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Short, thoughtful and regular takes on recent events in the markets from a variety of perspectives and voices within Morgan Stanley.

2 DAYS AGO

The Real Drivers of GLP-1 Growth

Our Head of U.S. Pharma and Biotech Terence Flynn discusses how the rapid pace of adoption of weight management treatments could have far-reaching implications across healthcare, consumer behavior and global markets. Read more insights from Morgan Stanley. ----- Transcript ----- Welcome to Thoughts on the Market. I’m Terence Flynn, Morgan Stanley’s Head of U.S. Pharma and Biotech Research. Today: the next phase of growth in obesity medicines – the GLP-1 unlock. It’s Friday, April 17th, at 2pm in New York. There are moments in healthcare where innovation, policy, and patient demand all converge. And when they do, the impact can extend far beyond medicine. Now we believe GLP-1 therapies are at one of those moments. We estimate that the obesity medications market could reach around $190 billion at peak across obesity and diabetes. Now, that’s a meaningful step up from prior expectations – and it reflects a shift from early adoption to a much broader, more scalable opportunity. Despite the surge in attention to GLP-1s in the last couple of years, penetration actually remains relatively low today. Only about 6 percent of eligible obesity patients in the U.S. are currently using GLP-1 therapies, and just 2 percent outside the U.S. So, while the growth has been significant, the reality is that we’re still early. And that’s what makes this moment so important. So, we see five drivers that are pushing the next phase of adoption. The first is a shift of oral medications. These therapies have historically been injectables, which limits adoption. But newer oral options are changing that. Notably, just under 80 percent of oral GLP-1 users are new to the category. And this signals real market expansion. Second, expanding access through Medicare. A new U.S. framework is opening these drugs to millions of older patients, with out-of-pocket costs potentially around $50 per month. Now, that’s a meaningful shift, and one that could significantly broaden utilization. Third is lower costs and broader insurance coverage. We’re already seeing progress here. Average monthly out-of-pocket costs have declined to about $120, down from $170 last year. Now, at the same time, employer coverage for obesity treatments is expected to rise from just under 50 percent last year to around 65 percent by 2027. Fourth is global expansion. Outside the U.S., adoption is more price-sensitive, but the opportunity is large. As costs come down and access improves, especially in markets like China and Brazil, we expect uptake to accelerate. And fifth is innovation beyond weight loss. These therapies are increasingly being studied across a range of conditions: from cardiovascular and kidney disease to inflammation and neurological disorders. And that has the potential to further expand the addressable market over time. So how big could the GLP-1 market get? Well globally, we estimate there are about 1.3 billion people eligible for these therapies. Now our base case assumes roughly 12 percent of that population is treated by 2035, including about 30 percent penetration in the U.S. Now, even at those levels, we’re looking at a $190 billion market – with a potential bull case of around $240 billion. But this story doesn’t stop at healthcare. We estimate GLP-1 adoption could reduce U.S. calorie consumption by about 1.6 percent by 2035. Now, that may sound modest, but at scale it has real implications, with ripple effects across consumer behavior and industries like food, retail, and healthcare services. So, stepping back, this is what defines the GLP-1 unlock. We’re approaching a key inflection point that’s driven by oral therapies, broader access, and ongoing innovation. With adoption still low relative to the eligible population, the growth runway remains significant. At its core, this is a long-term structural shift in how chronic disease is treated, and how that reshapes markets. Thanks so much for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

