Mike Wilson: A Volatility Reprieve

Our strategists Michelle Weaver and Adam Jonas join analyst Christopher Snyder to discuss the most important themes that emerged from the Morgan Stanley Annual Industrials Conference in Laguna Beach.Read more insights from Morgan Stanley.----- Transcript ----- Michelle Weaver: Welcome to Thoughts on the Market. I'm Michelle Weaver, Morgan Stanley's U.S. Thematic Strategist.Christopher Snyder: I'm Chris Snyder, Morgan Stanley's U.S. Multi-Industry Analyst.Adam Jonas: And I'm Adam Jonas, Morgan Stanley's Embodied AI Strategist.Michelle Weaver: We recently concluded Morgan Stanley's annual industrials conference in Laguna Beach, California, and wanted to share some of the biggest takeaways.It's Tuesday, September 16th at 10am in New York.I want to set the stage for our conversation. The overall tone at the conference was fairly similar to last year with many companies waiting for a broader pickup. And I'd flag three different themes that really emerged from the conference.So first, AI. AI is incredibly important. It appeared in the vast majority of fireside conversations. And companies were talking about AI from both the adopter and the enabler angle.Second theme on the macro, overall companies remain in search of a reacceleration. They pointed to consistently expansionary PMIs or a PMI above 50, a more favorable interest rate environment and greater clarity on tariffs as the key macro conditions for renewed momentum.And then the last thing that came up repeatedly was how are companies going to react to tariffs? And I would say companies overall were fairly constructive on their ability to mitigate the margin impact of tariffs with many talking about both leveraging pricing power and supply chain shifts to offset those impacts. So, Chris, considering all this, the wait for an inflection came up across a number of companies. What were some of your key takeaways on multis, on the macro front?Christopher Snyder: The commentary was stable to modestly improving, and that was really consistent across all of these companies. There are, you know, specific verticals where things are getting better. I would call out data center as one. Non-res construction, as another one, implant manufacturing as one. And there were certain categories where we are seeing deterioration – residential HVAC, energy markets, and agriculture.But we came away more constructive on the cycle because things are stable, if not modestly improving into a rate cut cycle. The concern going in was that we would hear about deteriorating trends and a rate cut would be needed just to stabilize the market. So, we do think that this backdrop is supportive for better industrial growth into 2026.We have been positive on the project or CapEx side of the house. It feels like strength there is improving. We've been more cautious on the short cycle production side of the house. But we are starting to see signs of rate of change. So, when we look into [20]26 and [20]27, we think U.S. industrials are poised for decade high growth.Michelle Weaver: You've had a thesis for a while now that U.S. reshoring is going to be incredibly important and that it's a $10 trillion opportunity. Can you unpack that number? What are some recent data points supporting that and what did you learn at the conference? Christopher Snyder: Some of the recent data points that support this view is U.S. manufacturing construction starts are up 3x post Liberation Day. So, we're seeing companies invest. This is also coming through in commercial industrial lending data, which continues to push higher almost every week and is currently at now record high levels. So, there's a lot of reasons for companies not to invest right now. There's a lot of uncertainty around policy. But seeing that willingness to invest through all of the uncertainty is a big positive because as that uncertainty lifts, we think more projects will come off the sidelines and be unlocked. So, we see positive rate of change on that. What I think is often lost in the reassuring conversation is that this has been happening for the last five years. The U.S. lost share of global CapEx from 2000 when China entered the World Trade Organization almost every year till 2019 when Trump implemented his first wave of tariffs. Since then, the U.S. has taken about 300 basis points of global CapEx share over the last five years, and that's a lot on a $30 trillion CapEx base. So, I think the debate here should be: Can this continue? And when I look at Trump policy, both the tariffs making imports more expensive, but also the incentives lowering the cost of domestic production – we do think these trends are stable.And I always want to stress that this is a game of increments. It's not that the U.S. is going to get every factory. But we simply believe the U.S. is better positioned to get the incremental factory over the next 20 years relative to the prior 20. And the best point is that the baseline growth here is effectively zero.Michelle Weaver: And how does power play into the reshoring story? AI and data centers are generating huge demand for power that well outstrip supply. Is there a risk that companies that want to reshore are not able to do so because of the power constraints?Christopher Snyder: It's a great question. I think it's part of the reason that this is moving more slowly. The companies that sell this power equipment tend to prioritize the data center customers given their scale in magnitude of buying. But ultimately, we think this is coming and it's a big opportunity for U.S. power to extend the upcycle.Manufacturing accounts for 26 percent of the electricity in the country. Data center accounts for about 5 percent. So, if the industrial economy returns to growth, there will be a huge pull on the grid; and I view it as a competitive advantage. If you think about the future of U.S. manufacturing, we're simply taking labor out and replacing it with electricity. That is a phenomenal trade off for the U.S. And a not as positive trade off for a lot of low-cost regions who essentially export labor to the world.I'm sure Adam will have more to say about that.Michelle Weaver: And Adam, I want to bring robotics and humanoid specifically into this conversation as the U.S.' technological edge is a big part of the reshoring story. So how do humanoids fit into reshoring? How much would they cost to use and how could they make American manufacturing more attractive?Adam Jonas: Humanoid robots – we're talking age agentic robots that make decisions from themselves autonomously due to the dual purpose in the military. You know, dual purpose aspect of it makes it absolutely necessary to onshore the technologies.At the same time, humanoid robots actually make it possible to onshore those technologies. Meaning you need; we're not going to be able to replicate manufacturing and onshore manufacturing the way it's currently done in China with their environmental practices and their labor – availability of affordable cheap human labor.Autonomous robots are both the cause of onshoring. And the effect of onshoring at the same time, and it's going to transform every industry. The question isn't so much as which industry will autonomous robots, including humanoids