringing you a variety of perspectives, today I'll be talking about why investors should prepare to wait to get clarity on the US election result.
It's Wednesday, September 25th at 10:30am in New York.
As we all know, markets dislike uncertainty; and one of the biggest potential catalysts between now and the end of the year is the results of the US presidential election. So it’s important for investors to know that the timing of knowing the outcome may not be what you expect.
On most U.S. presidential election days, the outcome is known within hours of polls closing in the evening. That’s because while all votes may not yet have been counted, enough have to make a reasonable projection about the winner.
But that’s not what happened in 2020. Vote counts were tight across many states. A condition that was compounded by the slowness of counting mail in ballots, which was a style of voting more widely adopted during the pandemic. As a result, news networks didn’t make a formal outcome projection until about four days after election day.
Rather than a reversion to the norm of quickly knowing the result for the 2024 election, we expect an outcome similar to 2020. It could be days before we reliably know a result.
The same dynamics as 2020 are in play. Polls show a very close race. And while more voters are likely to show up in person this year, voting by mail is still expected to represent a substantial chunk of ballots cast this cycle. That’s because many states' rules automatically send mail-in ballots to those who voted by that method in the last election. And some recent news out of Georgia underscores the potential for a slower result. …
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One Rate Cut, Many Effects
24 september 2024 · 4 min
From stock price fluctuations to concerns about deflation, the reactions to the Fed rate cut have been varied. But we still need to keep an eye on labor data, says Mike Wilson, our CIO and Chief US Equity Strategist. Lees meer
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Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief US Equity Strategist. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about the Fed’s 50 basis point rate cut last week, and the impact on markets.
It's Tuesday, Sept 24th at 11:30am in New York.
So let’s get after it.
As discussed last week, I thought that the best short-term case for equities was that the Fed could deliver a 50 basis point cut without prompting growth concerns. Chair Powell was able to thread the needle in this respect, and equities ultimately responded favorably.
However, I also believe the labor data will be the most important factor in terms of how equities trade over the next three to six months.
On that score, the next round of data will be forthcoming at the end of next week. In my view, that data will need to surprise on the upside to keep equity valuations at their currently elevated level. More specifically, the unemployment rate will need to decline and the payrolls above 140,000 with no negative revisions to prior months.
Meanwhile, I am also watching several other variables closely to determine the trajectory of growth. Earnings revision breadth, the best proxy for company guidance, continues to trend sideways for the overall S&P 500 and negatively for the Russell 2000 small cap index. Due to seasonal patterns, this variable is likely to face negative headwinds over the next month.
Second, the ISM Purchasing Managers Index has yet to reaccelerate after almost two years of languishing. And finally, the Conference Board Leading Economic Indicator and Employment Trends remain in downward trends; this is typical of a later cycle environment.
Bottom line, the Fed's larger th…
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As the Fed Recalibrates, What’s Ahead for Central Banks?
23 september 2024 · 5 min
Our Global Chief Economist, Seth Carpenter, explains why, despite last week’s big Fed move, there’s still plenty of uncertainty in global markets and questions about how other central banks will respond. Lees meer
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Seth Carpenter: Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist.
Today, I'll be talking about the Fed meeting, where they cut rates for the first time in this cycle, and what it means for the economy around the world.
It's Monday, September 23rd at 10am in New York.
The Fed cut rates by 50 basis points; but we did not see a huge shift in its reaction function. Rather, the 50 basis points was to show a commitment to not falling behind the curve -- to use Chair Powell's words. From here, the most likely path, from my perspective, is a string of 25 basis point cuts. Powell has again demonstrated that the Fed can move gradually, or quickly, depending on perceptions of risk.
But for now, judging from Powell, or other policy makers comments, the Fed still sees the economy as healthy in the labor market; as solid. But another payroll print of 100, 000 or softening in consumer spending, well, that would tip the balance. So, the market debate will continue to focus on the pace of rate cuts and the ultimate landing zone.
Our baseline is a touch more front loaded than the dot plot would imply; with us expecting the funds rate to reach just below 3.5 per cent in the middle of next year, rather than the end of next year. The Fed's projections have declines in the target rate into 2026 and beyond, but I have to say the dispersion in the dots that they put up shows just how much consensus is yet to be built within the committee. And, as a result, the phrase data dependency, well, that's not a term that we want to drop from the lexicon anytime soon.
The magnitudes of the changes differ, but a comparison that we have made often here is to the 1990s, and that cutting cycle eventually it paused as the econo…
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Mexico Judicial Reforms Spark Investor Concern
20 september 2024 · 4 min
Our Chief Latin American Equity Strategist explains how potential changes in Mexico’s regulatory approach could have implications for the country’s equity markets. Lees meer
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Welcome to Thoughts on the Market. I’m Nikolaj Lippmann, Morgan Stanley’s Chief Latin American Equity Strategist. Today I’ll talk about Mexico’s recent judicial reform and its potential impact on equities market.