4 min
3 DAYS AGO

Markets Eye Hungary’s Political Shift

Our Global Head of Fixed Income Research Andrew Sheets breaks down how Péter Magyar’s win in Hungary’s election could smooth relations with the EU and lower the risk premium in the country’s assets. Read more insights from Morgan Stanley. ----- Transcript ----- Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley. Today on the program, how we’re thinking about the market implications of a recent election. It’s Thursday, April 16th at 2pm in London. Hungary has about the same population as New Jersey. And yet its elections last weekend commanded global attention. The contest pitted the party of Viktor Orbán, who had served as Prime Minister since 2010, against a former protégé turned rival, Péter Magyar. As a sign of the global importance and as a referendum on the future of Hungary and its place in Europe, this vote was seen as significantly important that the U.S. Vice President flew in to campaign on Orbán’s behalf. Among the issues at stake were Hungary’s relationship with Europe’s broader political and economic architecture. Hungary has been a member of the European Union since 2004, but has frequently clashed with the bloc under Orbán’s tenure. This has European-wide implications, as a number of key EU procedures – including the levying of sanctions, defence policy, and enlargement – require unanimous approval among member states. A single dissenting vote, from Hungary or anywhere else, can prove highly disruptive. This month the European Commission President proposed moving forward with changing the voting system and linking it more closely to population. But there’s a wrinkle… This change would still need to pass by unanimous vote. So back to the election. The result was a landslide win for the opposition, with Péter Magyar’s party securing 138 out of 199 seats in the National Assembly. The shift in leadership, the first since 2010, and the scale of the majority, have meaningful geopolitical implications for Europe. But since this is a markets-focused podcast … we’ll focus on the markets. First, new leadership in Hungary may mean warmer relations with the European Union. And that could mean money. Unfreezing access to EU funds, one of the new government's policy goals, could result in 1 to 1.5 percent higher potential GDP growth for Hungary, per Morgan Stanley economists. And the new government has also proposed taking steps to adopt the Euro as its official currency. Both of these developments could help reduce the risk premium embedded in Hungarian assets. While Hungarian interest rates fell and its currency appreciated following the vote, our strategists think that both could move further – with interest rates falling a further 0.5 to 1 percent, and the currency appreciating a further 2 to 4 percent. And while Hungary is a pretty small equity market in global terms, it is one that our strategists like, and are overweight. Hungary’s recent election attracted global focus. While much remains to be seen, the prospect for smoother relations with the rest of Europe is a positive for both Hungary's assets and the Bloc as a whole. For different reasons related to Energy uncertainty, relative earnings, and relative monetary policy, we do continue to prefer U.S. equities and government bonds over their European counterparts. But as a longer-term story in Europe that’s important to watch, we think this definitely qualifies. Thank you, as always, for your time. If you find Thoughts on the Market useful, let us know by leaving a review wherever you listen. Also tell a friend or colleague about us today.