impact? It's what will it not.And we have not yet been able to find anything that it would. When you think about cost to use – we think by 2040 we get to a point where to Chris's point, the marginal cost of work will be some factor of electricity, energy, and some depreciation of that physical plant, or the physical robot itself.And we come up with a, a range of scenarios where centered on around $5 per hour. If that can replace two human workers at $25 an hour, that can NPV to around $200,000 of NPV per humanoid. That's discounting back 15 years from 2040.Michelle, there's 160 million people in the U.S. labor market, so if you just substituted 1 percent of that or 1.6 million people out of the U.S. Labor pool. 1.6 million times $200,000 NPV; that's $320 billion of value, which is worth, well, quite a lot. Quite a lot of money to a lot of companies that are working on this.So, when we get asked, what are we watching, well, in terms of the bleeding edge of the robot revolution, we're watching the Sino-U.S. competition. And I prefer to call it competition. And we're also watching the terra cap companies, the Mag 7 type companies that are quite suddenly and recently and very, very significantly going after physical AI and robotics talent. And increasingly even manufacturing talent.So again, to circle back to Chris's point, if you want evidence of reshoring and manufacturing and advanced manufacturing in this country, look at some of these TMT and tech and AI companies in California. And look at, go on their hiring website and watch all the manufacturing and robotics people that they're trying to hire; and pay a lot of money to do so. And that might be an interesting indicator of where we're going.Michelle Weaver: I want to dig in a little bit more there. We're seeing a lot of the cutting-edge tech coming out of China. Is the U.S. going to be able to catch up?Adam Jonas: Uh, I don't know. I don't know. But I would say what's our alternative. We either catch up enough to compete or we're up for grabs. OK?I would say from our reading and working closely with our team in China, that in many aspects of supply chain, manufacturing, physical AI, China is ahead. And with the passage of time, they are increasingly ahead. We estimate, and we can't be precise here, that China's lead on the U.S. would not only last three to five years, but might even widen three to five years from now. May even widen at an accelerating rate three to five years from now.And so, it brings into play is what kind of environment and what kind of regulatory, and policy decisions we made to help kind of level the playing field and encourage the right kind of manufacturing. We don't want to encourage trailing edge, Victorian era manufacturing in the U.S. We want to encourage, you know, to skate to where the puck is going technology that can help improve our world and create a sustainable abundance rather than an unsustainable one. And so, we're watching China very, very closely.It makes us a little bit; makes me a little bit kind of nervous when we – if we see the government put the thumb on the scale too much.But it's invariably going to happen. You're going to have increased involvement of whichever administration it is in order to kind of set policies that can encourage innovation, education of our young people, repurposing of labor, you know. All these people making machines in this country now. They might get, there may be a displacement over a number of years, if not a generation.But we need those human bodies to do other things in this economy as well. So, we; I don't want to give the impression at all in our scenarios that we don't need people anymore.Michelle Weaver: What are the opportunities and the risks that you see for investors as robotics converges with this broader U.S. manufacturing story?Adam Jonas: Well, Michelle, we see both opportunities and risks. There are the opportunities that you can measure in terms of what portion of global GDP of [$]115 trillion could you look at. I mean, labor alone is $40 trillion.And if you really make humanoid that can do the work of two workers, guess what? You're not going to stop at [$]40 trillion. You're going to go beyond that. You might go multiple beyond that. Talking about the world before AI, robotics and humanoid is like talking about the world before electricity. Or talking about business before the internet. We don't think we're exaggerating, but the proof will be in the capital formation. And that's where we hope we can be of assistance to our clients working together on a variety of investment ideas. But the risks will come and it is our professional responsibility, if not our moral responsibility, to work with our partners across research to talk about those risks. Michelle, if we have labor displacement, go too quickly, there’s serious problems. And if you don't, if you don't believe me, go look at, look at you know, the French Revolution or the Industrial Revolution, or Age of Enlightenments. Ages of scientific enlightenment frequently cohabitate times of great social and political turmoil as well. And so, we think that these risks must be seen in parallel if we want to bring forth technologies that can make us more human rather than less human.I'm sorry if I'm coming across as a little preachy, but if you studied robots and labor all day long, it does have that effect on you.So, Michelle, how do you see innovation priorities changing for industrials and investors in this environment?Michelle Weaver: I think it's huge as we're seeing AI and technology broadly diffuse across different segments of the market, it's only becoming more important. About two-thirds of companies at the conference mentioned AI in some way, shape, or form. We know that from transcripts. And we're seeing them continue to integrate AI into their businesses. They're trying to go beyond what we've just seen at the initial edge.So, for example, if I think about what was going on within AI adoption a couple years ago, it was largely adding a chat bot to your website that's then able to handle a lot of customer service inquiries. Maybe you could reduce the labor there a little bit.Now we're starting to see a lot more business specific use cases. So, for example, with an airline, an airline company is using AI to most optimally gate different planes as they're landing to try and reduce connection times. They know which staff needs to go to another flight to connect, which passengers need to move to another flight. They're able to do that much more efficiently.You're seeing a lot on AI being adopted within manufacturing to make manufacturing processes a lot more seamless. So, I think innovation is only going to continue to become more important to not only industrials, but broadly the entire market as well.Clearly the industry is being shaped by adaptability, collaboration, and a focus on innovation. So, Chris, Adam, thank you both for taking the time to talk.Adam Jonas: Always a pleasure. Michelle.Christopher Snyder: Thank you for having us on.Michelle Weaver: And to our listeners, thanks for listening. If you enjoy Thoughts on the Market, please leave us a review wherever you listen to the show and share the podcast with a friend or colleague today.

