US Elections: Weighing the Options

Demographic changes are making women in the U.S. more powerful economic agents, driving spending and GDP.----- Transcript -----Welcome to Thoughts on the Market. I'm Ellen Zentner, Morgan Stanley's Chief U.S. Economist. Along with my colleagues bringing you a variety of perspectives, today, I'll take a closer look at women's role in the economy and the impact they could have over the next decade. It's Friday, October 20th, at 10 a.m. in New York. Last week, Harvard economist Claudia Goldin won the Nobel Prize for her work identifying the causes of wage and labor market inequality. Not only is her work notable for its subject matter, it is also because Claudia is the first woman to win the Nobel in economics by herself. In other words, all of the credit goes to her. Golden's body of work has included the role of contraception in helping women with family and career planning, something we studied as well. The rise of what we have dubbed the "SHEconomy" is a topic we at Morgan Stanley Research first covered in 2019 and continue to follow closely. For some context. Today, women are having fewer children and earning more bachelor's degrees than men. The median marriage age for women has increased, as has the age at which we first start bearing children. These shifting lifestyle norms are enabling more women to work full time, which should continue to increase participation in the labor force among single females. In 2019, we estimated that the number of single women in the U.S. would grow 1.2% annually through 2030, and that compares with 0.8% for the overall population. Based on these calculations, by 2030, 45% of prime working age women will be single, the largest share in history. Now, data show that women outspend the average household and are the principal shoppers and more than 70% of households. So women are very powerful economic agents. They contribute an estimated $7 trillion to U.S. GDP per year. They are the breadwinners in nearly 30% of married households and nearly 40% of total U.S. households. In the last decade, single prime working age women from 30 to 34 years old have seen the most pronounced rise in female headship rates, and that's followed by 25 to 29 year olds. Now, if we look back as far as 1985, female homeownership as a share of total homeownership has risen from 25% to 50%. And our projection suggests that with rising female labor force participation and further closing of the wage gap, female homeownership should rise as well. So the profile of the average American woman is also changing, whereas the average American woman in 2017 was white, married and in her 50's, holding a bachelor's degree and employed in education or health services. We think that by 2030 she is more likely to be younger, single and a racial minority, holding a bachelor's degree and employed in business and professional services. Indeed, over the last several years, gender diversity, the male-female wage gap and women's role in the workplace have rightly been a key media and social topic and something that we at Morgan Stanley are very passionate about. And for women, these public discussions have set the stage for equality in areas like education, professional advancement, income growth and consumer buying power. We've come a long way, but it's important to underscore that more work remains to be done. Looking ahead, women are in a position to drive the economic conversation from both the inside as a workforce propelling company performance, and the outside as consumers powering discretionary spending and GDP. Thanks for listening. If you enjoy the show, please leave us a review on Apple Podcasts and share Thoughts on the Market with a friend or colleague today.