It’s Friday, September 20, at 10am in Mexico City.
Mexico has made significant changes to its judicial system. After winning two-thirds majority in both houses – enough to allow for constitutional changes – Mexico policymakers have embarked on a robust reform agenda. Their first stop is a comprehensive reform of the judicial branch, which aims at replacing roughly 2,000 senior judges including the entire Supreme Court.
New judges will no longer be appointed but will now be elected by popular vote. This is practically unprecedented in a global context, and while the executive branch might still try to filter future candidates, this new system will likely create a real risk to checks and balances on the judicial branch as well as to expertise and procedure. Additional reforms, including the elimination of independent regulatory bodies, would likely compound these risks.
The judicial reform could have a material impact on Mexican equities. So much so, that we think Mexico goes from being an investor favorite to a ‘show me’ story where investors are less likely to give the market the benefit of the doubt. This is likely to result in a derailing or lower set of multiples being paid by investors in Mexican equities or higher risk premium required to invest.
Essentially, the judicial reforms could add fiscal, labor and concession/regulatory risk for Mexican companies, even though Mexico has deep manufacturing ecosystems, and has been well-positioned from the transition to [a] multipolar world. Just to give you a sense. Mexico has already sailed past China in terms of manuf…
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Industrials Outlook ‘Better Than Feared’
19 september 2024 · 8 min
Investors came away from Morgan Stanley’s recent Industrials Conference with a more optimistic outlook than they expected, based on perspectives including freight transportation’s momentum and AI’s impact on the growth of data centers. Lees meer
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Michelle Weaver: Welcome to Thoughts on the Market. I'm Michelle Weaver, Morgan Stanley Research's U.S. Thematic Strategist.
Ravi Shanker: I'm Ravi Shanker, Morgan Stanley's Freight Transportation and Airlines Analyst.
Chris Snyder: And I'm Chris Snyder, the U.S. Industrial Analyst.
Michelle Weaver: Today, we'll talk about key themes for Morgan Stanley's recently concluded industrials conference in Laguna Beach.
It's Thursday, September 19th at 10am in New York.
Last week, we were all out in Laguna Beach at the industrials conference. There were about 500 different industrials investors, along with 156 corporates, which gave us a pretty comprehensive read on what's going on in the industrial sector.Investor sentiment around industrials was pretty poor heading into the conference, and the overall tone of management, though, seemed better than feared in presentations.
Chris, your coverage includes companies with exposure to a wide range of end markets. What did you learn about the cycle from your discussions with company management?
Chris Snyder: Yeah, I think you categorized it well: consistent, largely unchanged, but better than feared. Morgan Stanley did a poll ahead of the conference. And only 5 percent of investors thought that the conference would be bullish for industrial risk sentiment. Coming out of the conference, 60 percent of industrial investors are bullish on risk sentiment into the end of the year. So, I think it kind of shows that sentiment was in a very bad place and ‘better than feared’ is the right way to categorize it.
We've generally been surprised at the lack of optimism around the industrial cycle in the market. The industrial economy has been in contraction for almost two years n…
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Presidential Debate Targets Perceptions Over Policy
18 september 2024 · 4 min
While the electoral impact of last week’s US presidential debate is unclear, our Global Head of Fixed Income and Thematic Research offers two guiding principles to navigate the markets during the election cycle. Lees meer
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Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Thematic Research. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about takeaways from the US presidential campaign debate.
It's Wednesday, September 18th at 10:30am in New York.
Last week, Vice President Harris and Former President Trump met in Philadelphia for debate. Investor interest was high, and understandably so. As our Chief Economist Seth Carpenter has previously highlighted in his research, visibility remains low when it comes to the outlook for the US in 2025.
That’s because the election could put the country on policy paths that take economic growth in different directions. And of course, the last presidential debate in June led to President Biden’s withdrawal, changing the race dramatically. So, any election-related event that could provide new information about the probability of different outcomes and the resulting policies is worth watching.
But, as investors well know from tracking data releases, earnings, Fedspeak, and more, potential catalysts often remain just that – potential. For the moment, we’re putting last week’s debate in that category.
Take its impact on outcome probabilities. It could move polls, but perhaps not enough for investors to view one candidate as the clear favorite. For weeks, the polls have been signaling an extremely tight race, with only a small pool of undecided voters. While debates in past campaigns have modestly strengthened a candidate’s standing in the polls, in this race any lead would likely remain within the margin of error.