16 Sep 14min

For investors looking to make sense of housing-related assets amidst changes in Fed policy stance, our co-heads of Securitized Product Research Jay Bacow and James Egan offer their perspective on mortgage rates and the market.Read more insights from Morgan Stanley.----- Transcript ----- James Egan: Welcome to Thoughts on the Market. I'm Jim Egan, co-head of Securitized Products Research at Morgan Stanley.Jay Bacow: I'm Jay Bacow, the other co-head of Securitized Products Research at Morgan Stanley.Today we're talking about the Fed, mortgage rates and the implications to the housing market.It's Monday, September 15th at 11:30am in New York.Now Jim, the Fed is meeting on Wednesday, and both our economists and the market are expecting them to cut rates in this meeting – and continue to cut rates at least probably two more times in 2025, and multiple times in 2026. We've talked a lot about the challenges and the affordability in the U.S. homeowners’ market, in the U.S. mortgage market.Before we get into what this could help [with] the affordability challenges, how bad is that affordability right now?James Egan: Sure. And as we've discussed on this podcast in the past, one of the biggest issues with the affordability challenges in the U.S. housing market specifically is how it's fed through to supply issues as the lock-in effect has kept homeowners with low 30-year mortgage rates from listing their homes.But just how locked in does the market remain today? The effective rate on the outstanding mortgage market, kind of the average of the mortgages outstanding, is below 4.25 percent. The prevailing rate for 30-year mortgages today is still over 6.25 percent, so we're talking about two full percentage points, 200 basis points outta the money.Jay Bacow: And that seems like a lot. Has it been that way in the past?James Egan: If we look at roughly 40 years of data ending in 2022, the market was only 100 basis points outta the money for eight individual quarters. The most it was ever out of the money was 135 basis points. We have now been more than 200 basis points out of the the money for three entire years, 12 consecutive quarters. So, this is very unprecedented in the past several decades.But Jay, our economists are calling for Fed cuts, the market's pricing in Fed cuts. How much lower is the mortgage rate going for these affordability equations?Jay Bacow: We actually don't think that the Fed cutting rates necessarily is going to cause the mortgage rate to come down at all. And one way we can think about this is if we look at it, the Fed has already cut rates 100 basis points over the past year, and since the Fed has cut rates 100 basis points in the past year, the mortgage rate is 25 basis points higher.James Egan: Okay, so if I'm not going to be looking at Fed funds for the path of mortgage rates going forward, I have two questions for you.One, what part of the Treasury term structure should I be looking at? And two, you talked about the market pricing in Fed cuts from here. What is the market saying about where those rates will be in the future?Jay Bacow: So, mortgage rates are much more sensitive to the belly of the Treasury curve. Call it the 5- and 10-year portions than Fed funds. They have a little bit of sensitivity to the third year note as well. And when we think about what the market is expecting those portions of the Treasury curve to do, I apologize, I'm going to have to nerd out. Fortunately, being a nerd comes very naturally to me.If you look at the spread between the 5- and the 10-year portion of the treasury curve, 10 years yield about 50 basis points more than the 5-year note. So, you think about it, an investor could buy a 10-year note now. Or they could buy a 5-year note now and then another 5-year note in five years, and they should expect to get the same return if they do either one.So, if they buy the 10-year note right now at 50 basis points above where the 5-year note is. Or they buy the 5-year note, right now, the 5-year note in five years would have to yield 100 basis points above to get the average to be the same. Well, if the 5-year note in five years is 100 basis points above where the 5-year note is right now, mortgage rates are also probably going to be higher in five years.James Egan: Okay, so that's not helping the affordability issues. What can be done to lower mortgage rates from here?Jay Bacow: Well, going back to my inner nerd, if you brought the 5- and 10-year Treasury yields down, that would certainly be helpful. But mortgage rates aren't just predicated on where the Treasury yields are.There's also a risk premium on top of that. And so, if the mortgage originators can sell those loans to other investors at a tighter spread, that would also help bring the rate down. And there are things that can be done on that front. So, for instance, if the capital requirements for investors to own those mortgages go down, that would certainly be helpful.You could try to incentivize investors in a number of different ways, that's one front. But in reality, a lot of these fees are already sort of stuck in place. So, there's only so much that can be done.Now, Jim, let's suppose. I am wrong. I've been wrong in the past. A lot of times with you. I thought the Patriots were gonna beat the Giants in both Super Bowls. Somehow Eli Manning proved me wrong.However, if the mortgage rate does come down, how much does it have to come down for housing activity to start picking up?James Egan: So, this is a question we get asked roughly six to seven times a day…Jay Bacow: How did Eli Manning beat the Patriots?James Egan: How far mortgage rates have to come down in order to really get housing sales started again. And because of the backdrop of today's housing and mortgage markets that we laid out at the top of this podcast, it's really difficult to empirically point to a mortgage rate and calculate this is where rates have to fall to.So, what we have been doing instead is looking at historic periods of affordability improvement, and seeing how much do we need to get that affordability ratio down to get a sustainable growth in sales volumes from here.Jay Bacow: All right. And how much do we have to get that affordability ratio down?James Egan: So, a sustainable increase; historically, we've needed about a 10 percent improvement in the affordability ratio…Jay Bacow: Alright, help me out here. I think about mortgage payments as more of a function of the rate level. So, if we're in the context of like 6.25, 6.5 right now, how far does the mortgage rate need to drop to get a 10 percent improvement? Assuming that there's no change in borrower's income or home prices.James Egan: In that world, we think you need about 100 basis point move. It would take the 30-year mortgage rate to call it, 5.5 percent.Jay Bacow: All right, so if mortgage rates go to 5.5 percent, then we're going to immediately see housing activity pickup.James Egan: That is not exactly what we're saying. What we've seen is the 10 percent improvement is enough to get sustainable growth in sales volumes. A year after you start to see that real improvement, the contemporaneous moves can be up, they can be down. Given what our economists are saying for the labor market going forward, what they're saying for growth in the United States, we do think you can see a little bit of contemporaneous growth.If you start to see that 100 basis point move in mortgage rates now, we think you'll get about a 5 percent increase in purchase volumes as we move through 2026 with the potential for upward inflection in 2027 from that 5 percent growth number – again, if we get that move in mortgage rates.Jay Bacow: Alright, so we expect the Fed to cut rates about 150 basis points over the next year and a half. It doesn't necessarily have to bring the mortgage rate down. But if the mortgage rate does go down to in the context of 5.5 percent, we should start to get a pickup in housing activity maybe the year after that.Jim, always a pleasure talking to you.James Egan: Pleasure talking to you too, Jay. And to all of you regularly hearing us out, thank you for listening to another episode of Thoughts on the Market.Jay Bacow: Please leave us a review or a like wherever you get this podcast and share your Thoughts on the Market with a friend or colleague today.James Egan: Go smash that subscribe button.