20 Okt 20233min

The automotive industry’s steady transition to “software-defined vehicles” could offer new entrants advantages against established incumbents.----- Transcript -----Lee Simpson: Welcome to Thoughts on the Market. I'm Lee Simpson, Head of Morgan Stanley's European Technology Hardware Team. Shaqeal Kirunda: And I'm Shaqeal Kirunda, from Morgan Stanley's European Autos Team. Lee Simpson: On this special episode of the podcast, we will discuss the evolution of autos in the direction of software defined vehicles. It's Thursday, 19th October at 10 a.m. in London. Lee Simpson: Cars are in the process of transforming from electromechanical terminals to intelligent mobile devices, and we think the emergence of software defined vehicles or SDVs, is a sign we're approaching the car smartphone moment. The migration to SDVs is part of a broader transformation in autos that could even redefine the economics of the car itself. The implications for this are deep and far reaching. So Shaqeal, what is an SDV and how is it different from most cars on the road today? Shaqeal Kirunda: Thanks Lee, so most people are aware of one of the global megatrends in autos to transition to electric vehicles, was less well understood as a transition to the software defined vehicle. An SDV can be defined as any vehicle that manages its operations or adds new functionality, mainly through software. What that actually means to the consumer is a car that features an operating system which is upgradable over the air, not just for apps and infotainment of a whole software upgrades, safety improvements and new functions such as autonomous driving. So for a future SDV, the functions will be defined by the software and not the hardware. This dynamic mirrors how we use apps and software in phones today. Lee, how does this change the whole architecture of the car? Lee Simpson: Yeah, I think computing needs to change. We've seen that in other devices before and here for the car, it's transitioning really from this distributed area of lots of independent microcontrollers or simple chips in the car,ix notes towards something a little more orchestrated or a centralized compute is perhaps the best way to think of this. Now, there will not be a set path. Different OEMs and different platforms will be built along different lines, a logical path, a physical rewiring path. Some will move through domain clusters, others will move to zonal compute. But in the end, the journey will be the same. We'll move to this sort of server on wheels type of architecture, at least from the point of view of compute. And along the way will introduce new players to the automotive space, those larger chip makers who are champions in the systems on CHIP or SOC environment today. And perhaps for them they'll be attracted to this perhaps large silicon TAM that we'll see in the car. We think perhaps $15 billion of extra semiconductor building materials by the end of the decade. So with that in mind, in essence, we think the evolution towards SDVs involves a decoupling of the hardware and software in a vehicle. So, Shaqeal, where are we in this complicated process right now? And what are some of the paths to the future? Shaqeal Kirunda: Interesting question. We're certainly seeing different rates of progress. The key distinction here is between legacy players and new market entrants. New market entrants have embraced the transition to both EVs and SDVs. Through this they can offer over the air upgrades and safety features as well as new functions, creating new software based revenue streams. Legacy manufacturers have taken note of the major transition they're facing, but as incumbents have taken slightly longer to put this into action. Whereas the new market entrants started from scratch, the incumbents are redesigning manufacturing processes they've been executing on for years. They are making progress however, the first newly designed software defined vehicles are scheduled to be released between 2024 and 2026. But if we take a step back for a moment, pandemic caused a major disruption to the semiconductor supply chains that are so central to the auto industry. How will the migrations to SDVs change the use of and reliance on auto related semiconductors? Lee Simpson: Well, I think from a reliance perspective, we've already seen that in cars. There's quite a considerable reliance on those microcontrollers we've mentioned already. But if anything, this will increase. And I think you'll see that a lot of the main consideration of how a car works running through this myriad of new semiconductor chips. I think the key consideration here, however, is this is a safety critical environment and this is not something that compute is normally structured for. If you take, for instance, the cloud or even your mobile phone, the consideration here is far different. Sometimes it's about performance as in the cloud. Sometimes it's about low power or power efficiency as in your smartphone. Here the paramount feature is safety criticality. And so I think silicon here will need to have real time compute. So zero latency in its and its ability to deliver a decision maker to the decision to the driver and will also have to be secure. So I have to ensure that no new threat surface is introduced to the safety critical vehicle. So with that all in mind, what are some of the benefits of SDVs for both the auto industry and the consumer? Shaqeal Kirunda: Thanks Lee, the benefits for the auto industry are clear. Legacy OEMs face competitive threats from new entrants focused on SDVs. If legacy players don't transition towards SDVs on time, they will continue to lose global and local market share. Of course, the opportunity for OEMs is that the new software features could come with new software margins. Potential benefits for customers centered more towards new features and residual value. New features could be anything from safety improvements based on driver data to completely new apps from third party developers, downloaded straight to the car. Also with much better software comes much better data collection. This opens the door to predictive maintenance and improved reliability, which reduces repair costs and supports residual values. The question with all these benefits is whether customers will really value them. It will take a change in consumer behavior to shift from buying a car with all functions upfront to buying new functions later down the road. So clearly there are also a number of challenges on the road to adoption. Lee, what are some of the hurdles and downside risks of right now and looking towards the future? Lee Simpson: Well, I think the key thing here is software testing. This is something that, again, really leans on that safety, criticality environment of the vehicle. So before you can introduce software into a car, probably needs to be certified as safe for this environment. Now, that's a non-trivial task to overcome. Creating a certification process needs a Cross-Industry agreement and needs someone to drive this through, and probably someone also to drive some standards that will impact in the hardware space equally as well. This will all have to be done with commercial considerations as well, so you'll have to ensure that this is consistently delivered so that the user experiences is the same car after car. This will ensure that the OEMs can deliver on their specs and the SDVs themself will start to grow as a possible value proposition for them. So finally, Shaqeal, what are some of the key milestones that investors should watch for in the migration to SDVs? Shaqeal Kirunda: Absolutely. Over the next few years, we'll start to see legacy players release their own version of newly updated, fully software defined vehicles. We're still at the early stages and it may take some time, but I expect we'll see further partnerships with start up automotive software players as legacy manufacturers recognize they are the best app developers. OEMs may also open their app stores to third party developers and invite them to create new applications for consumers. We've seen this with everything from smartphones to blockchain, and this could also be important for SDVs. Now, once things really take off, OEMs are sharing data and software based revenues. The key focus here will be the split between embedded and standalone revenues, i.e. those software features sold at the point of sale versus those sold during the life of the car. Lee Simpson: Thank you, Shaqeal. Thanks for taking the time to talk to me today. Shaqeal Kirunda: Great speaking with you Lee. Lee Simpson: And thanks for listening, everyone. If you enjoy Thoughts on the Market, please leave us a review on Apple Podcasts and share the podcast with a friend or colleague today.

