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Graham Secker: A Curious Case of Price Movements
9 november 2021 · 3 min
Third quarter earnings are heading into the home stretch in Europe and the UK, but while a solid number of companies have beat earnings estimates, market reaction has been a bit curious. Lees meer
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Welcome to Thoughts on the Market. I'm Graham Secker, Head of Morgan Stanley's European and UK Equity Strategy Team. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the emerging read on third quarter earnings for the region. It's Tuesday, November the 9th at 3pm in London.
Europe and the UK are now more than halfway through third quarter earnings season, and so we're far enough along to form a view on how this quarter's earnings are playing out. And while earnings have been largely solid, price movements on the day of earnings announcements, and in the days following, have been a bit curious. But I'll get into that in a moment.
As it stands, third quarter earnings appear on track to deliver a solid number of companies beating earnings per share estimates. As of yesterday, 55% of European companies have beaten earnings estimates, while 23% have missed, leaving a 'net beat' of 32%, which is twice the historic average. If this holds, it would put third quarter results on track to deliver another strong upside surprise, albeit slightly below the pace seen over the last few quarters. Taking it to the sector level, we find that the strongest breadth of earnings beats are coming from Financials and Energy. On the flip side, Communication Services, Healthcare and Industrials have delivered the smallest breadth of beats so far.
In addition to a healthy number of companies exceeding estimates, we are also seeing a beat in terms of the aggregate amount of European earnings overall, with weighted earnings per share currently beating consensus by about 10% for this quarter. This good news on earnings has driven a fresh bout of upgrades, which should reduce investor concerns around the risk to corporate profitability from ongoin…
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Mike Wilson: Inflation Causes Mixed Signals
8 november 2021 · 4 min
As we head towards year end, stock and bond markets appear to be sending mixed signals for the year ahead. For investors, the truth could lie somewhere in the middle. Lees meer
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Welcome to "Thoughts on the Market." I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace.
It’s Monday, November 8th at 2:00PM in New York. So, let's get after it.
As we enter the final stretch of the year, various markets appear to be sending very different signals about what to expect over the next year. Let’s start with Bonds where the longer-term yields have fallen sharply over the past few weeks. In fact, the moves have been so dramatic, several leading macro funds had their worst month on record in October. Some of this move is due to the fact that these same investors were all short bonds as central banks were expected to begin the long process of tightening monetary policy, perhaps faster than what was priced a few months ago.
The reason for this view was very simple: inflation has proven to be much higher than the central banks expected, and they would be forced to respond to that development by raising rates sooner than what they might prefer to do. Indeed, over the past few months, many central banks around the world have raised rates while others have begun to taper asset purchases and even end them altogether. In other words, these traders were correct in their fundamental assessment of what was about to happen, but long-term rates went down instead of up.
While the extreme positioning clearly played a role in the magnitude of the move in longer term rates, the fundamental question is why did they fall at all? One possible reason is the bond market may be discounting what we have been talking about on this podcast for weeks—that the first half of next year is likely to see a material sl…
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Jonathan Garner: Equity Markets Respond to Global Shifts
5 november 2021 · 3 min
Global moves in elections, COVID restrictions and energy prices are having ripple effects across markets. How should investors think about these dynamics for Asia and EM equities? Lees meer
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Welcome to Thoughts on the Market. I'm Jonathan Garner, chief Asia and Emerging Markets Equity Strategist for Morgan Stanley Research. Along with my colleagues, bringing you their perspectives, today I'll be talking about our latest view on Asia and EM equities. It's Friday, November the 5th at 2pm in London.
Overall, in our coverage, we continue to prefer Japan to Non-Japan Asia and Emerging Markets. Japan has outperformed Emerging Markets by 500 basis points year to date but remains cheaper to its own recent valuation history than Emerging Markets and with stronger upward earnings revisions. New Liberal Democratic Party leader Kishida-san has recently fought and won a snap election in the lower house of the Japanese parliament. The governing Center-Right coalition, which he now leads, did considerably better than polling had suggested prior to the election outcome. Although there may be some changes in policy emphasis compared with the Abe and Suga premierships, the broad contours of market-friendly macro and micro policy in Japan are likely to continue.
Elsewhere within Emerging Markets, we're most constructive on Eastern Europe, Middle East and Africa and in particular Russia, Saudi Arabia and UAE, which are positively leveraged to rising energy prices. We're also warming up to ASEAN, having upgraded Indonesia to overweight alongside our existing overweight on Singapore. ASEAN economies are finally beginning to reopen post-COVID, which is stimulating domestic consumption.
However, we have recommended taking profits on Indian equities after a year of exceptionally strong performance. We remain structurally bullish on a cyclical recovery in earnings growth in India, but with forward price earnings valuations now very high to history and peers, and with rising…
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Andrew Sheets: A Taper Without a Tantrum?
4 november 2021 · 3 min
Central bank support has been a key driver of market strength since last year. So how will markets react during the months-long tapering process? Lees meer
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Welcome to Thoughts on the Market. I'm Andrew Sheets, Chief Cross-Asset Strategist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about trends across the global investment landscape and how we put those ideas together. It's Thursday, November 4th at 2p.m. in London.
Since the start of the pandemic, the Federal Reserve, along with many other global central banks, instituted massive purchase programs of government bonds and mortgages. These purchases, known as quantitative easing, or QE, were designed to keep interest rates low and boost liquidity in financial markets during a time of stress. Since February of 2020, these purchases caused the Fed's bond holdings to rise by $4.4 Trillion dollars. On Wednesday, the Federal Reserve announced its intention to start dialing these purchases back.
To be clear, the Fed will still be buying a lot of bonds over the coming months. But after buying $120 billion of securities in October, the fed will buy $105 billion in November and $90 billion in December, a trend our economists think mean that they will cease these purchases entirely by June of next year. This ‘tapering’ of purchases and its impact for markets is a major source of debate.
One school of thought is that central bank support has been the main driver of market strength, not just recently, but going all the way back to the global financial crisis. Markets, after all, have done better when the Fed has been buying bonds.
But as much as you'll hear phrases like "the market is only up because of the Federal Reserve", this idea can suffer from some real statistical fallacies. Yes, markets have done better when the Fed has felt the need to support the economy. But the Fed has generally felt this need when conditions were bad, and bad conditions o…
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Matt Hornbach: What to Watch for When Markets Get Meta
4 november 2021 · 4 min
Inflation rates, commodity prices and central bank policy are tied together through self-referential loops. With today’s FOMC meeting, it is worth a closer look at these meta dynamics. Lees meer
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Welcome to Thoughts on the Market. I'm Matthew Hornbach, Global Head of Macro Strategy for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about global macro trends and how investors can interpret these trends for rates and currency markets. It's Wednesday, November 3rd at noon in New York.
Is there anything more "meta" than commodity markets, headline inflation rates and inflation markets? The Google dictionary, using definitions from Oxford languages, defines the adjective ‘meta’ as "self-referential, referring to itself or to the conventions of its genre." A great example would be a website that doesn't review movies, it reviews the reviewers who review movies.
Rates markets can get pretty meta as well. Commodity prices, inflation rates reported by the government and inflation rates traded in the market often mirror each other in a self-referential loop. When investors see commodity prices going up, they think that inflation rates will go up, so they buy inflation linked bonds. That drives inflation rates in the market higher, which makes othes investors believe that inflation will be a problem, and so they buy commodities as a hedge for higher inflation, which drives commodity prices even higher. And so, the loop continues.
This self-referencing loop wouldn't be as problematic if actual inflation reported by the government, which looks at price changes in the past, didn't have a big impact over market-based measures of inflation, which look at what inflation might average in the future. But they do have an impact, especially when movements in actual inflation have been big, like they have been recently.
Another check on the self-referencing loop is supposed to be how central bankers react to movements …
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Michael Zezas: Short-Term vs. Long-Term Deficit
2 november 2021 · 2 min
‘Build Back Better’ has gained support from all corners of the Democratic Party, but questions remain over how the framework is paid for. For investors, a look at short term dynamics may provide clarity. Lees meer
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Welcome to Thoughts on the Market. I'm Michael Zezas, head of public policy research and municipal strategy for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the intersection between U.S. public policy and financial markets. It's Tuesday, November 2nd at noon in New York.
Over the past few days, the "Build Back Better" framework has gained increasing support from all corners of the Democratic Party. And although Senator Joe Manchin put his support for the framework in question yesterday, and there are still some questions on items such as prescription drug reform, our base case is still that "Build Back Better" and the bipartisan infrastructure bill will likely be enacted before year end.