15 Sep 7min

Online crime is accelerating, making cybersecurity a fast-growing and resilient investment opportunity. Our Cybersecurity and Network and Equipment analyst Meta Marshall discusses the key trends driving this market shift.Read more insights from Morgan Stanley.----- Transcript ----- Welcome to Thoughts on the Market. I’m Meta Marshall, Morgan Stanley’s Cybersecurity and Network and Equipment Analyst. Today – the future of digital defense against cybercrime. It’s Friday, September 12th, at 10am in New York.Imagine waking up to find your bank account drained, your business operations frozen, or your personal data exposed – all because of a cyberattack. Today, cybersecurity isn't an esoteric tech issue. It impacts all of us, both as consumers and investors. As the digital landscape grows increasingly complex, the scale and severity of cybercrime expand in tandem. This means that even as companies spend more, the risks are multiplying even faster. For investors, this is both a warning and an opportunity.Cybersecurity is now a $270 billion market. And we expect it to grow at 12 percent per year through 2028. That's one of the fastest growth rates across software. And here's another number worth noting: Chief Information Officers we surveyed expect cybersecurity spending to grow 50 percent faster than software spending as a whole. This makes cybersecurity the most defensive area of IT budgets—meaning it’s least likely to be cut, even in tough times.This hasn’t been lost on investors. Security software has outperformed the broader market, and over the past three years, security stocks have delivered a 58 percent return, compared to just 22 percent for software overall and 79 percent for the NASDAQ. We expect this outperformance against software to continue as AI expands the number of ways hackers can get in and the ways those threats are evolving.Looking ahead, we see a handful of interconnected mega themes driving investment opportunities in cybersecurity. One of the biggest is platformization – consolidating security tools into a unified platform. Today, major companies juggle on average 130 different cyber security tools. This approach often creates complexity, not clarity, and can leave dangerous gaps in protection particularly as the rise of connected devices like robots and drones is making unified security platforms more important than ever.And something else to keep in mind: right now, security investments make up only 1 percent of overall AI spending, compared to 6 percent of total IT budgets—so there’s a lot of room to grow as AI becomes ever more central to business operations. In today’s cybersecurity race, it’s not enough to simply pile on more tools or chase the latest buzzwords. We think some of the biggest potential winners are cybersecurity providers who can turn chaos into clarity. In addition to growing revenue and free cash flow, these businesses are weaving together fragmented defenses into unified, easy-to-manage platforms. They want to get smarter, faster, and more resilient – not just bigger. They understand that it’s key to cut through the noise, make systems work seamlessly together, and adapt on a dime as new threats emerge. In cybersecurity, complexity is the enemy—and simplicity is the new superpower. 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.