19 Okt 20237min

In the continuing transition to a multipolar world, geopolitical uncertainty is on the rise and new government policies could rewire global commerce.----- Transcript -----Welcome the Thoughts on the Market. I'm Michael Zezas, Global head of Fixed Income and Thematic Research for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the impact of recent geopolitical tensions. It's Wednesday at 8 a.m. in New York. As tragedy continues to unfold in the Middle East, we continue, along with our clients, to care greatly about these events. And there's been no shortage of prognostication in the media about if the conflict escalates, how other countries might get involved, and what the effects would be on the global economy and markets. Not surprisingly, this has been the most common topic of discussion for me with clients this week. And as a strategist, who's practice relies on unraveling geopolitical complexities, what I can say with confidence is this: there's no obvious path from here, and so we need to be humble and flexible in our thinking. While that might not be the clear guidance you're hoping for, let me suggest that accepting this uncertainty can itself be clarifying. As we've discussed many times in our work on the transition to a multipolar world, geopolitical uncertainty has been on the rise for some time. Governments are implementing policies that support economic and political security and in the process, rewiring global commerce to avoid empowering geopolitical rivals. The situation is obviously complicated, but here's a couple conclusions we feel confident in today. First, security spending is rising as an investment theme. We believe that U.S. and EU companies will spend up to one and a half trillion dollars to de-risk supply chains. Critical infrastructure stocks could be at the center of this. Additionally, oil prices may rise, but investors should resist the assumption that this alone would lead rates higher. An oil supply shock from security disruptions in the region could be possible after several more steps of escalation. But as our economists have noted, higher oil prices, while they clearly mean higher gasoline prices, the effects may be more muted and temporary across goods and services broadly. In prior oil supply shocks, a 10% jump in price on average added 0.35% to headline U.S. CPI for three months, but just 0.03% to core CPI. Further, higher gasoline prices can meaningfully crimp lower income consumers behavior, weakening demand in the economy and mitigating overall inflationary pressures. Then one shouldn't assume higher oil prices translate to a more hawkish central bank posture. So the situation overall is obviously evolving and complex. We'll keep tracking it and keep you informed. Thanks for listening. If you enjoy the show, please share Thoughts on the Market with a friend or colleague or leave us a review on Apple Podcasts. It helps more people find the show.