However, still up for debate is whether "Build Back Better" is fully paid for by things like stronger IRS tax enforcement and tax increases on corporations. In its current form, the framework proposes fiscal balance, but over 10 years. In the short term, it doesn't mean zero fiscal expansion.
Rather as structured, we think the bill would add to deficits over the first five years but get to balance by having surpluses over the remaining years. This distinction is important, and we argue that investors should focus on the early-year deficit dynamic instead of the 10-year deficit language that Congress generally uses to communicate deficit impact.
One reason is that policy uncertainty usually increases with time. For example, several spending and contra-revenue programs including a child tax credit, expanded Affordable Care Act subsidies, and state and local tax cap relief, roll off well before the 10-year look-ahead period ends. And U.S. elections in 2022 and 2024 could conceivably result in change…
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Special Encore: Clear Skies, Volatile Markets
1 november 2021 · 4 min
Original Release on October 11th, 2021: As the weather chills and we head towards the end of the mid-cycle transition, the S&P 500 continues to avoid a correction. How long until equities markets cool off? Lees meer
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In case you missed it, today we are bringing you a special encore release of a recent episode. We’ll be back tomorrow with a brand new episode.
Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, October 11th at 11:30 a.m. in New York. So, let's get after it.
With the turning of the calendar from summer to fall, we are treated with the best weather of the year - cool nights, warm days and clear skies. In contrast, the S&P 500 has become much more volatile and choppy than the steady pattern it enjoyed for most of the year. This makes sense as it's just catching up to the rotations and rolling corrections that have been going on under the surface. While the average stock has already experienced a 10-20% correction this year, the S&P 500 has avoided it, at least so far.
In our view, the S&P 500's more erratic behavior since the beginning of September coincided with the Fed's more aggressive pivot towards tapering of asset purchases. It also fits neatly with our mid-cycle transition narrative. In short, our Fire and Ice thesis is playing out. Rates are moving higher, both real and nominal, and that is weighing disproportionately on the Nasdaq and consequently the S&P 500, which is heavily weighted to these longer duration stocks. This is how the mid-cycle transition typically ends - multiples compressed for the quality stocks that lead during most of the transition. Once that de-rating is finished, we can move forward again in the bull market with improving breadth.
With the Fire outcome clearly playing out over the …
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Vishy Tirupattur: Corporate Credit - Calm Amidst the Storm
29 oktober 2021 · 4 min
Investors have had a lot to take in over the past few weeks, but corporate credit markets remain calm despite turbulence elsewhere. Vishy Tirupattur explains. Lees meer
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Welcome to Thoughts on the Market. I am Vishy Tirupattur, Global Director of Fixed Income Research. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the current calm in the corporate credit markets. It's Friday, October 29th at 1:00 p.m. in New York.
Over the past few weeks, risk markets have been buffeted by volatility from a wide array of sources. It was around a month ago that the regulatory reset in China and the near-term funding pressures on select property developers roiled global markets, as investors fretted all the systemic implications for global growth.
Then, a mixed U.S. jobs report, along with sharply higher commodity prices, intensified the debate around stagflation. And the rhetoric from multiple central banks has been increasingly hawkish. So, a lot for investors to take in.
The combination of these concerns has resulted in substantial market gyrations. The S&P 500 index declined by about 4% before recovering to all-time highs. The shape of the Treasury yield curve has twisted and turned. The benchmark 10-year Treasury interest rate went from around 1.3% to around 1.7% and back down to 1.56%. The market pricing of the timing of a Fed rate hike has come in sharply.
But amidst all these substantial moves, corporate credit markets on both sides of the Atlantic have largely stayed calm. Credit spreads, which are the risk premium investors demand to hold corporate debt or U.S. treasuries, have hovered near 52-week tights in investment grade, high yield and leveraged loans across the U.S. and Europe. And with surprisingly limited volatility.
Credit market volatility relative to equity markets remains very low. Market access for companies across the credit spectrum has remained robust, as indicated by strong issuance trends, runnin…
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Andrew Sheets: What Will Markets Return in the Long Run?
28 oktober 2021 · 5 min
One of the great conundrums of finance is predicting what markets will return over the long run. But with some historical research and the power of math, the future can become a bit clearer. Lees meer
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Welcome to Thoughts on the Market. I'm Andrew Sheets, chief cross strategist for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about trends across the global investment landscape and how we put those ideas together. It's Thursday, October 28th at 2 p.m. in London.
The question of what markets will return over the next decade is a conundrum. It's complicated because of just how much can change in a given year, let alone a decade, but also simple because over longer horizons, valuation measures such as bond yields or stock price-to-earnings ratios tend to matter a lot more for how well a market does. A 10-year horizon really matters to investors saving for the future. But most investors, and also this podcast tend to focus on events happening in the much more immediate future.
So what do we think this return picture holds?
When estimating what a market will return over the long run, there are really two basic approaches. The first, sometimes called the demand approach, assumes that markets are efficient, and that investors will always demand that the market is priced to deliver an average historical return. In this approach, future returns for the market are simply assumed to be the long run average. We don't use this approach, but others do, and it is appealing for being relatively straightforward.
An alternative, which we favor, could be called the supply approach. This attempts to quantify just how much return a given asset can supply. So, for bonds with a fixed yield, this approach is attractively simple. On a 10-year horizon, the return for a broad bond index should be pretty similar to its yield today, regardless of the path that interest rates take between now and then. That might sound somewha…
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Special Episode: Autonomous Trucking Speeds Ahead
28 oktober 2021 · 8 min
Autonomous trucking may sound like science fiction, but its impacts on transportation costs, the labor market and a breadth of industries may be closer than we think. Lees meer
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Adam Jonas Welcome to Thoughts on the Market. I'm Adam Jonas, head of Morgan Stanley's Global Auto and shared mobility research team.
Ravi Shanker And I'm Ravi Shankar, equity analyst covering the North American freight transportation industry.
Adam Jonas And on this episode of the podcast, we'll be talking autonomous. Specifically, the road ahead for autonomous trucking. It's Wednesday, October 27th at 10 a.m. in New York.
Adam Jonas Ravi, before we get into the autonomy topic, specifically, your sector really sits at the epicenter of labor inflation and driver shortage. So, just help set the scene for us. How big of a problem is this?
Ravi Shanker It's pretty difficult right now. It has been the case for a while. We've had a demographic problem in trucking for pretty much the last two decades and counting. In fact, you can find news stories going back to 1910 talking about a driver shortage in the industry. But it's particularly acute right now. A lot of it is structural, not cyclical. So we think we need to find unconventional solutions to the problem.
Adam Jonas So remind us why autonomy progresses faster in trucking than in cars. You and I have had this debate over many years but tell us why it's faster in trucking.
Ravi Shanker It's a slightly different problem to solve with trucking. I mean, it's still a very difficult problem to solve. But the fact that 93% of miles driven of a truck are on the highway and autonomous driving is slightly easier to solve on the highway than it is in the middle of Manhattan for instance. That really helps. The fact that this is an industry that's really driven by unit economics and labor accounts for 35-40% of the cost of trucking, and if you can substitute a driver at least partially or maybe completely even, that will significantl…
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Special Episode: Clean Tech Thrives Under Most Budget Outcomes
27 oktober 2021 · 8 min
Debates in D.C. continue to make headlines, but even with lowered expectations for the Biden agenda, we find a robust set of climate-focused provisions likely to survive the process and benefit the clean tech sector. Lees meer
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Michael Zezas Welcome to Thoughts on the Market. I'm Michael Zezas, head of U.S. public policy research and municipal strategy for Morgan Stanley.
Stephen Byrd And I'm Stephen Byrd, head of Morgan Stanley's North American Research for the Power and Utilities and Clean Energy Industries.
Michael Zezas And on this edition of the podcast, we'll be talking about clean energy and the latest developments for the bipartisan infrastructure deal and President Biden's build back better agenda. It's Tuesday, October 26th at 10 a.m. in New York.
Michael Zezas So Steven, with the negotiations winding down on the legislation Congress is considering around the president's economic agenda, I wanted to speak with you because you cover a sector, clean tech, that's really at the nexus of many things Congress and the White House are trying to achieve. In particular, even as the size of the economic and climate package has been cut from $6 trillion dollars to $3.5 trillion dollars now, perhaps as low as $1.5 trillion dollars, one constant has been a potentially large amount earmarked for clean energy infrastructure. By our estimate, there could be roughly $500 billion of new money allocated towards this goal. So, last month on the podcast, you outlined eight headline proposals, maybe we could start by updating everyone on those proposals as they stand now in the scaled back version of the bill.