12 Sep 3min

Our Chief Asia Economist Chetan Ahya discusses how the evolving trade relationship between India and China could redefine global supply chains and unlock new investment opportunities.Read more insights from Morgan Stanley.----- Transcript ----- Welcome to Thoughts on the Market. I’m Chetan Ahya, Morgan Stanley’s Chief Asia Economist. Today – one of the most important economic relationships of our time: India and China. And what the future may hold. It’s Thursday, September 11th at 2 pm in Hong Kong.Trade dynamics between India and China are evolving rapidly. They are not just shaping their own futures. They are influencing global supply chains and investment flows. India’s trade with China has nearly doubled in the last decade. India’s bilateral trade deficit with China is its largest—currently at U.S. $120 billion. On the flip side, China’s trade surplus with India is the biggest among all Asian economies. We expect this trade relationship to deepen given economic imperatives. India needs support on tech know-how, capital goods and critical inputs; and China needs to capitalize on growth opportunities in the second largest and fastest growing EM. Let’s explore these issues in turn. India needs to integrate itself into the global value chain. And to do that, India needs Foreign Direct Investment from China, much like how China’s rise was fueled by Foreign Direct Investment from the U.S., Europe, Japan, and Korea, which brought the technology and expertise. For India, easing restrictions on Chinese FDI could be a game-changer, enabling the transfer of tech know-how and boosting manufacturing competitiveness. Now, China is the world’s manufacturing powerhouse. It accounts for more than 40 percent of the global value chain—far ahead of the U.S. at 13 percent and India at just 4 percent. The global goods trade is increasingly focused on products higher up the value chain—think semiconductors, EVs, EV batteries, and solar panels. And China is the top global exporter in six of eight key manufacturing sectors. To put it quite simply, any economy that is looking to increase its participation in global value chains will have to increase its trade with China. For India, this means that it must rely on Chinese imports to meet its increasing demand for capital goods as well as critical inputs that are necessary for its industrialization. In fact, this is already happening. More than half of India’s imports from China and Hong Kong are capital goods—i.e. machinery and equipment needed for manufacturing and infrastructure investment. Industrial supplies make [up] another third of the imports, highlighting India’s dependence on China for critical inputs. From China’s perspective, India is the second largest and fastest-growing emerging market. And with U.S.-China trade tensions persisting, China is diversifying its exports markets, and India represents a significant opportunity. One way Chinese companies can capture this growth opportunity is to invest in and serve the domestic market. Chinese mobile phone companies have already been doing this and whether this can broaden to other sectors will depend on the opening up of India’s markets. To sum up, India can leverage on China’s strengths in manufacturing and technology while China can utilize India’s vast market for exports and investment.However, there’s a caveat: geopolitics. While economic imperatives point to deeper trade and investment ties, political developments could slow progress. Investors should watch this space closely and we will keep you updated on key developments. 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.

11 Sep 4min

Our Metals & Mining Commodity Strategist Amy Gower discusses her bullish outlook for gold and what the metal’s rally in 2025 says about inflation, central banks, and global risk.Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I’m Amy Gower, Morgan Stanley’s Metals & Mining Commodity Strategist. Today, we’re talking about gold, a metal that’s more than just a safe haven for investors, and what it tells us about the global economy and markets right now.It’s Wednesday, September 10th, at 3pm in London. Gold has always been the go-to asset in times of uncertainty. But in 2025, its role is evolving. Investors are watching gold not just as a hedge against inflation, but as a barometer for everything from central bank policy to geopolitical risk. When gold prices move, it’s often a sign that something big is happening beneath the surface.Gold and silver have both already clocked up hefty year-to-date gains of 39 and 42 percent respectively. So, what’s been driving this rally? Well, several factors stand out. For one, central banks are on track for another year of strong buying, with gold now representing a bigger share of central bank reserves than treasuries for the first time since 1996. This is a strong vote of confidence in gold’s long-term value. Also, gold-backed Exchange-Traded Funds, or ETFs, saw inflows of $5 billion in August alone, with the year-to-date inflows the highest on record outside of 2020, signaling renewed interest from institutional investors too. With inflation still above target in many major economies, gold’s appeal has been surprisingly resilient despite being a non-yielding asset. And investors are betting that central banks may soon have to cut rates, which could further boost gold prices. In fact, from here we see around 5 percent further upside to gold by year end to $3800/oz which would be a new all-time high. But there is one important wrinkle to consider. Keep in mind that while precious metals, especially gold, are primarily seen as a hedge and safe haven in times of macro uncertainty, jewelry is a big chunk of the overall precious metals market. It accounts for 40 percent of gold demand and 34 percent of silver demand. And right now how jewelry demand will evolve remains an unknown. In fact, jewelry demand is already showing signs of weakness. Second-quarter gold jewelry demand was the worst since the third quarter of 2020 as consumers reacted to high prices. Nonetheless, gold was able to hold onto its January-April gains, and silver continued to grind higher, supported by strong demand from the solar industry as well. However, until recently, the two metals were lacking catalysts for further gains. Now though this is changing, with both gold and silver poised to benefit from expected Fed rate cuts. Our economists expect the Fed to cut rates at the September meeting, for the first time since December 2024. And if we look back to the 1990s, on average gold and silver prices have risen 6 and 4 percent respectively in the 60 days following the start of a Fed rate-cutting cycle as lower yields make it easier for non-yielding assets to compete. Our FX strategists also expect further dollar weakness, which should ease some of the price pressures for holders of non-USD currencies, while India’s imports of gold and silver already showed signs of improvement in July. The country is looking also to reform its Goods and Services tax, which could free up purchasing power for gold and silver ahead of festival and wedding season. Gold does tend to outperform after Fed rate cuts, and we would keep the preference for gold over silver, but our outlook for both metals remains positive. Of course, precious metals are not risk-free. Prices can be volatile, and if central banks surprise the market with higher interest rates, gold in particular could lose some of its luster. But for now, both gold and silver should continue to shine. 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.