4 min
4 DAYS AGO

Economic Roundtable: Structural Fallouts From the Iran Conflict

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

12 min
5 DAYS AGO

Economic Roundtable: Energy Shock & Central Banks’ Action

In this first of a two-part discussion, our Global Chief Economist Seth Carpenter leads a discussion with chief regional economists Michael Gapen, Jens Eisenschmidt and Chetan Ahya on impacts of the conflict in Iran and how central banks are responding. Read more insights from Morgan Stanley. ----- Transcript ----- Seth Carpenter: Welcome to Thoughts in the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist and Head of Macro Research. And today we're going to kick off our quarterly economic roundtable. And this is where we try to step back a little bit from the headlines and the day-to-day changes in markets and try to put the global picture together and frame it for you. In the first of this two-part discussion, we're going to cover the implications of the oil price shock for energy, inflation, and for central bank policy. As always, I'm joined by the Chief Regional Economists here at Morgan Stanley. I've got Michael Gapen, our Chief U.S. Economist, Chetan Ahya, our Chief Asia Economist, and Jens Eisenschmidt, our Chief Europe Economist. It's Tuesday, April 14th at 10am in New York. Jens Eisenschmidt: And 3pm in London. Chetan Ahya: And 10pm in Hong Kong. Seth Carpenter: So, let's just jump right into this. Over the past several weeks, global markets have been dominated by one story. The escalation, de-escalation, the news flow back and forth about the conflict in Iran and the ripple across energy markets, inflation, and growth. Our view has been that even if we don't see another huge leg up in the price of energy and another surge in volatility across financial markets, the persistence of the shock in terms of disrupted supply will be at least as important, if not more so for markets. So, let me start here in the U.S., Mike. You and I have each had lots of conversations with clients about how the Fed's going to react. Market pricing moved a lot before, has retraced, and now is kind of looking at no change in policy for this year, give or take. Your baseline remains that the Fed will have an easing bias and that we'll end up with a couple of cuts later this year. Can you walk us through that thinking, and also where the debate is with clients? Michael Gapen: Sure. So, the evidence in the data… This goes back, let's call it several decades now – that oil price shocks in the U.S. do tend to push headline inflation higher by definition. But they have very limited second round effects on core inflation. And the higher oil prices go, the more likely it is that you get some demand destruction, some weakness in spending, maybe even some weakness in hiring. So, there is a bit of a non-linearity here. In our baseline where oil is elevated, but let's say not excessively high, I can completely buy the argument that the Fed is on hold assessing the evolution of the data and wondering are there second round effects on inflation? Or is this weakening demand? So, Seth, our view is that the Fed is right in its assessment that tariff passed through to goods prices will eventually moderate. And that the oil price effect on headline will diminish. And later this year, core inflation moderates. That should open the door for the Fed to cut two times this year. I do think that the wrong thing to do in this situation is to raise rates into this… Seth Carpenter: I agree with you. Michael Gapen: Yeah. So, I think it's… The Fed's on hold or their cutting. If we're right on where inflation goes, that can open the door to cuts. But to your point, where is the investor debate right now? I think the knee jerk reaction from markets is – the Fed's on the sideline, for, let's call it the foreseeable future. Which as you noted in this market is day-to-day headline to headline. And the Fed will assess where to go later this year. We think they can cut. But I think in general, the Fed is either on hold or cutting. I think the wrong thing to do right now is raise rates. Jens Eisenschmidt: Yeah, let me jump in maybe here from Europe where in theory it's the same problem. Just that the answer that the central bank is likely to give in Europe is slightly different from the one in the U.S. So, the debate we have with clients is not so much about whether or not the ECB is going to hike rates. It's more about how much it will do or have to do this. I mean, again, it has a lot to do with the way oil prices in the end, end up trading. It will be a lot more inflation or less. But it has also to do with the way the mandates are constructed. So, the ECB really has a single inflation mandate and not a dual mandate like the Fed in the case of the U.S. So, there's much more attention on inflation. Next to that, we have stronger second round effects. Historically, we know that from the data. So, it's clear and understandable why ECB policy makers all came out cautioning against that inflation