Stephen Byrd Yeah, thanks, Mike. There is still a lot of support for clean energy in the draft legislation. Let me walk through the eight elements that investors have been most focused on to give you a sense for just how broad that support is.
Stephen Byrd Number one, and the boldest of these proposals is a clean electricity performance program or CEPP.…
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Mike Wilson: An Icy Winter for Investors?
25 oktober 2021 · 4 min
The forecast for inflation still appears hot for both consumers and corporates, but when it comes earnings and economic growth, the outlook looks a bit chilly. Lees meer
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Welcome to Thoughts on the Market. I'm Mike Wilson, chief investment officer and chief U.S. equity strategist for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, October 25th at 11:30 a.m. in New York. So, let's get after it.
Over the past few weeks, we've discussed the increasing probability for a colder winter, but a later start than previously expected. In other words, our "fire and ice" narrative remains very much intact, but timing is a bit more uncertain for the ice portion. Having said that, with inflation running hot in both consumer and corporate channels, the Fed is expected to formally announce its tapering schedule at next week's meeting with perhaps a more hawkish tone to convince markets they are on the job. In other words, the fire portion of our narrative—higher rates driven by a less accommodative fed spurring multiple compression—is very much in gear and a focus for investors.
With so much attention on rising inflation now from both investors and the Fed, we shift our attention to the ice portion of our narrative - meaning the ongoing macro growth slowdown and when we can expect it to bottom and reverse course. As regular listeners know, we've been expecting a material slowdown in both economic and earnings growth amid a mid-cycle transition. The good news is, so does the consensus, with third quarter economic growth forecast coming down sharply. While consensus’ fourth quarter GDP forecasts have declined too, it expects growth to reaccelerate from here. This is due to the fact that most have blamed the Delta variant, China's crackdown on real estate or power outages around the world for the economic disappointment in third quarter. The assumption is…
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Andrew Sheets: Why Lower Oil Futures Matter for the Shape of the Market
22 oktober 2021 · 4 min
The market’s long term trajectory for oil suggests a decline in prices, but the 'why' matters, and the transition toward more green energy may imply a different outcome. Lees meer
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Welcome to Thoughts on the Market. I'm Andrew Sheets, chief cross-asset strategist for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about trends across the global investment landscape and how we put those ideas together. It's Friday, October 22nd at 2:00 p.m. in London.
The price of energy has surged this year. While the S&P 500 is up an impressive 21% year to date, that pales in comparison to a broad index of energy commodities - things like oil and natural gas - which are up almost 80%. I wanted to talk today about some of the broader implications of this move and importantly, the somewhat surprising message from future price expectations.
Let's actually start with those expectations. While the price for oil is up sharply this year, future prices currently imply a pretty significant decline in the price of oil over the next one, two and three years. Buying a barrel of oil costs about $84 today. But if you want to buy a barrel for delivery in a year's time, the price is $76, a full 10% lower. And for those of you looking ahead to Christmas 2023, that same barrel of oil costs $70, 17% below current levels.
Those implied declines in the future price of oil are historically large. If current oil prices simply move sideways over the next year, buying oil 10% below current levels in a year's time will return, well, 10%. That's more than double the return for U.S. high yield bonds, and one reason commodity investors care so much about the shape of these prices over time. Indeed, it's a way for investors to make a pretty healthy return, in this case 10%, in a scenario where the day-to-day price of oil doesn't really move.
This dynamic that we see today, where future oil prices are lower than current levels, is called 'backwa…
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Special Episode: The Promise of Green Hydrogen
22 oktober 2021 · 10 min
Sustainably generated hydrogen has great promise as a fuel where electricity alone won’t suffice, but the road to its broad adoption remains complicated for investors to navigate. Lees meer
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Jessica Alsford Welcome to Thoughts on the Market. I'm Jessica Alsford, Global Head of Sustainability Research at Morgan Stanley.
Ed Stanley And I'm Ed Stanley, Head of Thematic Research at Morgan Stanley.
Jessica Alsford And today on the podcast, we're going to be talking about the investment implications of hydrogen. It's Thursday, October the 21st at 3:00 p.m. in London.
Jessica Alsford So Ed, hydrogen has been something we've been looking at for some time, given its potential role in a low carbon economy. So why is it that the debates around green hydrogen seem to have intensified over the last 6 to 12 months?
Ed Stanley Great question. Massive, centralized support and road mapping in the form of the European Hydrogen Strategy and the US Infrastructure Bill simultaneously thrust hydrogen to center stage around the world.
Ed Stanley But the froth has come and gone to some extent from most of these hydrogen names. And so now it's a really interesting time to be relooking at the space from a stock picking perspective. The number of dedicated hydrogen thematic funds is really beginning to accelerate as well. We've reached 10 hydrogen funds in Europe from only 1 two years ago, and many of the pure play equities that these funds are or will be buying are pretty illiquid, which we expect will lead to further volatility in due course for single name equities. The electrolyzer stocks are up to two thirds of their highs, so the reason why now is that as the market froth subsides, we're beginning to see these thematic alpha opportunities all the way along the supply chain in hydrogen.
Jessica Alsford Now, projections by the Hydrogen Council suggest that green hydrogen could enable a global emissions reduction of around 6 gigatons by 2050 - so almost 10% of current …
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Michael Zezas: Infrastructure SuperCycle on the Horizon?
21 oktober 2021 · 3 min
The bipartisan infrastructure and ‘Build Back Better’ plans remain in legislative limbo, but what could their passage mean for markets? Lees meer
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Welcome to Thoughts on the Market. I'm Michael Zezas, Head of Public Policy Research and Municipal Strategy for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the intersection between U.S. public policy and financial markets. It's Wednesday, October 20th at 11:00 a.m. in New York.
We spend a lot of time here thinking through exactly how and when Congress will manage to raise the debt ceiling, keep the government open and pass a multitrillion dollar package of spending offset by tax hikes. To be clear, we continue to think it will do all of the above. But for this week, let's deal with DC's policy choices in classic Morgan Stanley Research fashion... by focusing on tangible market impacts.
Let's start with new government spending, which can be a positive catalyst in equity sectors such as construction and clean tech: in our view, a conservative estimate is that Congress approves $2.5T over 10 years between both the bipartisan infrastructure and build back better plans. While that amount might fall short of the numbers you might have heard thrown around, it should get your attention. For example, the bipartisan infrastructure framework, which would make up about $500B of this total, would nearly double the US's current baseline infrastructure spend. Our colleagues think this would catalyze an infrastructure ‘supercycle’ where factors like a surge in cement demand could lead to a positive rerating of stocks in the construction sector. Additionally, the framework could include $500B in new spending and tax credits aimed at clean energy production. That means a substantial ramp in demand for clean tech companies, which our colleague Steven Byrd sees as a clear bullish catalyst for that sector.
As for corporate taxes - yes, DC is likely to push them highe…
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Special Episode: The Podcasting Industry Comes Into Its Own
20 oktober 2021 · 13 min
Moves toward scale and consolidation show promise for what is already a burgeoning content industry. Lees meer
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Andrew Sheets Welcome to Thoughts on the Market. I'm Andrew Sheets, Chief Cross Asset Strategist for Morgan Stanley Research.
Ben Swinburne And I'm Ben Swinburne, Equity Analyst covering Media, Entertainment, Advertising and the cable/satellite industries.
Andrew Sheets And today on the podcast will be going a bit meta, as the kids say, as we talk about some interesting upside for podcasting and advertising. It's Tuesday, October 19th at 2pm in London.
Ben Swinburne [00:00:25] And 9am in New York.
Andrew Sheets So, Ben, you recently wrote a research report titled, a bit surprisingly, “Mic'd Up. Is Podcasting the Next Big Thing?” I say surprisingly, because podcasting has been around for quite a while now. So why do you think that it's now where it's actually going to be it's time to shine?
Ben Swinburne You're right. Podcasting has been around probably for at least 15 years, but what we're really seeing is a significant increase in engagement by consumers, investment by platforms and content creators jumping into this space. We think we're at a point now where the business model, at least from an advertiser ROI point of view, has been proven out. You know, advertisers are paying $20-$25 CPMs, or cost per thousand listeners, to access a podcast audience, particularly through host-read ads, that's as high as linear television. And that just shows you that advertising on podcasting works for advertisers. So, what the industry needs from here is significant growth in adoption, which we believe is going to come given the investment we're seeing in content. Wrapping it all up, we think the industry can grow at a 30% CAGR through 2025 and become a $6-7 billion market globally, which is meaningful for the companies that are in this space.