10 Sep 4min

Many Americans struggle with the rising cost of healthcare. Analysts Terence Flynn and Erin Wright explain how AI might bend the cost curve, from Morgan Stanley’s 23rd annual Global Healthcare Conference in New York.Read more insights from Morgan Stanley.----- Transcript -----Terence Flynn: Welcome to Thoughts on the Market. I'm Terence Flynn, Morgan Stanley's U.S. Biopharma Analyst.Erin Wright: And I'm Erin Wright, U.S. Healthcare Services Analyst.Terence Flynn: Thanks for joining us. We're actually in the midst of the second day of Morgan Stanley's annual Global Healthcare Conference, where we hosted over 400 companies. And there are a number of important themes that we discussed, including healthcare policy and capital allocation.Now, today on the show, we're going to discuss one of these themes, healthcare spending, which is one of the most pressing challenges facing the U.S. economy today.It is Tuesday, September 9th at 8am in New York.Imagine getting a bill for a routine doctor's visit and seeing a number that makes you do a double take. Maybe it's $300 for a quick checkup or thousands of dollars for a simple procedure.For many Americans, those moments of sticker shock aren't rare. They are the reality.Now with healthcare costs in the U.S. higher than many other peer countries on a percentage of GDP basis, it's no wonder that everyone – not just investors – is asking; not just, ‘Why is this happening?’ But ‘How can we fix it?’ And that's why we're talking about AI today. Could it be the breakthrough needed to help rein in those costs and reshape how care is delivered?Now I'm going to go over to you, Erin. Why is U.S. healthcare spending growing so rapidly compared to peer countries?Erin Wright: Clearly, the aging population in the U.S. and rising chronic disease burden here are clearly driving up demand for healthcare. We're seeing escalating demand across the senior population, for instance. It's coinciding with greater utilization of more sophisticated therapeutics and services. Overall, it's straining the healthcare system.We are seeing burnout in labor constraints at hospitals and broader health systems overall. Net-net, the U.S. spent 18 percent of GDP on healthcare in 2023, and that's compared to only 11 percent for peer countries. And it's projected to reach 25 to 30 percent of GDP by 2050. So, the costs are clearly escalating here.Terence Flynn: Thanks, Erin. That's a great way to frame the problem. Now, as we think about AI, where does that come in to help potentially bend the cost curve?Erin Wright: We think AI can drive meaningful efficiencies across healthcare delivery, with estimated savings of about [$]300 to [$]900 billion by 2050.So, the focus areas include here: staffing, supply chain, scheduling, adherence. These are where AI tools can really address some of these inefficiencies in care and ultimately drive health outcomes. There are implementation costs and risks for hospitals, but we do think the savings here can be substantial.Terence Flynn: Great. Well, let's unpack that a little bit more now. So, if you think about the biggest cost buckets in hospitals, where can AI help out?Erin Wright: The biggest cost bucket for a hospital today clearly is labor. It represents about half of spend for a hospital. AI can optimize staffing, reduce burnout with a new scribe and some of these scribe technologies that are out there, and more efficient healthcare record keeping. I mean, this can really help to drive meaningful cost savings.Just to add another discouraging data point for you, there's estimated to be a shortage of about 10,000 critical healthcare workers in 2028. So, AI can help to address that. AI tools can be used across administrative functions as well. That accounts for about 15 to 20 percent of spend for a hospital. So, we see substantial savings as well across drugs, supplies, lab testing, where AI can reduce waste and improve adherence overall.Terence Flynn: Great. Maybe we'll pivot over to the managed care and value-based care side now. How is AI being used in these verticals, Erin?Erin Wright: For a healthcare insurer – and they're facing many challenges right now as well – AI can help personalize care plans. And they can support better predictive analytics and ultimately help to optimize utilization trends. And it can also help to facilitate value-based care arrangements, which can ultimately drive better health outcomes and bend the cost curve. And ultimately that's the key theme that we're trying to focus on here.So, I'll turn it over to you, Terence, now. While hospitals and payers could see notable benefits from AI, the biopharma side of the equation is just as critical here. Especially when it comes to long-term cost containment. You've been closely tracking how AI is transforming drug development. What exactly are you seeing?Terence Flynn: Yeah, a number of key constituents are leaning in here on AI in a number of different ways. I'd say the most meaningful way that could help bend the cost curve is on R&D productivity. As many people probably know, it can take a very long time for a drug to reach the market anywhere from eight to 10 years. And if AI can be used to improve that cycle time or boost the probability of success, the probability of a drug reaching the market – that could have a meaningful benefit on costs. And so, we think AI has the potential to increase drug approvals by 10 to 40 percent. And if that happens, you can ultimately drive cost savings of anywhere from [$]100 billion to [$]600 billion by 2050.Erin Wright: Yeah, that sounds meaningful. How do you think additional drug approvals lead to meaningful cost savings in the healthcare system?Terence Flynn: Look, I mean, high level medicines at their best cure disease or prevent people from being admitted to a hospital or seeking care to doctor's office. Equally important medicines can get people out of the hospital quicker and back to contributing or participating in society. And there's data out there in the literature showing that new drugs can reduce hospital stays by anywhere from 11 to 16 percent.And so, if you think about keeping people out of hospitals or physician offices or reducing hospital stays, that really can result in meaningful savings. And that would be the result of more or better drugs reaching the market over the next decades.Erin Wright: And how is the FDA now supporting or even helping to endorse AI driven drug development?Terence Flynn: If companies are applying for more drug approvals here as a result of AI discovery capabilities without modernization, the FDA could actually become the bottleneck and limit the number of drugs approved each year.And so, in June, the agency rolled out an AI tool called Elsa that's looking to improve the drug review timelines. Now, Elsa has the potential to accelerate these timelines for new therapies. It can take anywhere from six to 10 months for the FDA to actually approve a drug. And so, these AI tools could potentially help decrease those timelines.Erin Wright: And are you actually seeing some of these biopharma companies actually investing in AI talent?Terence Flynn: Yes, definitely. I mean, AI related job postings in our sector have doubled since 2021. Companies are increasingly hiring across the board for a number of different, parts of their workflow, including discovery, which we just talked about. But also, clinical trials, marketing, regulatory – a whole host of different job descriptions.Erin Wright: So, whether it's optimizing hospital operations or accelerating drug discovery, AI is emerging as a powerful lever here – to bend the healthcare cost curve.Terence Flynn: Exactly. The challenge is adoption, but the potential is transformative. Erin, thanks so much for taking the time to talk with us.Erin Wright: Great speaking with you, Terence.Terence Flynn: And thanks everyone for listening. If you enjoy Thoughts on the Market, please leave us a review wherever you listen and share the podcast with a friend or colleague today.