coming, and sort of mulling what had to be done there. We had some leaks out of the governing council meeting in March that maybe [in] April, you've already seen rate hikes. We pushed strongly back against that notion. Since then, we had other policy makers coming out agreeing to that. Yet we likely have a discussion in the June meeting that may lead to a rate hike. We currently forecast a rate hike in June and one in September. Seth Carpenter: What about the growth risks to the euro area? Is that part of why you think the hikes might come later? Is that part of why the ECB might only hike two times this year? How do you think about the growth risks for the euro area in addition to the inflation risks? Jens Eisenschmidt: Yeah, no, I think that's a fair question. We have just updated our growth outlook for this year. Next, we've downgraded growth, obviously. Again, all of that is dependent on the scenario in the end we are in. For now, we assume a scenario of elevated oil prices for this year, but then they will retrace. Now the ECB will look at that in a very similar fashion. So first of all, they will have their new projections. They will see whether there is any hope, reasonable hope that we go back to close to target inflation. Mind you, we were below target, started the year on a very good footing here. And now are projecting we will more or less come out at above 3 percent this year and 2.4 next. Both are above the 2 percent target. That already factors in a mild hit to growth. And I think here is really the crux of the matter. If the ECB has to see a more dramatic downward revision of its growth outlook, they may as well hold a little bit more back with rate hikes. At the same time, for now, all the indications are that the hit to growth will be relatively mild and herein lies if you want the basis for the rate hikes. It's a bit of a signaling device. It's a bit of lowering growth, but not really as much. It's not – we see a central bank leaning strongly against inflation. We are seeing them mildly leaning against it in a bid to stabilize inflation expectations mainly. Seth Carpenter: Alright, that's super helpful. Chetan, I'm going to come to you because we've talked with Mike and with Jens about the inflationary side of things and the growth side of things. But when I think about energy and Asia, I think of Asia as being a bit more exposed than other big economies, definitely relative to the United States. And I think about a lot of sensitivity, not just to the consumer, but also to manufacturing. So how are you thinking about the exposure across your region, across Asia to this energy shock? Where are the biggest risks? Chetan Ahya: So, Seth, first of all, I agree with you. I think Asia is the most exposed region. The best metric for assessing that is how much is the net oil imports of each of the regions in the world. And Asia is at around 2 percent of GDP. Europe is around 1.5 percent of GDP and U.S. is actually a minor surplus. Now in terms of the transmission of this shock to growth, there are two elements to be considered. One is the price of oil and gas, and second is the supply shortages. And in fact, all my life when I have been doing this work of modeling on oil shocks to growth transmission, we've never had to really think about supply shortages. We've always been considering oil price increase and its impact. But in this cycle, we have to also consider the supply shortages. So, when you consider both these factors, we think that there will be a meaningful growth damage to Asia from the evidence of oil price increase and gas supply shortages that we have seen so far. And we have just reduced our growth estimates for the region from 4.8 percent to 4.4 percent. Mind you, first quarter was fine. So, this is all on account of the last three-quarters growth damage. And we are assuming that there will some kind of normalcy that we see in ships transiting through the Strait of Hormuz. And we are resuming oil prices average around $110 in second quarter and then come down to $90. So, in that sense, our base case is still expecting some kind of a resolution very soon. But if that doesn't materialize and you see oil prices rising up to $150, then we think region will take a much bigger hit and growth will come down to 3.9 percent in 2026. Seth Carpenter: So, Chetan, you've made a couple of really good points there. One I want to highlight is the difference between the quantities and the prices. I would say as economists, as people in markets, we're used to thinking about oil shocks as just about the price of oil and how that transmits through. But I do think there's a real risk now, given the virtual shutdown of traffic through the Strait of Hormuz that we see physical shortages. And across different Asian economies, we have seen rationing already come into place. So, when you look across the region, how would you rank the specific economies that are most exposed? Especially if we have to think about physical shortages. Chetan Ahya: Yeah, rig