18 Okt 20232min

The asset management and wealth management sectors could see AI boost efficiency in the short term and drive alpha in the medium to long term.----- Transcript -----Mike Cyprys: Welcome to Thoughts on the Market. I'm Mike Cyprys, Morgan Stanley's Head of U.S. Brokers, Asset Managers and Exchanges Team. Bruce Hamilton: And I'm Bruce Hamilton, Head of European Asset Management and Diversified Financials Research. Mike Cyprys: And on this special episode of the podcast, we'll talk about what the Generative A.I Revolution might mean for asset and wealth managers. It's Tuesday, October 17th at 10 a.m. in New York. Bruce Hamilton: And 3 p.m. in London. Mike Cyprys: My colleagues and I believe that Generative A.I is a revolution rather than simply an evolution and one that is well underway. We think Gen A.I, which differs from traditional A.I in that it uses data to create new content, will fundamentally transform how we live and work. This is certainly the case for asset and wealth management, where leading firms have already started deploying it and extracting tangible benefits from Gen A.I across an array of use cases. Bruce, what has been the initial focus among firms that have successfully deployed Gen A.I so far? And, something that has been top of mind for most of us, is Gen A.I replacing human resources? Bruce Hamilton: So Mike, clearly it's early days, but from our conversations with more than 20 firms managing over $20 trillion in assets, it seems clear that the immediate opportunities are mainly around efficiency gains rather than top-line improvements. However over time, as these evolve, we expect that this can drive opportunity for top-line also. All firms we spoke with see the importance of humans in the loop given risks, so A.I as copilot and freeing up resource for more value added activities rather than replacing humans. Mike Cyprys: What are some of the top most priorities for firms already implementing Gen A.I? And in broad terms, how are they thinking about integrating Gen A.I within their business models? Bruce Hamilton: So opportunities are seen across the value chain in sales and client service, product development, investment in research and middle and back office. Initial efficiency use cases would include drafting customized pitch or RFP reports and sales, synthesis of research and extraction of data in research, and coding in I.T.. Now Mike, specifically within the asset management space, there are two primary ways Gen A.I is disrupting. One is through efficiencies and two revenue opportunities. Can you speak to the latter? How would Gen A.I change or improve asset management? And do you believe it will truly transform the industry? Mike Cyprys: Absolutely. I think it can transform the industry because what's going to change how we live, how we work, and that will have implications across business models and the competitive landscape. I believe we're now at a A.I tipping point, just in terms of its ability to be deployed on a widespread basis across asset managers. The initial focus is overwhelmingly on driving efficiency gains and at the moment there's skepticism if Gen A.I can drive product alpha, but it should help with some of the maintenance tax around collecting and summarizing information and cleaning data. This should help release PM's of time to focus more on higher value idea generation and testing their ideas, which should help performance generation. I don't think it hurts. All in, we think this could result in up to 30% productivity gains across the investment functions. Bruce Hamilton: We've talked about how Gen A.I affects asset management. Do you think it can transform how financial advisers do their job and what kind of productivity gains are you expecting to see? Mike Cyprys: Financial advisors stand to benefit the most from Gen A.I because it should help liberate advisors time spent on routine or administrative tasks and allow them to focus more of their time on building deeper connections with clients and allowing them to service more clients with the same resources. And so that's how you get the revenue opportunity, by serving more clients and more assets. It's more of a copilot or tool that enhances human capabilities as opposed to replacing the human advisor. So on the wealth side, we do see more of a revenue opportunity for Gen A.I than we do on the asset management side in the near-to-medium-term. Use cases include collecting client information and interactive ways and summarizing those insights as well as proposing the next best actions and drafting engagement plans and talking points. All in, Gen A.I should help drive productivity improvements between 30 to 40% in the wealth sleeve. Bruce Hamilton: So Mike, what's your outlook for the next 3 to 5 years when it comes to the impact of Gen A.I on asset management? Mike Cyprys: It's really an expense efficiency play in the near to medium term for asset managers. But as you look out over the next 3-to-5 years, we could see a situation where A.I is embedded in a broader range of activities, from product development to portfolio management and trading areas, including trade optimization strategies, as well as brainstorming new product ideas tailored to client needs. Now in terms of assessing firms that are best placed, our qualitative assessment considers four main areas. First, there's firm scale and resources to allocate to both profitability and balance sheet capacity. Secondly, we consider a firm's in-house data and technology resources to drive change. Thirdly, are firms’ access to proprietary datasets where it can leverage A.I capabilities. And finally, there's the strategic priority assigned to A.I. by management. Bruce Hamilton: But Mike, what are some of the risks and limitations of A.I technology when it comes to wealth management and specifically to financial advisors rather than to back office functions? Mike Cyprys: We see the risks falling into two categories. There's technological risks on one side that includes hallucinations that can result in poor decisions, as well as inability to trace underlying logic and the threat of cyber attack and fraud. Then on the other side, there's usage risks, which include data privacy, improperly trained models, as well as copyright concerns. We're seeing firms respond to these challenges by maintaining a ‘human in the loop’ approach to A.I. adoption. That is a human is involved in the decision making process such that A.I operates with human oversight and intervention. Mike Cyprys: Bruce, thanks so much for taking the time to talk. Bruce Hamilton: Great speaking with you, Mike. Mike Cyprys: And thanks for listening. If you enjoy Thoughts on the Market, please leave us a review on Apple Podcasts and share the podcast with a friend or calling today.