On policy, again we don’t think the debate taught us anything new. Candidates typically use these widely watched…
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US Elections: The Politics of Healthcare
17 september 2024 · 4 min
Our US Public Policy Strategist explains the potential impact of the upcoming presidential election on the healthcare sector, including whether the outcome is likely to drive a major policy shift. Lees meer
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Welcome to Thoughts on the Market. I’m Ariana Salvatore, Morgan Stanley’s US Public Policy Strategist. Along with my colleagues bringing you a variety of perspectives, today I’ll focus on what the US election means for healthcare.
It’s Tuesday, September 17th at 10am in New York.
Around elections what we tend to see is voters rank healthcare pretty high among their priority list. And for that reason it’s not surprising that it generates significant debate as well as investor concern – about everything from drug pricing to potential sweeping reforms. We think that the 2024 election is unlikely to transform the US healthcare system. But there are still policies to watch that could change depending on the outcome. We outlined these in a recent note led by our equity research colleagues Erin Wright and Terence Flynn.
To start, we think bipartisan policies should continue uninterrupted, regardless of the election outcome. Certain regulations requiring drug price and procedural transparency, for example, which affect hospitals and health plans, are unlikely to change if there is a shift of power next year. We’ve seen some regulations from the Trump era kept in place by the Biden administration; and similarly during the former president’s term there were attempts at bipartisan legislation to modify the Pharmacy Benefit Management model.
There are some healthcare policies that could be changed through the tax code, including the extension of the COVID-era ACA subsidies. In President Biden’s fiscal year [20]25 budget request, he called for an extension of those enhanced subsidies; and Vice President Kamala Harris has proposed a similar measure. As we’ve said before on this podcast, we think tax policy will feature heavily in the next Congress as lawmak…
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Markets Readying for a Rate Cut
17 september 2024 · 4 min
With the Federal Reserve poised to make its long-awaited rate cut this week, our CIO and Chief US Equity Strategist tells us why investors have pivoted their concerns from high inflation to slowing growth. Lees meer
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Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief US Equity Strategist. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about what to expect as the Fed likely begins its long-awaited rate cutting cycle this week.
It's Monday, Sept 16th at 10:30am in New York.
So let’s get after it.
After nearly 12 months of great anticipation, the Fed is very likely to start its rate cutting cycle this week. The old adage that it is often easier to travel than arrive may apply as markets appear to have priced an aggressive Fed cutting cycle into the middle of next year while assuming a soft-landing outcome for the economy.
More specifically, the two-year US Treasury yield is now 180 basis points below the Fed Funds Rate which is in line with the widest spread in 40 years, a level associated with a hard landing. This is the bond market's way of messaging to the Fed that they are late in getting started with rate cuts. This doesn't mean the Fed can't get ahead of it, but they may need to move faster to keep investors' hopes alive.
As a result, the odds of a 50 basis point cut have increased over the past week but it’s still well below a certainty. This is unusual going into an FOMC meeting and is setting markets up for a greater surprise either way. How the markets react to what the Fed does this week will have an even greater influence on investor sentiment than usual, in my view. Ideally, rates should rise at both the front and back end if the bond market likes the Fed’s actions because it signals they aren’t as far behind in trying to orchestrate a soft landing. Conversely, a fall in rates will be a vote of lower confidence.
On the other side of the ledger, we have the equity m…
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Bank of Japan’s Role in Market Volatility
13 september 2024 · 6 min
After sending global markets in a brief tailspin in early August, the Bank of Japan is once again the center of attention. Our Global Chief Economist and Chief Asia Economist discuss the central bank’s next steps to help ease volatility and inflation. Lees meer
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Seth Carpenter: Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist.
Chetan Ahya: And I'm Chetan Ahya, Chief Asia Economist.
Seth Carpenter: And on today's episode, Chetan and I are going to be discussing the Bank of Japan and the role it has been playing in recent market turmoil.
It's Friday, September 13th at 12.30pm in New York.
Chetan Ahya: And it's 5.30pm in London.
Seth Carpenter: Financial markets have been going back and forth for the past month or so, and a lot of what's been driving the market movements have been evolving expectations of what's going on at central banks. And right at the center of it has been the Bank of Japan, especially going back to their meeting at the very end of July.
So, Chetan, maybe you can just level set us about where things stand with the Bank of Japan right now? And how they've been communicating with markets?
Chetan Ahya: Well, I think what happened, Seth, is that Bank of Japan (BoJ) saw that there was a significant progress in inflation and wage growth dynamic. And with that they went out and told the markets that they wanted to start now increasing rate hikes. And at the same time, the end was weakening.