13 min
6 DAYS AGO

Mounting Evidence of a Market Rebound

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

5 min
10 APR

Making Sense of Mixed Market Signals

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

4 min
9 APR

U.S Consumer Spending Meets Caution

Our U.S. Thematic and Equity Strategist Michelle Weaver breaks down the results of a new survey on U.S. consumer spending and confidence. Read more insights from Morgan Stanley. ----- Transcript ----- Welcome to Thoughts on the Market. I’m Michelle Weaver, Morgan Stanley’s U.S. Thematic and Equity Strategist. Today, we’re bringing you an update on the U.S. consumer as we try and understand the outlook for the economy. It’s Thursday, April 9, at 10 AM in New York. You’ve probably noticed shopping these days feels like a mixed bag. You spend money on your everyday staples like groceries, personal care or clothes. But you might be second-guessing those big ticket items like a new piece of furniture or a new TV. And you're not alone. Our newest AlphaWise survey of U.S. consumers reveals a pretty mixed signal. On the surface, things look solid. Consumers are still spending. We’ve seen that borne out in some of the recent economic data. And our survey work reveals around 34 percent expect to spend more next month, compared to just 15 percent who expect to spend less. That leaves us with a net spending outlook of +18 percent, which is actually above the long-term average. But when we start to dig in and look beneath the surface, the story shifts. Confidence is deteriorating. Nearly half of consumers expect the economy to get worse over the next six months, while only 32 percent expect an improvement. This results in a net outlook of -17 percent, a meaningful drop from what we saw last month. So how do we reconcile that? That spending with that deterioration in confidence. It’s really a balance of timelines. Consumers are spending today, but they’re increasingly worried about tomorrow. And these worries are grounded in very real concerns. Inflation remains the dominant issue, with 57 percent of consumers citing rising prices as a key concern – reversing what had been a fairly short-lived improvement on consumers' view on prices. At the same time, of course, with the tensions in the Middle East, geopolitical concerns are increasing quickly. They’ve jumped to 33 percent from 22 percent just last month. And concerns around the U.S. political environment remain elevated at 43 percent. When you combine all these pressures, it’s not surprising that consumers are becoming more cautious in how they plan to spend. We’re also seeing that caution show up in the mix of expenditures. In the near term, consumers are still increasing spending across most categories – especially the essentials like groceries, gasoline, and household items. But when we look over a longer horizon, the outlook becomes more selective. Discretionary categories are weakening. Apparel spending expectations have dropped to -16 percent, domestic travel to -11 percent, and international travel to -14 percent. That shift – from discretionary to essentials – is something we tend to see when consumers are bracing for a more uncertain environment. Now, one factor that’s supporting the near-term – a brighter spot here – is tax season. This year, 46 percent of consumers expect to receive a larger tax refund compared to last year. And what’s interesting about that is where people are going to put the money. About half of consumers plan to save at least a portion of the refund. About a third plan to pay down debt. And only around 30 percent intend to spend it on everyday purchases. So even when people receive a cash boost, the instinct isn’t to spend freely. It’s to shore up finances. Putting it all together, the picture of the U.S. consumer today is one of resilience but also rising caution. Spending is holding up in the near term, supported by income and tax refunds. But confidence is weakening, savings behavior is increasing, and discretionary demand is softening. These divergent trends are important. We’ll continue to watch them closely and bring you updates. Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

4 min
8 APR

U.S.-Iran Truce: What’s Next?