Andrew Sheets So to kind of put those numbers in context, if I have a podcast that has 4,000 regular liste…
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Mike Wilson: Retail Investors Continue to Support Valuations
19 oktober 2021 · 4 min
With supply chain pressures and rising costs still weighing on markets, retail investors continue to see long term value. Lees meer
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Welcome to Thoughts on the Market. I'm Mike Wilson, chief investment officer and chief U.S. equity strategist for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, October 18th at 11:30 a.m. in New York. So let's get after it.
Last week, we noted it may take a bit longer for the Ice portion of our Fire and Ice narrative to play out. More specifically, we cited the potential for markets to look through the near-term supply bottlenecks and shortages as temporary. With the Biden administration directing substantial resources toward addressing the problem, that conclusion is even easier to make. Second, the budget reconciliation process has been pushed out and is unlikely to be resolved until later this year. This delays the negative earnings revisions from higher taxes we think have yet to be incorporated into 2022 consensus forecasts. In short, while earnings revisions' breadth is falling from extreme levels, it isn't falling fast enough to cause a deeper correction in the broader index, at least not yet.
Perhaps most importantly for the broader index is the fact that retail continues to be a major buyer of the dip. We highlighted a few weeks ago that the correction in September was taking longer to recover than the prior dips this year. In fact, both the primary uptrend and the 50-day moving average had finally been breached on significant volume. Could it be that the retail investor had finally run out of dry powder or willingness to buy the dip?
Fast forward to today, and the answer to that question is a definitive “no”. Instead, our data show retail investors remain steadfast in their commitment to buying equities, particularly on down days. Until these flows subside or reverse, the index will remain sup…
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Andrew Sheets: Will Cash Stay On The Sidelines?
16 oktober 2021 · 3 min
Consumer saving is up, way up. But whether investors put this money into the markets may have more to do with how much wealth is already in play. Lees meer
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Welcome to Thoughts on the Market. I'm Andrew Sheets, Chief Cross-Asset Strategist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about trends across the global investment landscape and how we put those ideas together. It's Friday, October 15th at 2:00 p.m. in London.
Over the course of the pandemic, strong government support and some of the difficulties of spending money as usual, led to a large surge in consumer savings. This was a global trend, seen from the U.S. to Europe to China. For markets, one of the most bullish arguments out there is that these savings can still come into the market. In sports terms, there's cash sitting on the sidelines waiting to come into the game.
But we think this story is more complicated. Yes, there are a lot of savings out there by almost every measure that we look at. But to continue with the analogy, while investors may have cash sitting on the sidelines, they also have a lot of wealth already on the field.
To put some numbers around this, the amount of cash currently held in US Money Market funds is about 20% of gross domestic product relative to a 30-year average of 15%. But total household wealth, that is the value of all the homes, stocks, bonds, businesses and stamp collections, is now about 590% of GDP, 170pp higher than its average over that same 30-year period. So, yes, overall Americans are holding more cash than normal, but they also have more, a lot more, of everything else.
Meanwhile, that everything else is riskier. Stocks, which generally represent the most volatile asset that most households hold has been a growing share of this overall wealth. U.S. households now hold more stocks relative to their other assets than at any time in history. It's possible that people decide to put more mon…
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Special Episode: The Two-Pillar Tax Overhaul
14 oktober 2021 · 5 min
Last week, over 130 countries announced an agreement to overhaul international tax rules. The changes may seem high-level, but should investors pay closer attention? Lees meer
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Michael Zezas Welcome to Thoughts on the Market. I'm Michael Zezas, Head of Public Policy Research and Municipal Strategy for Morgan Stanley.
Todd Castagno And I'm Todd Castagno, Head of Global Valuation, Accounting and Tax within Morgan Stanley Research.
Michael Zezas And on this edition of the podcast, we'll be talking about recent developments around a major overhaul of international tax rules and what it means for investors. It's Thursday, October 14th at 10 a.m. in New York.
Michael Zezas So, Todd, I really wanted to talk with you after last week's announcement by more than 130 countries about an agreement to undertake a major overhaul of international tax rules. Central to the agreement appears to be a change in how companies are taxed and a new 15% global minimum tax rate. So, investors might see a headline like this and think it's one of those things that sounds important, but maybe a bit too high level to matter. But you think investors should pay attention to this.
Todd Castagno Right, it's big news. There are really two key motives driving what is referred to as a two-pillar global tax agreement, and this motivation provides really important context. So let's start with pillar one. There's a growing desire from certain countries to change who gets to tax the largest and most profitable corporates. So Michael, in a modern marketplace, companies can engage and transact with consumers in countries where they may not have much or any physical presence. So the first pillar of this agreement proposes to reallocate profits of the largest and most profitable companies to where they transact with customers. Then there is desire to stop what's often referred to as the 'race to zero' in terms of corporate tax rates. So under pillar two of the agreement, countries will need …
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Special Episode: Planes, Trains and Supply Chains
14 oktober 2021 · 9 min
With supply chain delays in air, ocean and trucking on the minds of investors worldwide, what could it mean for the labor market and consumers headed into the holiday season? Lees meer
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Ellen Zentner Welcome to Thoughts on the Market. I'm Ellen Zentner, Chief U.S. Economist for Morgan Stanley Research.
Ravi Shanker And I'm Ravi Shanker, Equity Analyst covering the North American transportation industry.
Ellen Zentner And on this episode of the podcast, we'll be talking transportation - specifically the role of freight in tangled supply chains. It's Wednesday, October 13th at 10:00 a.m. in New York.
Ellen Zentner So, Ravi, many listeners have likely heard recent news stories about cargo ships stuck off the California coast waiting to unload cargo into clogged ports or overworked truck drivers struggling to keep up. And there's a very human labor story here, a business story and an economic story all rolled together, and you and your team are at the center of it. So, I really wanted to talk with you to give listeners some clarity on this. Maybe we can start first with the shipping. You know, talk to us about ocean and air. You know, where are we now?
Ravi Shanker So, this is a very complicated problem. And like most complicated problems, there isn't an easy explanation for exactly what's going on and also not an easy solution. What's happening in ocean is a combination of many issues. You obviously have a surge in demand coming out of Asia to the rest of the world because of catch up following the pandemic and low inventory levels. In addition to that, you've had some structural problems. For instance, the giant Panamax container ships that they started using in recent years have created a bit of a boom-and-bust situations at the ports - dropping off far too many containers that can be processed, and then there's like a lull and then many more containers show up. So that's a bit of an issue. Third, there's obviously issues with labor availability of…
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Graham Secker: Easing Europe’s Stagflation Concerns
12 oktober 2021 · 4 min
Investors appear nervous about the economic outlook as 3rd quarter earnings season approaches. Are stagflation concerns justified… or perhaps overdone? Lees meer
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Welcome to Thoughts on the Market. I'm Graham Secker, Morgan Stanley's Chief European Equity Strategist. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about why we think the current stagflation concerns in Europe are likely overdone. It's Tuesday, October the 12th, at 2:00pm in London.
In early September, we argued that investors should reengage with cyclical value stocks ahead of a likely stabilization in macro sentiment and in anticipation of higher bond yields. At this time, the former catalyst is yet to occur, however the latter has prompted a sharp bounce in value stocks, which we think has further to run - this would be in line with our bond strategists target of 1.8% on US 10-year yields by the end of this year. Interestingly, the rally in European value so far has been concentrated in the more disrupted names where specific catalysts have boosted performance - such as the rising oil price lifting energy stocks and higher bond yields boosting financials. In contrast, the more traditional cyclical sectors have been modest underperformers, suggesting to us that investors still remain nervous about the global economic outlook.
In recent weeks, this nervousness has taken on a stagflationary tone, with equity and bond prices both falling. In particular, the extent and speed of the rise in interest rates and commodity prices, especially gas and oil, has provoked incremental concerns around the outlook for corporate margins, household disposable incomes and the risk of demand destruction. These concerns are unlikely to dissipate overnight, however we think there is a good chance that stagflationary fears and supply chain issues will start to ease through the fourth quarter, which should allow cyclical shares to rally alongside the value names.
If we are…
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Mike Wilson: Clear Skies, Volatile Markets
12 oktober 2021 · 4 min
As the weather chills and we head towards the end of the mid-cycle transition, the S&P 500 continues to avoid a correction. How long until equities markets cool off? Lees meer
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Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, October 11th at 11:30 a.m. in New York. So, let's get after it.