And to ensure that they kind of convey to the markets that they want to be now taking rates higher, the governor of the central bank came out and indicated that they are far away from neutral.
Now while that was having the desired effect of bringing the yen down, i.e. appreciated. But at the same time, it caused a significant volatility in the equity markets and make it more challenging for the BoJ.
Seth Carpenter: Okay, so I get that. But I would say the market knew for a long time that the Bank of…
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Corporate Credit at a Crossroads?
13 september 2024 · 4 min
Our Head of Corporate Credit Research looks at the Fed’s approach to rate cuts, seasonal trends and the US election to explain why the next month represents a crucial window for credit’s future. Lees meer
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Welcome to Thoughts on the Market. I'm Andrew Sheets, head of Corporate Credit Research at Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, today I'll discuss why the next month is a critical window for credit.
It's Thursday, September 12th at 9am in New York.
We’ve liked corporate credit as an asset class this year and think the outlook over the next 6-12 months remains promising. At a high level, credit likes moderation, and that continues to be exactly what Morgan Stanley’s economists are forecasting; with moderate growth, moderate inflation, and moderating policy in the US and Europe. Meanwhile, at the ground level, corporate balance sheets are in good shape, and demand for fixed income remains strong, dynamics that we think are unlikely to shift quickly.
But this good credit story is now facing a critical window. As we’ve discussed recently on this program, the Fed has taken a risk with monetary policy, continuing to keep interest rates elevated despite increasing indications that they should be lower. U.S. inflation has been coming down rapidly, to the point where the market now thinks the rate of inflation over the next two years will be below what the Fed is targeting. The labor market is slowing, and government bond markets are now assuming that the Fed will have to make much more significant adjustments to policy.
And so, this becomes a race. If the economic data can hold up for the next few months, while the Fed does make those first gradual rate cuts, it will help reassure markets that monetary policy is reasonable and in-line with the underlying economy. But if the data weakens more now, the market is vulnerable. Monetary policy works with a lag, meaning rate cuts are not going to help anytime soon. A…
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Uneven Recovery in Commercial Real Estate
12 september 2024 · 5 min
Office buildings continue to struggle in the post-pandemic era, but our Chief Fixed Income Strategist notes that other properties have turned a corner. Lees meer
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Welcome to Thoughts on the Market. I am Vishy Tirupattur, Morgan Stanley’s Chief Fixed Income Strategist. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about how the challenges facing the US commercial real estate markets have evolved and talk about where they are headed next.
It's Wednesday, Sep 11th at 10 am in New York.
Over the last year and half, the challenges of commercial real estate, or CRE in short, have been periodically in the spotlight. The last time we discussed this issue here was in the first quarter of this year. That was in the aftermath of loan losses announced by a regional bank that primarily focused on rent-stabilized multifamily and CRE lending in the New York metropolitan area. At the same time, lenders and investors in Japan, Germany and Canada also reported sizable credit losses and write-down related to US commercial real estate.
At that time, we had said that CRE issues should be scrutinized through the lenses of lenders and property types; and that saw meaningful challenges in both – in particular, regional banks as lenders and office as a property type.
Rolling the calendar forward, where do things stand now?
Focusing on the lenders first, there is some good news. While regional bank challenges from their CRE exposures have not gone away, they are not getting any worse. That means incremental reserves for CRE losses have been below what we had feared. Our economists’ expectations of Fed’s rate cuts on the back of their soft-landing thesis, gives us the conviction that lower rates should be an incremental benefit from a credit quality perspective for banks because it alleviates pressure on debt service coverage ratios for borrowers. Lower rates also give banks more room to work with their borrowers for longer by provi…
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Trading Spaces: Millennials vs. Boomers
10 september 2024 · 11 min
With the generational shift in the US housing market underway, our analysts discuss the impact this trend will have on residential real estate investing. Lees meer
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Ron Kamdem: Welcome to Thoughts on the Market. I'm Ron Kamdem, head of Commercial Real Estate Research and the US Real Estate Investment Trust team within Morgan Stanley Research.
Lauren Hochfelder: And I'm Lauren Hochfelder, Co-Chief Executive Officer of Morgan Stanley Real Estate Investing, the global private real estate investment arm of the firm.
Ron Kamdem: And on this special episode of Thoughts on the Market, we’ll discuss the tangible impact of shifting demographics on the residential real estate investing space.
It's Tuesday, September 10th at 10 am in New York.
So, Lauren, for several years now, we've been hearing about millennials overtaking the baby boomers. As a reminder, millennials are people between the age of 28 and 43. So someone like me. And there’s about 72 million millennials right now. Baby boomers are around 59 to 78; and there's about 69 million at the moment. This demographic shift will have a profound impact on all sectors of the economy, including residential housing. So, let's lay the foundation first. What are the current needs of baby boomers and millennials when it comes to their homes?