While a tentative ceasefire in the Middle East holds, the Strait of Hormuz continues to be a sticking point in diplomatic efforts. Our Deputy Global Head of Research Michael Zezas and Head of Public Policy Research Ariana Salvatore walk through some scenarios that could play out. Read more insights from Morgan Stanley. ----- Transcript ----- Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Deputy Global Head of Research for Morgan Stanley. Ariana Salvatore: And I'm Ariana Salvatore, Head of Public Policy Research. Michael Zezas: Today we're discussing the U.S.-Iran ceasefire's key uncertainties, consequences and what we're watching for next. It's Wednesday, April 8th at 11am in New York. Okay. Let's start with the current situation. The U.S. and Iran have agreed to a provisional ceasefire, two weeks tied to follow on talks and the reopening of the Strait of Hormuz. Markets so far, treating this as a deescalation but not a clear resolution… Ariana Salvatore: That's right. And I think the key framing here is this is a pause, not a peace deal. And in the near term, I would not assume things are suddenly stable. We still have some key uncertainties around how the ceasefire deal is going to be implemented, as well as how negotiations will begin to take shape. Michael Zezas: Right. And that's important. It seems like Iran's reported 10-point plan for the ceasefire includes some elements that might be non-starters for the U.S., some things around sanctions and unfreezing of assets. And so, there's lots of ways that there could be some re-escalation in the near term. Ariana Salvatore: Okay. So that's the near term – fragile, noisy, and still pretty headline driven. But let's try to think about this a little bit further out. How are we thinking about the medium term? Michael Zezas: Yeah. So, thinking a little bit further out, it seems to us that ceasefire and Strait of Hormuz reopening should continue to progress because the incentives are widely shared across the key actors involved. So, the U.S.’s incentive to effectively be done with the conflict is pretty well understood. There's domestic political incentives and economic incentives. There's ways to potentially explain away some of the compromises the U.S. might have to make around the Strait of Hormuz, around sanctions. And maybe point to some incentives to work with partners in the region over time to diminish the importance of the Strait of Hormuz as a choke point. Iran's incentive is pretty clear – to preserve its regime. And another actor here, which appears to be increasingly important, is China, which has reportedly been involved in expressing its preference for deescalation. And that's pretty important because China has a lot of leverage on Iran given its economic relationship with the country. Ariana Salvatore: So, starting with these negotiations, it seems like, as you mentioned before, there's still a lot of gaps between what the U.S. side and what the Iranian side is asking for. But let's put that in the context of the ceasefire. Even if it were to hold – that doesn't necessarily translate to stability, right? Michael Zezas: Yeah, I think that's right. So, if Iran were to start rebuilding its military assets, in particular its nuclear program, at some point in the future, we'd probably come back to a similar point where Israel and the United States might find their ability to project that power to be intolerable. And what we don't know right now is if any type of deal is possible that can mitigate those very long-term concerns. So, even if commodities start flowing through the Strait of Hormuz at a rate that is similar to what it was before the conflict started, it seems like there will be this overhang. Of concern that that could shut down at any moment's notice, if the U.S. and Israel and other actors in the area become concerned again with Iran's power. Ariana Salvatore: So, that overhang you're talking about actually does have some real economic impacts. One way to frame this is kind of like a lingering tax on the global system. We see that through the oil market, right? So, we think of this as a structural risk premium on oil. Our strategist, Martijn Rats, thinks that even in a deescalation scenario, you're not getting back to that world of $65-$70 oil. This Strait of Hormuz will continue to be a critical choke point that doesn't necessarily go away overnight. And maybe over time you could see some mitigation, construction of new pipelines, alternative routes, et cetera. But in the interim, that risk premium feeds through to energy prices, shipping costs, and ultimately food and broader supply chains, which is something that Chetan Ahya has been flagging in Asia for quite some time. Michael Zezas: I think that's right. And so, in highlighting that the Strait of Hormuz is a critical choke point for the global economy and for supply chains generally, it's a reminder of a problem that's been on display for the last 10 years. Just that there are supply chain choke points all over the place when you start thinking about the security needs of the U.S. and other actors throughout the globe. And so, it underscores this dynamic where multinationals are going to have to rethink – and are already starting to rethink – their supply chains. And whether or not they need to build in what our investment bankers have been calling an anti-fragile supply chain strategy. So, we can't just solve for the cheapest cost of goods and cheapest transit. You have to wire up your supply chains in a way that can survive geopolitical conflicts. And while there's some extra embedded costs that comes along with that, well, they're more reliable, so it's more efficient over the long run. Of course, it costs a lot of money to rewire your supply chains, and so that's tied into this opportunity around capital expenditures going into proving this out. And so, investors should be aware that there are plenty of sectors which will have to participate in effectively being part of rebuilding those supply chains. Ariana Salvatore: Yeah, so the way we're framing this is, this is another data point kind of in that trend toward a multipolar world. We've seen certain geopolitical events accelerate that transition. Russia-Ukraine, for example, the pandemic; and this is just sort of another example in that same direction. And some of the sectors that we think are structural beneficiaries here: obviously defense, in particular in Europe, and industrials here in the U.S. Chris Snyder's been doing a lot of work on reshoring, how we're seeing that pick up – and we think that probably continues. But as we're speaking about the U.S. and what this could mean, let's bring this back to the AI angle. Because I think that's where this all really connects in maybe a less obvious way. Near term, we're thinking about the financing implications here as pretty modest. Unless we get a major re-escalation or a rupture of the ceasefire, it shouldn't really change capital availability in a meaningful way. But this could affect where capacity gets built. Michael Zezas: Yeah, that's right. And over the past year, there's been a lot of news about the U.S. engaging in the Middle East with partners to build AI capacity via data center capacity – because there's also plenty of energy in the area to fuel those data centers. But those data centers as an infrastructure asset, and an economically valuable one at that, potentially become military targets when they're built. So, there is a consideration here after this conflict about whether or not those things can be built or be relied upon. And it is a critical part of the U.S.' strategy to build compute capacity in the aggregate with allies. And increasingly they've been looking to the Middle East as allies in an AI build out. Ariana Salvatore: So, if that becomes more challenging and you see persistent instability, for example, in the Middle East, you're probably going to see more demand push toward domestic U.S. data centers. And something that we've been highlighting has been not only the kind of pressures on the capital side. But also, you know, the bottlenecks that are very real – like power, permitting, labor, equipment and political resistance, which we've talked about on this podcast as well. We're seeing a lot of constraints. So, it's not really feasible that the U.S. is going to be able to fully substitute that Middle East capacity. Michael Zezas: So, I think the read through here is that the U.S. is still on track to build the compute capacity that it needs. The CapEx that's going into that – that is helping the U.S. economy grow this year – is still very much intact. It raises some potential future questions about how quickly the U.S. can build out, but it's unclear if that matters in the near term to (a) both the build out and (b) the productivity that can come from the current build out. Ariana Salvatore: And I think a really important consequence of what you're describing has to do with the U.S. China dynamics. So, if the U.S. is, for example, seen as a less reliable security guarantor, then you may see some of the Gulf countries potentially deepen their economic alignment with China at the margin. And that's something that could be really relevant for the upcoming U.S.-China Summit next month. Remember that was postponed from – initially it was towards the end of March. Now it seems to be around the middle of May. So, that's a really important catalyst that we're keeping an eye on for now. That's a little bit further out. Near term, of course, we'll be watching things like military buildup in the region. Any indications on how exactly the Strait of Hormuz will be managed from here. And how these negotiations progress over the next two weeks. As far as the equity market is concerned, it appears that the worst of this risk is behind us from a

10 min

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Welcome to Thoughts on the Market

A quick preview of what you'll hear on the Thoughts On The Market podcast, which features short, thoughtful and regular takes on recent events in the markets from a variety of perspectives and voices within Morgan Stanley.

20/12/2021

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1 min