With the turning of the calendar from summer to fall, we are treated with the best weather of the year - cool nights, warm days and clear skies. In contrast, the S&P 500 has become much more volatile and choppy than the steady pattern it enjoyed for most of the year. This makes sense as it's just catching up to the rotations and rolling corrections that have been going on under the surface. While the average stock has already experienced a 10-20% correction this year, the S&P 500 has avoided it, at least so far.
In our view, the S&P 500's more erratic behavior since the beginning of September coincided with the Fed's more aggressive pivot towards tapering of asset purchases. It also fits neatly with our mid-cycle transition narrative. In short, our Fire and Ice thesis is playing out. Rates are moving higher, both real and nominal, and that is weighing disproportionately on the Nasdaq and consequently the S&P 500, which is heavily weighted to these longer duration stocks. This is how the mid-cycle transition typically ends - multiples compressed for the quality stocks that lead during most of the transition. Once that de-rating is finished, we can move forward again in the bull market with improving breadth.
With the Fire outcome clearly playing out over the last month due to a more hawkish Fed and higher rates, the downside risk from here will depend on how much earnings growth cools off. Decelerating growth is normal during the mid-cycle …
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Andrew Sheets: Stagflation Demystified
8 oktober 2021 · 4 min
Investor worries over growth and inflation have revived the term stagflation—but with growth indicators historically solid, is it an accurate description? Lees meer
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Welcome to Thoughts on the Market. I'm Andrew Sheets, Chief Cross-Asset Strategist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about trends across the global investment landscape and how we put those ideas together. It's Friday, October 8th at 2:00 p.m. in London.
Near where I live in London, service stations are out of petrol - or to my fellow Americans, the gas stations are out of gas. In Europe, natural gas prices have roughly tripled in the last three months. Year-over-year, Consumer Price Inflation has risen 5.3% in the United States, 5.8% in Poland, 7.4% in Russia, and 9.7% in Brazil. It's not hard to see why one term seems to come up again and again in our conversations with investors: stagflation.
Stagflation, broadly, is the idea that you get very weak growth, but also higher inflation together. Yet it's equally hard to miss in these conversations that while this term is widely cited, it's often ill defined. If stagflation means the 1970s, a time of wage price spirals and high unemployment, this clearly isn't it. Unemployment is falling around the world, and inflation markets imply pressures will moderate over time, rather than spiral higher.
Market pricing is also very different. Over the last 100 years, the 1970s represented an all-time high in nominal interest rates and an all-time low in equity valuations. Today, it's the opposite. We're near a record low in yields and a record high in those valuations.
Instead, what if we say that stagflation is a period where inflation expectations are rising, and growth is slowing? That's an easier, broader definition to apply, but even that hasn't really been happening.
In the U.S., market expectations for inflation are roughly where they were in early June. U.S. economic data…
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Special Episode: Highs—and Lows—in U.S. Housing
8 oktober 2021 · 9 min
Affordability pressures continue to mount as housing supply tightens. How long will home prices continue setting records and what could it mean for credit availability? Lees meer
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James Egan Welcome to Thoughts on the Market. I'm James Egan, Co-Head of U.S. Securitized Products Research here at Morgan Stanley.
Jay Bacow And I'm Jay Bacow, the other Co-Head of U.S. Securitized Products Research here.
James Egan And on this edition of the podcast, we'll be talking about continued growth in the housing market and the current state of supply. It's Thursday, October 7th at 10:00 a.m. in New York.
Jay Bacow So, Jim, last time we were on this podcast, it seemed like we were seeing record home prices. However, every month since, we've continued to break those records. What's going on? When do we expect to see home prices start to turn?
James Egan The most recent print - and so we're talking about Case-Shiller National here that we got in September, it referenced July; 19.7% year over year growth. We're rounding to 20%. Now, we've set new records each of the last few months, but if we remove this specific chapter in history, the prior record from the early 2000s was a little bit over 14%. So, we're well north of anywhere we've been.
Jay Bacow All right. But if we are at a record right now, I thought previously you had talked about things slowing down. So, what's going on there?
James Egan So, when we talk about the view for home prices, right? We talk about demand, we talk about supply, we talk about affordability, and we talk about mortgage credit availability. And one of the things we highlighted the last time we were on this podcast was that affordability. Those pressures that were building up there were going to lead to a slowdown in home price growth in the second half. The most recent print, as I said, September - references July - technically, we're in the second half of the year. We do think as we move through the third quarter and really as we g…
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Michael Zezas: Washington’s Trio of Tricky Travails
6 oktober 2021 · 2 min
Discussions in D.C. over the infrastructure framework, budget reconciliation bill and debt ceiling could impact more than just politics. What could it mean for stocks and bond yields? Lees meer
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Welcome to Thoughts on the Market. I'm Michael Zezas, Head of Public Policy Research and Municipal Strategy for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the intersection between US public policy and financial markets. It's Wednesday, October 6th at 10:30 a.m. in New York.
When we checked in last week, the debate was all about fiscal policy. Would Democrats go small and just focus on passing the bipartisan infrastructure framework, or BIF? Or go big, linking the BIF to the bigger plan to expand the social safety net, environmental spending and the tax base. The difference matters, as a small approach could halt the increase in bond yields we've seen in recent weeks, whereas a big approach could keep them moving higher.
In short, it looks like the Democrats are at least going to continue to try and go big, as was our expectation. No votes were taken last week as it became obvious that there wasn't enough support for the small approach, which wouldn't fly with a bloc of progressives in the Democratic party. So, despite moderates' demands for a BIF vote by week's end, Democrats were forced to extend negotiations with a new soft deadline for action of October 31st. That reinforced to us the link between both pieces of legislation. So, in our view, we're still headed toward a multitrillion dollar package being enacted in the fourth quarter, which should boost deficits, medium term growth expectations, and therefore bond yields along with it.
But in the meantime, the rise in bond yields could take a break as Washington, D.C. deals with the debt ceiling. The Treasury Department says the ceiling must be raised or suspended by October 18th, less than two weeks from today, or else the U.S. could face defau…
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Special Episode: COVID-19 - Will Pills Change the Game?
6 oktober 2021 · 10 min
New data on an oral antiviral treatment could have significant impact on the COVID treatment landscape. What’s next for treatments, booster shots and child vaccines. Lees meer
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Andrew Sheets Welcome to Thoughts on the Market. I'm Andrew Sheets, chief cross asset strategist for Morgan Stanley Research.
Matthew Harrison And I'm Matthew Harrison, Biotechnology Analyst.
Andrew Sheets And on this special edition of the podcast, we'll be talking about several new developments in the fight against COVID 19. It's Tuesday, October 5th at 3 p.m. in London,
Matthew Harrison and it's 10:00 a.m. in New York
Andrew Sheets So Matt. I really wanted to catch up with you today because there are a number of different storylines involving COVID 19 going on at the moment, from child vaccines to the situation with booster shots. But I suppose the headline story that's getting the most attention is data released last Friday on Merck's new oral COVID treatment pill Molnupiravir or I think I said that right. I'm sure I didn't. So maybe let's start there. What is this treatment and why does it matter?
Matthew Harrison Yes. Thanks, Andrew. So Molnupiravir is an oral antiviral against COVID. The way it works is that it stops the virus from replicating effectively, and that reduces the amount of virus in someone's body. It was studied here in patients that were recently diagnosed with COVID 19. And it cut the rate of hospitalization in those patients by 50%. So those that didn't get treated with the drug went to hospital at a rate of 14%, and those that did get treated went to hospital rate of 7%. I think the thing I would want to highlight is that this is something you obviously take after you get infection and vaccines remain the primary way to prevent infection.
Andrew Sheets So this is kind of one of the things I felt that was so fascinating when that news was announced. Because on the one hand, this seems like very good news, another treatment that appears highly effec…
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Reza Moghadam: Post-Merkel Politics in Europe
5 oktober 2021 · 5 min
After 16 years, German Chancellor Angela Merkel is stepping down. While the full implications for Europe remain unclear, some contours of the post-Merkel government are now taking shape. Lees meer
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Welcome to Thoughts on the Market. I am Reza Moghadam, Morgan Stanley's Chief Economic Advisor. Along with my colleagues, we bring you a variety of market perspectives. Today, I'll be talking about the implications of the recent German elections and how investors should view the road ahead after a government is formed. It's Monday, October 4, at 2pm in London.
After 16 years as German Chancellor, Mrs. Merkel is stepping down. In the run up to the recent elections, there was considerable anxiety in European capitals. Angela Merkel, after all, has been the steady hand that has guided not only Germany's but also Europe's response through numerous crises.