17 Okt 20236min

The recent rise in long term yields and economic tightening raises the question of how restrictive U.S. financial conditions have become.----- Transcript -----Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Chief Global Economist, and along with my colleagues bringing you a variety of perspectives. Today, I'll be talking about the tightening of financial conditions. It's Monday, October 16th at 10 a.m. in New York. The net selloff in U.S. interest rates since May prompts the question of how restrictive financial conditions have become in the United States. Federal Reserve leaders highlighted the tightening in conditions in recent speeches, with emphasis on the recent rise in long term yields. One lens on this issue is the Financial Conditions index, and the Morgan Stanley version suggests that the recent rate move is the equivalent of just under two Fed hikes since the September FOMC meeting. Taken at face value, it sustained these tight conditions will restrain economic activity over time. Put differently, the market is doing additional tightening for the Fed. Before the rally in rates this week, the Morgan Stanley Financial Conditions Index reached the highest level since November 2022, and the move was the equivalent of more than 2 25 basis point hikes since the September FOMC meeting. Of course, the mapping to Fed funds equivalence is just one approximation among many. When Fed staff tried to map QE effects into Fed funds equivalence, they would have assessed the 50 basis point move in term premiums we have seen as a 200 basis point move in hiking the Fed funds rate. What does the FCI mean for inflation and growth? Well, Morgan Stanley forecasts have been fairly accurate on the inflation trend throughout 2023, although we have underestimated growth. We think that core PCE inflation gets below 3% by the first quarter of next year. For growth, the key question is whether the sell off is exogenous, that is if it's unrelated to the fundamentals of the economy and whether it persists. A persistent exogenous rise in rates should slow the economy, and over time the Fed would need to adjust the path of policy lower in order to offset that drag. The more drag that comes from markets, the less drag the Fed would do with policy. But if instead the sell off is endogenous, that is, the higher rates reflect just a fundamentally stronger economy, either because of more fiscal policy or higher productivity growth or both, the growth need not slow at all and rates can stay high forever. Well, what does the FCI mean then, for the Fed? Bond yields have contributed about 2/3's of the rise in the Financial conditions index, and the Fed seems to have taken note. In a panel moderated by our own Ellen Zentner last Monday, Vice Chair Jefferson was a key voice suggesting that the rate move could forestall another hike. The Fed, however, must confront the same two questions. Is the tightening endogenous or exogenous, and will it persist? If rates continued their rally over the next several weeks and offset the tightening, then there's no material effect. But the second question of exogeneity is also critical. If the selloff was exogenous, then the tightening should hurt growth and the Fed will have to adjust policy in response. If instead the higher rates are an endogenous reaction, then there may be more underlying strength in the economy than our models imply and the shift higher in rates could be permanent. Thanks for listening. If you enjoy the show, please leave a review on Apple Podcasts or share Thoughts on the Market with a friend or colleague today.