9 Sep 7min

Morgan Stanley’s CIO and Chief U.S. Equity Strategist Mike Wilson discusses the outlook for U.S. stocks after Friday's nonfarm payroll data reinforced the thesis of a transition from a rolling recession to a rolling recovery.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 Friday’s Payroll report and what it means for equities. It's Monday, Sept 8th at 11:30am in New York. So let’s get after it. The heavily anticipated nonfarm payroll report on Friday supports our view that the labor market is weak. However, this is old news to the equity market as we have been discussing for months. First, the labor market data is perhaps the most backward-looking of all the economic series. Second, it’s particularly prone to major revisions that tend to make the current data unreliable in real time, which is why the National Bureau of Economic Research typically declares a recession started at a time when most were unaware we were in one. Furthermore, history suggests these revisions are pro-cyclical, meaning they get more negative going into a recession and then more positive once the recovery’s begun. It appears this time is no different. Indeed, Friday’s revisions were better than last month’s by a wide margin suggesting the labor market bottomed in the second quarter. This insight adds support to our primary thesis on the economy and markets that I have been maintaining for the past several years. More specifically, I believe a rolling recession began in 2022 and finally bottomed in April with the tariff announcements made on “Liberation Day.” After the initial phase of this rolling recession, that was led by a payback in Covid pull-forward demand in tech and consumer goods, other sectors of the economy went through their own individual recessions at different times. This is a key reason why we never saw the typical spike in the metrics used to define a traditional recession, although the revisions data is now revealing it more clearly. The historically significant rise in immigration post-covid and subsequent enforcement this year have also led to further distortions in many of these labor market measures. While we have written about these topics extensively over the past several years, Friday’s weak labor report provides further evidence of our thesis that we are now transitioning from a rolling recession to a rolling recovery. In short, we're entering a new cycle environment and the Fed cutting interest rates will be key to the next leg of the new bull market that began in April. Central to our view is the notion that the economy has been much weaker for many companies and consumers over the past 3 years than what the headline economic statistics like nominal GDP or employment suggest. We think a better way to measure the health of the economy is earnings growth, and breadth; as well as consumer and corporate confidence surveys. Perhaps the simplest way to determine if an economy is doing well or not is to ask: is it delivering prosperity broadly? On that score, we think the answer is “no” given the fact that earnings growth has been negative for most companies over the past 3 years. The good news is that growth has finally entered positive territory the past 2 quarters. This coincides with the v-shaped recovery in earnings revisions breadth we have been highlighting for months. We think this supports the notion that the worst of the rolling recession is behind us and likely troughed in April. As usual, equity markets got this right and bottomed then, too. Now, we think a proper rate cutting cycle is likely and necessary for the next leg of this new bull market. Given the risk that the Fed may still be focused on inflation more than the weakness in the lagging labor market data, rate cuts may materialize more slowly than what equity investors want. Combined with some signs that liquidity may be drying up a bit as both corporate and Treasury issuance increases, it would not surprise me if equity markets go through some consolidation or even a correction during the seasonally weak time of the year. Should that happen, we would be buyers of that dip and likely even consider moving down the quality curve in anticipation of a more dovish Fed and coordinated action with the Treasury. Bottom line, a new bull market for equities began with the trough in the rolling recession that began in 2022. It’s still early days for this new bull which means dips should be bought. 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!