Lauren Hochfelder: Yeah, this is such an interesting moment, Ron, because as you say, their needs are shifting. Over the last 15 years, what have millennials wanted? They have wanted multifamily. They have wanted rental apartment units. And by the way, they've wanted, generally speaking, small ones in cities.
Ron Kamdem: Yup.
Boomers? They have been disproportionately residing in single family homes that they own, and that they've owned for a long time. But here we are, as millennials reach peak household formation years and boomers approach their 80-year-old mark. There's a real shift.
We have millennials growing up and growing out, and boomers growing older. And that…
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Shaky Labor Data Pressures Equity Markets
10 september 2024 · 5 min
Following weaker-than-expected August jobs data, our CIO and Chief U.S Equity Strategist lays out how the Federal Reserve can ease concerns about a possible hard landing. Lees meer
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Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief US Equity Strategist. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about the labor market’s impact on equity markets.
It's Monday, Sept 9th at 11:30am in New York. So let’s get after it.
Last week, I wrote a detailed note discussing the importance of the labor data for equity markets. Importantly, I pointed out that since the materially weaker than expected July labor report, the S&P 500 has bounced more than other "macro" markets like rates, currencies and commodities. In the absence of a reacceleration in the labor data, we concluded the S&P 500 was trading out of sync with the fundamentals.
Over the past week, we received several labor market data points, which were weaker than expected. First, the Job Openings data for July was softer than expected coming in at 7.7mm versus the consensus expectation of 8.1mm. In addition, June's initial result was revised lower by 274k. This essentially supported the view that the weak payrolls data in July may, in fact, not be related to weather or other temporary issues.
Second, the job openings rate fell to 4.6%, which is very close to the 4.5% level Fed Governor Waller has cited as a threshold below which the unemployment rate could rise much faster. Third, the Fed's Beige Book came out last week. It indicated that activity remains sluggish with 9 of the 12 Federal Reserve districts reporting flat or declining activity in August, though commentary on labor markets was more neutral, rather than negative. These data sync nicely with the Conference Board’s Employment Trends Index, which I find to be a very objective aggregate measure of the labor market's direction. This morning, we received the latest relea…
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Balance Sheets Remain Resilient Despite Slowing US Growth
6 september 2024 · 4 min
Our Head of Corporate Credit Research, Andrew Sheets, expects a sticky but shallow cycle for defaults on loans, with solid quality overall in high-grade credit. Lees meer
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Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, head of Corporate Credit Research at Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, today I'll discuss some longer-term thoughts on the credit market and the economic cycle.
It's Friday, September 6th at 2pm in London.
Concerns around US growth have risen, an issue that will probably persist even after today’s US Payrolls report came roughly inline with expectations. At Morgan Stanley, we continue to expect moderate slowing in growth, not a slump. By the middle of next year, our economists see growth slowing to a still respectable 2% growth rate, and a total of seven rate cuts.
While growth is set to slow, we think corporate balance sheet metrics are unusually good in the face of this slowing. Indeed, the credit quality of the US investment grade and BB credit markets, which represent the vast majority of corporate credit outstanding, have actually improved since the Fed started hiking rates.
Now, looking ahead, there's understandable concern that these currently good credit metrics won't be sustainable as companies will have to refinance the very cheap borrowing that they received immediately after COVID, with the more expensive costs of today's currently higher yields. But we actually think balance sheets will be reasonably robust in light of this reset, and so their ultimate rate sensitivity could be relatively low.
One reason is that a wave of refinancing means companies have already tackled a significant portion of their upcoming debt, reducing the so-called rollover or refinancing risk. Interest coverage for floating rate borrowers has stabilized and should actually improve as the Fed starts to lower rates.
The debt service costs for higher rated companies will increas…
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Global Energy Markets and the US Election
6 september 2024 · 10 min
Our US Public Policy and Global Commodities strategists discuss how the outcome of the election could affect energy markets in the US and around the world. Lees meer
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Ariana Salvatore: Welcome to Thoughts on the Market. I'm Ariana Salvatore, Morgan Stanley's US public policy strategist.
Martijn Rats: And I'm Martijn Rats, Global Commodity Strategist.
Ariana Salvatore: Today we'll be talking about a topic that's coming into sharper focus this fall. How will the US presidential election shape energy policy and global energy markets?
It's Thursday, September 5th at 10am in New York.
Martijn Rats: And 3pm in London.
Ariana Salvatore: As we enter the final leg of the US presidential campaign, Harris and Trump are getting ready to go head-to-head on a number of key topics. Healthcare, housing, the state of the economy, foreign policy; and also high on the agenda -- energy policy.