16 Okt 20233min

On the heels of a midsummer spike, long-end treasury yields have picked up further momentum, which has created complex implications for the Fed, the corporate credit market, and emerging market bonds.----- Transcript -----Welcome to Thoughts on the Market. I am Vishy Tirupattur, Morgan Stanley's Chief Fixed Income Strategist. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about our views on the back of moves higher in Treasury yields. It's Friday, October 13th at 3 pm. in New York. The midsummer move higher in long-end treasury yields picked up further momentum in September, spiking to levels last seen over 15 years ago. Market narratives explaining these moves have revolved largely around upside surprises to growth and concerns about large federal fiscal deficits. The September employment report was unequivocally strong, perhaps too strong for policymakers to relax their tightening bias. While inflation has been decelerating faster than the Fed forecasts, continued strength in job gains could fuel doubts about the sustainability of the pace of deceleration. On the other hand, the rise in long-end yields have led financial conditions tighter. By our economists’ measure, since the September FOMC meeting, financial conditions have tightened to the equivalent of about two 25 basis point hikes, bringing the degree of tightness more in line with the Fed's intent. Thus, our economists see no need for further hikes in the Fed's policy rates this year. In effect, the move higher in Treasury yields is doing the job of additional hikes. It's worth highlighting that there has been a subtle shift in the tone of Fed speak in the past two weeks, indicating that the appetite for additional hike this year is waning. Given the moves in Treasury yields, we felt the need to reassess our Treasury yield forecasts and move them higher relative to our previous forecasts. Our interest rate strategists now expect ten-year Treasury yields to end year 2023 at 4.3% and mid-2024 at 3.9%. The effects of higher treasury yields are different in the corporate credit market. Unlike the Treasury market, the concentration of yield buyers in investment grade corporate credit bonds is much higher, especially at the back end of the curve. These yield buyers offer an important counterbalance. In fact, for longer duration buyers, there are not that many competing alternatives to IG corporate credit. While spreads look low relative to Treasury yields, growth optimism is likely to keep demand skewed towards credit over government bonds. Insurance companies and pension funds may have room to add corporate credit exposure, although stability in yields is certainly important. Higher treasury yields have implications to other markets as well, notably on emerging market bonds. Considering the move in U.S. Treasury yields, we think EM credit bonds cannot absorb any further move higher. In a higher for longer scenario, we expect EM high yield bonds to struggle. Therefore, we no longer think that EM high-yield credit will outperform EM investment grade credit. Thanks for listening. If you enjoy the show, please leave us a review on Apple Podcasts and share Thoughts on the Market with a friend or colleague today.