8 Sep 4min

Our G10 FX Market Strategist Andrew Watrous challenges the prevailing market view on the U.S. dollar, reaffirming the relevance of Morgan Stanley’s "dollar smile" framework. Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I’m Andrew Watrous, G10 FX Strategist at Morgan Stanley. Today – a look at how the US dollar behaves under different global growth circumstances. And why – contrary to the views of some observers – we think the dollar still smiles.It’s Friday, September 5, at 10 AM in New York.We've been talking a good amount on this show about the US dollar – not just as a currency, but as the cornerstone of the global financial system. As the world’s reserve currency, its movements ripple across markets everywhere. The trajectory of the dollar affects everything from your portfolio’s performance to the cost of your next international vacation.Let’s start with the “dollar smile,” which is a framework Morgan Stanley FX strategists developed back in 2001, to explain how the dollar behaves under different global growth scenarios.Picture a smile-shaped curve: On the lefthand side, the dollar rises, goes up, when global growth is concerningly weak as nervous investors flock to US assets as a safe haven. On the right side of the smile, when US growth outperforms growth in the rest of the world, capital flows into the US, boosting the dollar. In the middle of the curve – which is the bottom of the smile – the dollar weakens, goes down, when growth is robust around the world and synchronized globally. In that environment - middle of the smile - investors seek riskier assets which weighs on the dollar - in part because they could borrow in dollars and invest outside the US.It’s kind of a simple framework, right? But here’s the twist: some investors argue that the left side of the smile might be broken. In other words, they say that the dollar no longer rises if people are really worried about global growth.They say that if the US itself is the source of the growth shock -- whether it’s political uncertainty or trade wars -- the dollar shouldn’t benefit. Or that the rise in US interest rates, which makes it more expensive to borrow in the US and invest abroad, or changes in the structure of global asset holdings, might mean that growth scares won’t lead to an inflow to the US and a dollar bid.We disagree with those challenges to the dollar smile framework.To quantify the dollar smile, in order to test whether it still works, we started by using Economic Surprise Indices. These indices measure how actual economic data compares to forecasts.We found that when growth in the US and outside the US are both surprisingly weak - in other words they’re much weaker than forecasted - the dollar rises on average about 0.8% per month over the past 20 years. Then on the right side of the dollar smile, when US growth really outperforms expectations, but growth outside the US underperforms expectations, the dollar goes up even more—about 1.1% on average per month. And in the middle of the dollar smile, during synchronized global growth, the dollar tends to decline on average a little bit, about 0.1% on average per month.The question is, does that framework, does that pattern still hold up today?We think it does for a few different reasons. In 2018 and 2019, despite trade tensions and US policy uncertainty playing a big role in driving global growth concerns, the dollar strengthened during periods of poor global growth. In other words, the lefthand side of the dollar smile worked back then, even though the concerns were driven by US factors.And in June 2025, when geopolitical tensions spiked between Israel and Iran, and growth concerns became elevated - the dollar surged. Investors fled to safety, and the dollar delivered.It’s true that in April 2025, the dollar dipped initially after the first tariff announcements. But then it fell even more after those tariff hikes were paused, despite a rebound in stocks. Growth concerns were mitigated and the dollar went down. So this episode I think wasn’t really a breakdown of the smile. What weighed on the dollar this spring was policy unpredictability in the US, which led investors to reduce their exposure to US assets, rather than concerns about global growth.So these episodes, I think, show that the dollar can still act as a safe haven, despite changing patterns of global asset ownership, the rise in US interest rates, and even when the US itself is the source of global concerns.Now, setting aside the framework, it’s important to note that the US dollar dropped about 11% against other currencies in the first half of this year. This was the biggest decline in more than 50 years and it ended a 15-year bull cycle for the US dollar. Moreover, we think that the dollar will continue to weaken through 2026 as the Fed cuts interest rates and policy uncertainty remains elevated.Still, even with all that, we think our framework holds. When markets wobble, remember this: the dollar will probably greet volatility with a smile.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.

5 Sep 5min