So, Martijn, let's set the stage here. Prices at the gas pump in the US have been falling over recent weeks, which is atypical in the summer. What's happening in energy markets right now? And what's your expectation for the rest of the year?
Martijn Rats: Yeah, it's a relevant question. Oil prices have been quite volatile recently. I would say that objectively, if you look at the market for crude oil, the crude oil market is tight right now. We can see that in inventories, for example, they are buying large drawing, which tell[s] you, the demand is outstripping supply.
But there are two things to say about the tightness in the crude oil market. First of all, we're not quite seeing that tightness merit in the markets for refined products. So, get the market for gasoline, the market for diesel, et cetera. At the moment, the global refining system is running quite hard.
But they're also producing a lot of refined product. A lot of gasoline, a lot of diesel. They're pushing that to their customers. Demand is absorbing that, but not quite in a convincing manner. And you can see…
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US Election: A Game Of Inches
4 september 2024 · 4 min
Despite a flurry of election news, little may have changed for investors weighing the possible outcomes. Our Head of Fixed Income and Thematic Research, Michael Zezas, explains why this is the case as we move closer to Election Day. Lees meer
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Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Thematic Research. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about recent developments in the US election.
It's Wednesday, September 4th at 10:30am in New York.
While news headlines might make it seem a lot has changed in recent weeks around the US election, in our view not much has changed at all. And that’s important for investors to understand as they navigate markets between now and Election Day on November 5th. Let me explain.
In recent weeks, we've had the Democratic convention, fresh polls, and a third party candidate withdraw from the race and endorse former President Trump. But all appear to reflect only marginal impacts on the probabilities of different electoral outcomes.
Take the withdrawal of independent candidate Robert F Kennedy Junior, which does not appear to be a game changer. Historical precedent is that third party candidates rarely have a path to even winning one state's electoral votes. Further, in polls voters tend to overstate their willingness to support third parties ahead of election day. And it's also not clear that Kennedy withdrawing clearly benefits Democrats or Republicans.
Kennedy originally ran for President as a Democrat, and so was thought to be pulling from likely Democratic voters. However, polls suggest his supporter’s next most likely choice was nearly split between Trump and Harris.
So while it’s possible that Kennedy’s decision to endorse Trump upon dropping out could be meaningful, given how close the race is, we’re unlikely to be able to observe that potentially marginal but meaningful effect until after the election …
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Wallets Wide Open For GenAI
4 september 2024 · 5 min
While venture capital is taking a more cautionary approach with crypto startups, the buzz around GenAI is only increasing. Lees meer
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Welcome to Thoughts on the Market. I’m Ed Stanley, Morgan Stanley’s Head of Thematic Research in Europe. Along with my colleagues bringing you a variety of perspectives, today I’ll discuss what private markets can tell us about the viability and investability of disruptive technologies.
It’s Tuesday, the 3rd of September, at 2pm in London.
For the past three years we have been tracking venture capital funding to help stay one step ahead of emerging technologies and the companies that are aiming to disrupt incumbent public leaders. Private growth equity markets are -- by their very definition – long-duration, and therefore highly susceptible to interest rate cycles.
The easy-money bubble of 2021 and [20]22 saw venture funding reach nearly $1.2trillion dollars – more than the previous decade of funding combined. However, what goes up often comes down; and since their peak, venture growth equity capital deployment has fallen by over 60 percent, as interest rates have ratcheted ever higher beyond 5 percent.
So as interest rates fall back towards 3.5 percent, which our economists expect to happen over the coming 12 months, we expect M&A and IPO exit bottlenecks to ease. And so too the capital deployment and fundraising environment to improve.
However, the current funding market and its recovery over the coming months and years looks more imbalanced, in our view, than at any point since the Internet era. Having seen tens- and hundreds of billions of dollars poured into CleanTech and health innovations and battery start-ups when capital was free; that has all but turned to a trickle now. On the other end of the spectrum, AI start-ups are now receiving nearly half of all venture capital funding in 2024 year-to-date.
Nowhere is that shift in investment priorities more pronounced than in the divergence between AI and crypto…
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Special Encore: Health Care for Longer, Healthier Lives
31 augustus 2024 · 4 min
Original Release Date August 8, 2024: Our Head of Europe Sustainability Research discusses how rising longevity is revolutionizing our fundamental approach from reactive to proactive treatment. Lees meer
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Welcome to Thoughts on the Market. I’m Mike Canfield, Morgan Stanley’s European Head of Sustainability Research. Along with my colleagues, we’re bringing you a variety of perspectives; and today we’re focusing on a topic that affects everyone – how much does poor health cost us? And how are ageing populations and longer life expectancy driving a fundamental shift in healthcare?