These anxieties have not been entirely laid to rest by the results of last week's election. For the first time since 1950s, forming a government would require a coalition of at least three - rather than the traditional two - political parties, which raises concerns about cohesion of the new government.
However, there are reasons to be optimistic about broad continuity - that a centrist, pro-European and pro-business coalition would eventually emerge in Berlin.
There are perhaps two key issues of importance for investors as discussions get underway. First, who will succeed Mrs. Merkel? And second, what would be the exact composition of the coalition and, therefore, its policies?
The candidate most likely to succeed Mrs. Merkel is Olaf Scholz, whose Social Democratic Party narrowly topped the polls. Mr. Schulz is continuity incarnate. He has been Germany's Finance Minister and vice chancellor under Mrs. Merkel. He brings strong pro-European credentials, especially having played a role in ensuring Germany's support for the European Recovery Fund, which is Europe's main vehicle for providing support for the h…
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Special Episode, Part 2: Taking the Temperature of Individual Investors
2 oktober 2021 · 8 min
On part two of this special episode, Lisa Shalett and Andrew Sheets dive into meme stocks and individual investor trading advantages… and pitfalls. Lees meer
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Andrew Sheets Welcome to Thoughts of the Market. I'm Andrew Sheets, Chief Cross Asset Strategist for Morgan Stanley Research.
Lisa Shalett And I'm Lisa Shalett, Chief Investment Officer for Morgan Stanley Wealth Management.
Andrew Sheets And today on part 2 of the podcast, I’ll be continuing my discussion with Lisa on the retail investing landscape and the impact on markets. It's Friday, October 1st, at 2p.m. in London.
Lisa Shalett And it's 9:00 a.m. here in New York City.
Andrew Sheets So, Lisa, over the last 12 months, we've seen a real boom in the amount of activity in the stock market from these so-called retail investors. And, you know, given your perspective over several market cycles, you know, what do you think is kind of similar and different in terms of individual investor activity now versus what we've seen in the past?
Lisa Shalett So you know what's similar to episodes of retail participation that we've seen in the past? I think the first is momentum and crowding. So, as we know in prior market cycles, you know, periods like a 1999-2000 tech bubble, for example. We had a lot of enthusiasm around stocks that perhaps didn't have great profit fundamentals or whose valuation paradigms shifted to expand beyond things like profit to things like, you know, share of eyeballs and things of that nature. And we're you know, we've certainly during this market cycle with the emergence of, you know, zero commission trading platforms, you know, seen some of that type of activity where stocks seem to be moving based on other dynamics, be they momentum, be they you know, social media chatter.
Lisa Shalett Obviously, I think one of the things that is different is this role of social media. I think that this idea that a set of investors will crowd or attempt to drive the market through social m…
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Special Episode: Taking the Temperature of Individual Investors
1 oktober 2021 · 10 min
On part one of this Special Episode, Lisa Shalett, Chief Investment Officer for Morgan Stanley Wealth Management, discusses the new shape of retail investing and the impact on markets. Lees meer
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Andrew Sheets Welcome to Thoughts of the Market. I'm Andrew Sheets, Chief Cross Asset Strategist for Morgan Stanley Research.
Lisa Shalett And I'm Lisa Shalett, Chief Investment Officer for Morgan Stanley Wealth Management.
Andrew Sheets And today on the podcast, we'll be discussing the retail investing landscape and the impact on markets. It's Thursday, September 30th, at 2p.m. in London.
Lisa Shalett And it's 9:00 a.m. here in New York City.
Andrew Sheets Lisa, I wanted to have you on today because the advice from our wealth management division is geared towards individual investors, what we often call retail clients instead of institutional investors. You tend to take a longer-term perspective. As chief investment officer, you're juggling the roles of market analyst, client adviser and team manager ultimately to help clients with their asset allocation and portfolio construction.
Andrew Sheets Just to take a step back here, can you just give us some context of the level of assets that Morgan Stanley Wealth Management manages and what insight that gives you potentially into different markets?
Lisa Shalett Sure. The wealth management business, especially after the most recent acquisition of E-Trade, oversees more than four trillion dollars in assets under management, which gives us a really extraordinary view over the private wealth landscape.
Andrew Sheets That’s a pretty significant stock of the market there we have to look at. I'd love to start with what you're hearing right now. How are private investors repositioning portfolios and thinking about current market conditions?
Lisa Shalett The individual investor has been incredibly important in terms of the role that they're playing in markets over the last several years as we've come out of the pa…
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Michael Zezas: Will the Democrats Go Big or Go Small?
30 september 2021 · 3 min
The eventual size of the Democratic Party’s fiscal policy legislation – for taxes and for spending – will likely impact the bond market as well as the policy landscape. Lees meer
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Welcome to Thoughts on the Market. I'm Michael Zezas, Head of Public Policy Research and Municipal Strategy for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the intersection between US public policy and financial markets. It's Wednesday, September 29th at 1:00 p.m. in New York.
It's shaping up to be one of the most consequential legislative weeks on record in the US. At stake is the size and fate of Democrats' fiscal policy ambitions, specifically their goals of a major tax increase to fund a substantial expansion of infrastructure spending and the social safety net. But intraparty disagreements on the content of these efforts have left investors wondering: what will the final package do to the U.S. fiscal outlook and, therefore, the trajectory for bond yields? Will the Democrats go big, keeping yields moving higher, or go small, potentially meaning the worst of the recent increase in bond yields is behind us?
Our current thinking is that the Democrats eventually end up going big. Why? Because neither of the two legislative vehicles they're considering are possible without the other - they're linked. Moderates, particularly in the Senate, may be happy with approving the smaller bipartisan infrastructure framework, or BIF. But progressives don't appear content with just this achievement and continue to argue they'll withhold their votes on the BIF until the whole of the party endorses a specific plan for the bigger budget reconciliation bill. This de facto linking of the two bills may mean that Democrats' planned votes this week to pass the BIF gets delayed, but it keeps the party on track for what we think would be a combined increase in spending of over $3T over 10 years, adding upwards of $1T to the deficit over …
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Jonathan Garner: Economic Surprises = Earnings Surprises
29 september 2021 · 4 min
With incoming global growth data missing consensus expectations, emerging markets equity earnings revisions could fall back into negative territory for the first time since May 2020. Lees meer
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Welcome to Thoughts on the Market. I'm Jonathan Garner, Chief Asia and Emerging Markets Equity Strategist for Morgan Stanley Research. Along with my colleagues, bringing you their perspectives, today I'll be talking about a key recent development, which is the deterioration in the global growth outlook and what it means for Asia and EM equities. It's the 29th of September at 7:30 a.m. in Hong Kong.
Incoming global growth data is starting to miss expectations by a wide margin. This appears to be mainly due to the impact of Delta-variant covid on consumer confidence, but also continued supply chain bottlenecks on the corporate sector. The Global Economic Surprise Index, i.e., the extent to which top-down global macro data beats or misses economists' expectations, has fallen in a straight line from a level of +90 in mid-June to -24 currently. It was last this low at the end of March 2020, at the beginning of the global impact of the pandemic, and before that in the second quarter of 2018, at the start of US-China tariff hikes and the imposition of non-tariff barriers to trade.
So in short, there's been a sudden downward lurch relative to expectations for global macro in relation to the narrative from consensus of a continued strong recovery, broadening out by geography, and entering a virtuous circle of rising consumption and investment. Global equity markets have wobbled recently but are still trading close to their all-time highs set in early September. We think the key to understanding what happens next is to understand the relationship between Economic Surprise data and earnings revisions. We’ve found that changes in the Global Economic Surprise index tend to have a good leading relationship for how bottom-up analyst earnings revisions evolve three months la…
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Matt Hornbach: Inflation Fears Drive Central Bank Actions
29 september 2021 · 4 min
Real interest rates are on the rise in Europe and the US and central banks are responding. This may impact currency markets headed into the fall. Matt Hornbach, Global Head of Macro Strategy, explains. Lees meer
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Welcome to Thoughts on the Market. I'm Matt Hornbach, Global Head of Macro Strategy for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about global macro trends and how investors can interpret these trends for rates and currency markets. It's Tuesday, September 28th, at 12:30p.m. in New York.
Just like clockwork, markets have become much more interesting and volatile after Labor Day in the U.S. Investors have been confronted with several issues that have collided in a big bang after what had been a relatively quiet summer. And central bank reactions have been a key part of the story going into the fall.