13 Okt 20232min

Although inflation is largely under control in Asian economies, central banks could be pushed to respond if high U.S. yields meet rising oil prices.----- Transcript -----Welcome to Thoughts on the Market. Chetan Ahya, Morgan Stanley's Chief Economist. Along with my colleagues bringing you a variety of perspectives, today, I'll discuss how higher U.S. rates environment could affect Asia. It's Thursday, October 12th, at 9 a.m. in Hong Kong. Real rates in the U.S. have risen rapidly since mid-May and remain at elevated levels. Against this backdrop, investors are asking if Asian central banks will have to restart their rate hiking cycles. We think Asia should be less affected this time around, mainly because of the difference in inflation dynamics. As we've highlighted before on this show when compared to the U.S., Asia's inflation challenge is not as intense. In fact, for 80% of the economies in the region inflation is already back in the respective central bank's comfort zone. Real policy rates are already high and so against this backdrop, we believe central banks will not have to hike. However, we do think that the central banks will delay cutting rates. Previously, we had expected that the first rate cut in the region could come in the fourth quarter of 2023, but now we believe that cuts will be delayed and only start in first quarter of 2024. So what can trigger renewed rate hikes across Asia? We think that central banks will respond if high U.S. yields are accompanied by Brent crude oil prices rising in a sustained manner, above $110 per barrels versus $85 today. Under this scenario, the region's macro stability indicators of inflation and current account balances could become stretched and currencies may face further weakness. In thinking about which central banks might face more pressures to hike, we consider three key factors, economies with lower yields at the starting point, economies running a current account deficit or just about a mile surplus and the oil trade deficit. This suggests that economies like India, Korea, Philippines and Thailand, may be more exposed and so this means that the central banks in these countries may be prompted to begin raising rates. In contrast, the economies of China and Taiwan are less exposed, and so their central banks would be able to stay put. Thanks for listening, and if you enjoy the show, please leave us a review on Apple Podcasts and share Thoughts on the Market with a friend or colleague today.

12 Okt 20232min

With Congress still without a Speaker of the House, investors should keep an eye on the impact that another potential government shutdown would have on the markets.----- Transcript -----Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income and Thematic Research for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the impact of Congress on financial markets. It's Wednesday, October 11th, at 10 a.m. in New York. As of this recording, the U.S. House of Representatives still does not have a speaker following Representative McCarthy's ouster a little over a week ago. Republicans are scheduled to meet today to attempt to nominate the speaker, but until one is chosen, it's unclear that Congress can do any other business. But does that actually matter for investors? Here's two signals from these events that we think are important. First, it signals that Congress is unlikely to deliver any substantial legislation between now and the 2024 election outside of funding bills. Republicans' difficulty choosing a speaker reflects their lack of consensus on many policy issues, including regulation, social spending and more. That further impedes the government's ability to legislate, which was already hampered by different parties controlling the White House and Congress. So for investors who have credited the rise in bond yields and stock prices to expanded fiscal support from the federal government in recent years, you shouldn't expect there to be more on the horizon. The exception to this could be an economic crisis that prompts a fiscal response. But for investors, that means you'd likely see bonds rally and stocks sell off before fiscal support would again become a stock market positive. The second signal, which also cuts against the narrative of government policy support for markets, is that a government shutdown is still a distinct possibility. Congress recently avoided the government shutdown at the beginning of the month by passing a temporary extension of funding into November. But that move only delayed the resolution of key policy disagreements within the House Republican caucus that nearly led to the shutdown in the first place. With the clock ticking toward another shutdown deadline, Republicans are spending precious time selecting a new speaker, and it's not clear they're any closer to resolving their disagreements on key issues such as funding aid to Ukraine. Without that resolution, the risk remains that the House could fail to consider funding bills in time to avoid another shutdown. Now, to put it in context, our economists expect that downward growth pressures from a shutdown event should be modest, and so there are more meaningful factors to consider for markets out there, but certainly this condition doesn't help investors' confidence in the U.S. growth trajectory. And generally speaking, a Congress stunted in its ability to legislate has the potential to become a bigger challenge, particularly if geopolitical events create greater global growth risks. So bottom line, this situation is worth keeping tabs on, but isn't yet something we think should principally drive investors decision making. Thanks for listening. If you enjoy the show, please share Thoughts on the Market with a friend or colleague or leave us a review on Apple Podcasts. It helps more people find the show.

11 Okt 20233min