It’s Thursday, August the 8th, at 4pm in London.
As populations age across the developed world, health systems need to help people live both longer and healthier. The current system is typically built around to focus on acute conditions and it’s more reactive; so it introduces clinical care or drugs to respond to a condition after it’s already arisen, rather than keeping people healthy in the first instance. So increasingly, with the burden of chronic disease becoming by far the greatest health and economic challenge we face, we need to change the structure of the healthcare system.
Essentially, the key question is how much is poor health amongst the ageing population really costing society? To get a true sense of that, we need to keep in mind that workers over 50 already earn one out of every three dollars across the G20 regions. By 2035, they're projected to generate nearly 40 per cent of all household income. So with that in mind, preventable conditions amongst those people aged 50-64 at the moment, are already costing G20 economies over $1 trillion annually in productivity loss. And there’s one more key number: 19 per cent. That's how much age-diverse workforces can raise GDP per capita over the next thirty years, according to estimates from the Organization for Economic Co-operation and Development, or OECD. So clearly, keeping workers healthier for longer underpins a …
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Is the Fed Behind the Curve?
29 augustus 2024 · 12 min
As the US Federal Reserve mulls a forthcoming interest rate cut, our Head of Corporate Credit Research and Global Chief Economist discuss how it is balancing inflationary risks with risks to growth. Lees meer
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Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley.
Seth Carpenter: And I'm Seth Carpenter, Morgan Stanley’s Global Chief Economist.
Andrew Sheets: And today on the podcast, we'll be discussing the Federal Reserve, whether its policy is behind the curve and what's next.
It's Thursday, August 29th at 2pm in London.
Seth Carpenter: And it's 9am in New York.
Andrew Sheets: Seth, it's always great to talk to you. But that's especially true right now. The Federal Reserve has been front and center in the markets debate over the last month; and I think investors have honestly really gone back and forth about whether interest rates are in line or out of line with the economy. And I was hoping to cover a few big questions about Fed policy that have been coming up with our clients and how you think the Fed thinks about them.
And I think this timing is also great because the Federal Reserve has recently had a major policy conference in Jackson Hole, Wyoming where you often see the Fed talking about some of its longer-term views and we can get your latest takeaways from that.
Seth Carpenter: Yeah, that sounds great, Andrew. Clearly these are some of the key topics in markets right now.
Andrew Sheets: Perfect. So, let's dive right into it. I think one of the debates investors have been having -- one of the uncertainties -- is that the Fed has been describing the risk to their outlook as balanced between the risk to growth and risk to inflation. And yet, I think for investors, the view over the last month or two is these risks aren't balanced; that inflation seems well under control and is coming down rapidly. And yet growth looks kind of weak and might be more of a risk going forwa…
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Bumpy Road Back For US Housing Market
29 augustus 2024 · 7 min
While mortgage rates have come down, our Co-heads of Securitized Products Research say the US housing market still must solve its supply problem. Lees meer
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Jim Egan: Welcome to Thoughts on the Market. I'm Jim Egan, co-head of Securitized Products Research at Morgan Stanley.
Jay Bacow: And I’m Jay Bacow, the other co-head of Securitize Products Research.
Jim Egan: Along with my colleagues bringing you a variety of perspectives, today Jay and I are here to talk about the US housing and mortgage markets.
It's Wednesday, August 28th, at 10 am in New York.
Now, Jay, mortgage rates declined pretty sharply in the beginning of August. And if I take a little bit of a step back here; while rates have been volatile, to say the least, we're about 50 basis points lower than we were at the beginning of July, 80 basis points lower than the 2024 peak in April, and 135 basis points below cycle peaks back in October of 2023.
Big picture. Declining mortgage rates -- what does that mean for mortgages?
Jay Bacow: It means that more people are going to have the ability to refinance given the rally in mortgage rates that you described. But we have to be careful when we think about how many more people. We track the percentage of homeowners that have at least 25 basis points of incentive to refinance after accounting for things like low level pricing adjustments. That number is still less than 10 percent of the outstanding homeowners. So broadly speaking, most people are not going to refinance.
Now, however, because of the rally that we've seen from the highs, if we look at the percentage of borrowers that took out a mortgage between six and 24 months ago -- which is really where the peak refinance activity happens -- over 30 percent of those borrowers have incentive to refinance.