To start, supply disruptions in commodity markets have led to inflation fears that have manifested themselves in higher market prices for inflation protection, mostly in Europe and the U.K. In response, the Bank of England has expressed more concern over the inflation outlook, since inflation is having a negative impact on the region's growth outlook. This combination of factors has caused real interest rates in Europe and the UK to remain extremely low and has also put downward pressure on the value of the British pound and the euro.
Meanwhile, the U.S. economy has been more insulated from the commodity price shock, and inflation protection in the U.S. was already fully valued. In other words, worries about inflation in the U.S. began to build last year and, as a result, investors had already prepared themselves for the elevated inflation prints we're experiencing in the U.S. today. This means that real interest rates in the U.S. are left marching to the beat of other drummers.
In particular, real interest rates in the U.S. have begun to respond to Federal Reserve monetary policy machinati…
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Mike Wilson: The Process Matters
28 september 2021 · 4 min
Our analyst’s equity positioning models have held up well and we continue to rely on an understanding of historical cycles as we move through this mid-cycle transition. Chief Investment Officer Mike Wilson explains. Lees meer
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Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, September 27th, at 11:30a.m. in New York. So let's get after it.
Our equity strategy process has several key components. Most importantly, we focus on the fundamentals of growth and valuation to determine whether the overall market is attractive and which sectors and stocks look the best. The rate of change on growth is more important than the absolute level, and we use a market-based equity risk premium framework that works well as long as you apply the correct regime when using it. In that regard, we're an avid student of market cycles and believe historical analogs can be helpful. For example, the mid-cycle transition narrative that has worked so well this year is derived directly from our study of historical, economic and market cycles.
The final component we spend a lot of time studying is price. This is known as technical analysis. Markets aren't always efficient, but we believe they are often very good leading indicators for the fundamentals - the ultimate driver of value. This is especially true if one looks at the internal movements and relative strength of individual securities. In short, we find these internals to be much more helpful than simply looking at the major averages.
This year, we think the process has lived up to its promise, with the price action lining up nicely with the fundamental backdrop. More specifically, the large cap quality leadership since March is signaling what we believe is about to happen - decelerating growth and t…
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Andrew Sheets: The Fed Shuffles Toward the Exit
24 september 2021 · 3 min
This week, the Fed hinted that a taper announcement in November could be in store, adding one more wrinkle into events that investors will need to navigate this fall. Lees meer
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Welcome to Thoughts on the Market. I'm Andrew Sheets, Chief Cross-Asset Strategist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about trends across the global investment landscape and how we put those ideas together. It's Friday, September 24th, at 2:00 p.m. in London.
The Federal Reserve, or the Fed, probably receives more attention than any other institution in today's market. At one level, that's easy to explain; it's the central bank for the world's largest economy and reserve currency, and just so happens to be buying $120B of bonds every month.
At another level, though, it feels a little excessive. Investors have woken up to the exact same interest rates and purchases from the Fed every day for more than a year. And if you look at global stock markets since May of last year, they've basically just risen in lockstep with the overall level of earnings.
Still, the Fed matters, and this week it made some consequential announcements. It suggested strongly that it would begin to slow, or taper, those bond purchases, and do so soon, ending them completely by the middle of next year. Its members increased their expectation for how much they thought interest rates would rise in 2023 and 2024. All of this was driven by ongoing improvement in the economy and signs that inflationary pressures were finally building.
One could be forgiven for thinking that the market would look at fewer purchases by the central bank, and higher interest rates, and think this was a bad thing. But markets are fickle, especially over short horizons, and stocks rose sharply both the day of and the day after the Fed's announcement. Interest rates also rose, following the lead of the Fed's shifting projections. Of those two reactions, we find thos…
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Michael Zezas: Two Potential Catalysts to Watch for Fall Volatility
23 september 2021 · 3 min
Why two D.C. policy items—the bipartisan infrastructure framework and debt ceiling deliberations—could add one more complication for equities markets. Lees meer
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Welcome to Thoughts on the Market. I'm Michael Zezas, Head of Public Policy Research and Municipal Strategy for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the intersection between US public policy and financial markets. It's Thursday, September 23rd, at 10:30 a.m. in New York.
Markets this week have had a lot to focus on - from the Fed's policy decisions to fresh concerns about global growth. But expect that focus to shift next week, or possibly sooner, to events in Washington, D.C. In particular, watch out for two events that could catalyze some market volatility.
First, keep an eye on the planned vote on the bipartisan infrastructure framework, or BIF for short. This vote, which could come as soon as Monday, is a key test for whether or not the Democrats will be able to 'go big' on fiscal policy. That's because the BIF - which would add about $550B of new spending over 10 years to the budget - was supposed to be paired with a bigger, budget reconciliation bill that could reach as high as $3.5T over 10 years. The linking of the two was meant to align the interests of moderate and progressive Democrats in Congress. But that reconciliation bill isn't ready yet for a vote alongside the BIF. So, if the smaller bill gets approved, the moderates will have gotten most of what they want and could be more demanding on the bigger bill, either stalling it or shrinking its size. At the moment, it's far from clear that the BIF can get enough votes to pass on its own, meaning the 'all or nothing' dynamic on fiscal policy remains intact. But if the BIF succeeds, that would suggest a smaller fiscal package, smaller deficit impact, and a key challenge to our view that bond yields will rise meaningfully into year end.
We'd also keep a close eye o…
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Special Episode: How Will China Manage the Housing Downturn?
23 september 2021 · 9 min
On this special episode, we address key questions around struggles in China's property sector, as well as any potential spillover into the broader economy. Lees meer
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Chetan Ahya Welcome to Thoughts on the Market, I'm Chetan Ahya, Chief Asia Economist for Morgan Stanley,
Robin Xing and I'm Robin Zing Morgan Stanley's Chief China Economist.
Chetan Ahya And on this special edition of the podcast we'll be diving into the path forward for China's economy amid challenges in the property sector. It's Wednesday, September 22nd, at 7:30 a.m. in Hong Kong.
Chetan Ahya So, Robin, as many listeners likely read earlier this week, China's property market is the subject of a lot of market and media focus right now. And near-term funding pressures for some of China's property developers have led to volatility as markets weigh concerns on any ripple effect into China's economy or even the global economy. To put funding pressures in context, in dollar terms, cumulative default in China's high-yield property names this year are already higher than that combined between 2009 and 2020. Robin, I want to get into your base case for China's economy as policymakers manage the property sector outcome. But to understand the backdrop for listeners, maybe it's worthwhile to take a step back to understand China's regulatory reset and the impact it's had on the housing market.
Robin Xing So what we call China's regulatory reset is China's ongoing shift in governance priorities, which policymakers drafted last year. And it covers a number of areas, including technology, education, carbon emission, but also property developers in an effort to address the financial stability risks. So the property related financing has actually been tightening since summer 2020. You know, first with new financing rules for real estate companies--what's called the 'three red lines'--which put a leverage cap on developers, then a cap on property, long exposure for banks, and lately, very strict mor…
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Special Episode: Unpacking Climate Action in Congress
21 september 2021 · 8 min
This Climate Week, we preview environmental policy proposals within the $3.5 Trillion Budget Reconciliation Bill. What will it mean for investors and the response to climate change? Lees meer
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Jessica Alsford Welcome to Thoughts on the Market. I'm Jessica Alsford, global head of Sustainability Research team at Morgan Stanley.
Stephen Byrd And I'm Stephen Byrd, head of Morgan Stanley's North American Research for the Power & Utilities and Clean Energy Industries.
Jessica Alsford And on this special Climate Week episode, we'll be talking about some landmark climate and environmental policy proposals in the U.S. and the future of energy. It's Tuesday, September the 21st, at 2:00 p.m. in London.
Stephen Byrd And 9:00 a.m. in New York.
Jessica Alsford So, Stephen, earlier this month, the U.S. House of Representatives released a draft of some climate and environmental policies as part of its $3.5T budget reconciliation package. I want to dig into your takeaways, but first of all, maybe you could walk us through some of the headline proposals.
Stephen Byrd Absolutely, Jessica. This is one of the most exciting pieces of proposed legislation we've seen in the United States, at least with respect to clean energy. And I'll just highlight a handful of very important provisions that are currently in the draft. First, there's a very bold, clean electricity performance program or CEPP that would provide significant incentives for utilities and other loads of green entities to increase their renewables every year. Secondly, there would be a new tax credit for energy storage and biofuels. Third, a major extension of tax credits for wind, solar, fuel cells and carbon capture and payment levels are higher in many cases. Fourth, significant incentives for domestic manufacturing of clean energy equipment. Fifth, what we would call direct pay for tax credits, which basically provides owners with the immediate cash benefit of tax losses. That provides enhanced financin…
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Mike Wilson: The Final Chapter of the Mid-Cycle Transition?
21 september 2021 · 4 min
Although many commentators point to the S&P 500 near all-time highs as a rationale for higher stock prices, markets may be facing a bumpy road ahead. Lees meer
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Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, September 20th, at 12:30pm in New York. So let's get after it.
For regular listeners to this podcast our mid-cycle transition narrative is probably getting fairly repetitive. A strong narrative that makes sense is worth riding until the end, and we're not there yet. However, we do think we've entered the final chapter. To recall, the mid-cycle transition began back in March. Initially, it's a more difficult time for the average stock, while the higher quality stocks and indices hold up. Over the last six months that's pretty much exactly what's happened - small caps and lower quality stocks have underperformed the S&P 500 significantly.
But now we're entering the final chapter and that's the time when the index starts to underperform the average stock. This happens because that's where investors have been hiding; and at this stage of the transition, investors can no longer hide from the reality of what the mid-cycle transition brings. First, we have a deceleration in economic and earnings momentum. On the economic front, the data has already rolled over pretty hard. While many are blaming the Delta variant for this slowdown in the economy, we think it's more about the payback in demand from a fiscal stimulus and recovery that was unsustainably strong earlier this year. Furthermore, because this recession and recovery were much sharper than normal, we should expect a greater deceleration in growth during the mid-cycle transition phase this time. Finally, due to the nature of this recession being centered around a healt…
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Special Episode: Untangling Global Spikes in Commodity Prices
18 september 2021 · 10 min
We look at how soaring energy prices in Spain, gas prices in the U.S. and aluminum prices globally could all be linked to coal mines in China. Lees meer
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Andrew Sheets Welcome to Thoughts on the Market, I'm Andrew Sheets, chief cross asset strategist for Morgan Stanley.
Martijn Rats And I'm Martijn Rats, Morgan Stanley's global oil strategist and head of the European energy team.
Andrew Sheets And on this special episode, we'll be talking about how soaring energy prices in Spain, gas prices in the U.S. and aluminum prices globally could all be linked to coal mines in China. It's Friday, September 17th, at 3 p.m. in London.
Andrew Sheets So, Martin, there's a pretty striking story going on globally in commodities that's been hitting close to home here in Europe. I think a good place to start is just to run through how much prices for things like coal, natural gas and aluminum have been rising this year.
Martijn Rats Thanks, Andrew. The price rally in many of these commodities has been rather extraordinary. The global consumption of coal peaked in 2013. So eight years ago. And yet we're now looking at thermal coal prices that are close to all time highs. At the start of the year, the price of thermal coal in the seaborne market was in the order of $80/ton. Now we're looking at $180/ton. With that also, the price of aluminum has risen very strongly. At the start of the year, we were around about $2000/ton. At the moment we're knocking on nearly $3000/ton. The price of natural gas both in the seaborne market traded as LNG as liquefied natural gas, but also in Europe, delivered through pipelines at several trading hubs where gas is trading. In Europe, we've seen extraordinary rallies. Typical prices have gone from in the order of $6-7 per MMBTU to $22, $23, $24 per MMBTU. And with that, then also electricity prices have increased very sharply. In Germany, in France, Spain, the U.K., electricity prices have broadly tripled from about sort of 50 euros a …
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Special Encore: A Good Time to Borrow?
16 september 2021 · 4 min
Original Release on August 13th, 2021: Across numerous metrics, the current environment may be an unusually good time to borrow money. What does this mean for equities, credit and government bonds? Chief Cross-Asset Strategist Andrew Sheets explains. Lees meer
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Welcome to Thoughts on the Market. I'm Andrew Sheets, Chief Cross-Asset Strategist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about trends across the global investment landscape and how we put those ideas together. It's Friday, August 13th, at 4:00 p.m. in London.
Obvious things can still matter. Across a number of metrics, this is an unusually good moment to borrow money. And while the idea that interest rates are low is also something we heard a lot about over the prior decade, today we're seeing borrowing cost, ability, and need align in a pretty unique way. For investors, it supports Equities over Credit and caution on government bonds.
Let's start with those borrowing costs, which are pretty easy. Corporate bond yields in Europe are at all-time lows, while U.S. companies haven't been able to borrow this cheaply since the early 1950s. Mortgage rates from the U.S. to the Netherlands are at historic lows, and it's a similar story of cheap funding for government bonds.
But even more important is the fact that these costs are low relative to growth and inflation. If you borrow to pay for an asset—like equipment or infrastructure or a house—it’s value is probably going to be tied to the price levels and strength of the overall economy. This is why deflation and weak growth can be self-fulfilling: if the value of things falls every year, you should never borrow to buy anything, leading to less lending activity and even more deflationary pressure.
That was a fear for a lot of the last decade, when austerity and concerns around secular stagnation ruled the land. And that may have been the fear as recently as 15 months ago with the initi…
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Michael Zezas: What’s on Tap for U.S. Taxes?
15 september 2021 · 2 min
Although markets have been preparing for the notion of tax hikes, a flurry of recent legislative activity may suggest where tax policy will eventually land. Lees meer
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Welcome to Thoughts on the Market. I'm Michael Zezas, Head of Public Policy Research and Municipal Strategy for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the intersection between U.S. public policy and financial markets. It's Wednesday, September 15th, at 10:30AM in New York.
A flurry of legislative activity over the past week revealed a lot about where tax policy is likely going in the U.S. And while it’s not new news that taxes are likely going up, there are key market observations to be gleaned from the new details that have emerged.
First, as we’ve long expected, tax hikes appear to be falling short of the original White House request, reflecting the reality of what every Democrat, including moderates, could support. For example, the House Ways and Means committee’s proposals call for the corporate rate to go to 26.5%, not the 28% asked for. They also call for the highest capital gains rate to go up 5%, not the nearly 20% asked for. These numbers aren’t final, but from here we wouldn’t expect them to move higher. And that’s important for bond investors. In the short term, this means the total amount of revenue these measures can raise probably cannot offset the amount of spending being planned. That means some deficit expansion, and more bond supply could join with other macro factors, like improving growth and a fed on pace to taper, to push bond yields higher over the balance of the year.
Second, while the net fiscal package should mean deficit expansion and thus support for growth, the higher taxes could strain equity markets in the very near term. As our colleagues in cross asset strategy have pointed out, the substantial rally in U.S. stocks has left valuations stretched. Further, stocks could be sensitive to a sl…
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Graham Secker: Re-engaging with Cyclical Value in Europe
14 september 2021 · 4 min
With the summer growth scare in Europe possibly nearing an end—and relatively inexpensive valuations—cyclical stocks in Energy, Banking and Autos may be worth a fresh look.
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Mike Wilson: Keeping an Eye on Earnings Estimates
14 september 2021 · 4 min
Equities markets may be sending mixed messages on the economy and growth, but ultimately, it’s all about the earnings. Chief Investment Officer Mike Wilson explains.
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Andrew Sheets: Are Clouds Gathering for U.S. Equities?
10 september 2021 · 3 min
Why stretched valuations, growth worries and a cavalcade of uncertain events in September and October could mean a challenging fall for U.S. stocks.
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Michael Zezas: Season of Confusion in D.C.?
9 september 2021 · 3 min
Negotiations on a number of government policy points such as taxes, fiscal spending and deficits have hit a fever pitch. Here are three potential outcomes through year-end.
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Jonathan Garner: Rising Risks for Taiwan Equities
9 september 2021 · 4 min
Taiwan equities have been a standout among equities in 2021, but factors such as softening tech spend and slowing retail trading activity suggest challenges ahead.
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Ellen Zentner: Keep Calm and Taper On?
9 september 2021 · 4 min
Weak U.S. economic data in August has renewed concerns that a growth scare is underway. Is this a sign of things to come or just a speed bump in the expansion?
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Special Encore: So, What’s the Story?
7 september 2021 · 4 min
Original Release on August 30th, 2021: Although a key component of investing is getting the narrative right, perhaps a bigger component is knowing when the narrative could shift.
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Special Encore: Never a Dull Moment in the Political Economy?
3 september 2021 · 4 min
Original Release on August 25th, 2021: For investors, U.S. fiscal policy, tax increases and U.S.-China relations are three key items to watch as we head toward fall. We outline potential outcomes.
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Andrew Sheets: Autumn Days Are Here Again
2 september 2021 · 3 min
As summer transitions to fall, investors will be facing a host of key market events. Chief Cross-Asset Strategist Andrew Sheets covers the ones to watch.