So recent homeowners, if you took your mortgage out not that long ago, you should take a look. You might have an opportunity to refinance. But, for most of the universe of homeowners in Am…
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All Eyes on Jobs Data
27 augustus 2024 · 4 min
Our CIO and Chief US Equity Strategist explains why there’s pressure for the August jobs report to come in strong -- and what may happen to the market if it doesn’t. Lees meer
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Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief US Equity Strategist. Along with my colleagues bringing you a variety of perspectives, today I'll be talking about the importance of economic data on asset prices in the near term.
It's Tuesday, Aug 27th at 11:30am in New York.
So let’s get after it.
The stock rally off the August 5th lows has coincided with some better-than-expected economic data led by jobless claims and the ISM services purchasing manager survey. This price action supports the idea that risk assets should continue to trade with the high frequency growth data in the near term. Should the growth data continue to improve, the market can stay above the fair value range we had previously identified of 5,000-5,400 on the S&P 500.
In my view, the true test for the market though will be the August jobs report on September 6th.
A stronger than expected payroll number and lower unemployment rate will provide confidence to the market that growth risks have subsided for now. Another weak report that leads to a further rise in the unemployment rate would likely lead to growth concerns quickly resurfacing and another correction like last month. On a concerning note, last week we got a larger than expected negative revision to the payroll data for the 12 months ended in March of this year. These revisions put even more pressure on the jobs report to come in stronger.
Meanwhile, the Bloomberg Economic Surprise Index has yet to reverse its downturn that began in April and cyclical stocks versus defensive ones remain in a downtrend. We think this supports the idea that until there is more evidence that growth is actually improving, it makes sense to favor defensive sectors in one's portfolio. Finally, while inflation data came in softer l…
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What’s Boosting Consumer Confidence?
26 augustus 2024 · 4 min
Our US Thematic Strategist discusses surging confidence as the political landscape evolves, back-to-school spending starts strong and travel providers enjoy post-COVID demand. Lees meer
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Michelle Weaver: Welcome to Thoughts on the Market. I'm Michelle Weaver, Morgan Stanley's US thematic strategist. Along with my colleagues bringing you a variety of perspectives, today I'll give you an update on how recent market volatility and the upcoming US election are affecting the US consumer.
It's Monday, August 26th at 10am in New York.
A few weeks ago, we saw really sharp volatility. It was partially sparked by the unwind of the yen carry trade. But there are also renewed fears about a growth slowdown for the US or a possible US recession. Our economists do not think we are going into a recession though, and they have reaffirmed their longstanding view of a soft landing for the economy as a base case. And they think there's a slowdown, but not a slump.
From the more company side, this earning season showed that the US consumer is softening incrementally; but they're not falling off a cliff. Spending is slowing this year, but it's on the heels of what was really high spending over the last couple of years.
We did see some softness during second quarter results around the consumer. Consumer confidence is still intact, and our most recent survey in July showed a pretty strong improvement in sentiment. We think that this is partially a function of the political environment. We ran the survey from July 25th to 29th, shortly after President Joe Biden dropped out of the race and endorsed Vice President Kamala Harris. And we saw the biggest improvement in sentiment was for those who consider themselves middle of the road politically.
Their net sentiment toward the economy improved from negative -23 percent to -1 percent. Net expectations are also really positive for those who identify as liberal. Net sentiment for very liberal respondents is +34 percent, while i…
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Market Rebounds but Growth Is Uncertain
23 augustus 2024 · 3 min
Although markets have recovered over the last few weeks after a sudden drop, our Head of Corporate Credit Research warns that investors are still skeptical about the growth outlook. Lees meer
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Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, today we’ll discuss the big round trip for markets and why we’re not out of the woods.
It's Friday, August 23rd at 2pm in London.
The last few weeks have been a rollercoaster. July ended on a high with markets rallying as the Federal Reserve kept interest rates unchanged. Things turned almost immediately thereafter as weak data releases fanned fears that maybe the Fed was being just a little too nonchalant on the economy, making its patience withholding rates high look like a vice, rather than a virtue. A late summer period where many investors were out probably amplified the moves that followed. And so at the morning lows on August 5th, the S&P 500 had fallen more than 8 percent in just 3 trading days, and expected volatility had jumped to one of its highest readings in a decade.
But since those volatile lows, markets have come back. Really come back. Stock prices, credit spreads, and those levels of expected volatility are all now more or less where they ended July. It was an almost complete round-trip. We have a colleague who got back from a two-week vacation on Monday. The prices on their screen had barely changed.
The reason for that snapback was the data. Just as weak data in the aftermath of the Fed’s meeting drove fears of a policy mistake, better data in the days since have improved confidence. This has been especially true for data related to the US consumer, as both retail sales and the number of new jobless claims have been better than expected.
This round-trip in markets has been welcome, especially for those, like ourselves, who are optimistic on credit, and see it well-posi…