2026 Midterm Elections: What’s at Stake for Markets

As the U.S. Economy still angles for a soft landing, the recent Federal Open Markets Committee meeting may have left more questions than answers.----- 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 discuss the outcome of the June Federal Open Market Committee meeting and our outlook for the U.S. economy. It's Thursday, June 22nd at 10 a.m. in New York. Hawks and doves entered the battlefield at the June FOMC meeting, wrangling over the extent to which further rate hikes might be needed and how forcefully to convey that. As expected, the FOMC held rates steady at 5.1% and maintained a tightening bias in the statement. But it's also important to note that the statement included an ever so slight change in language that made further rate hikes seem less certain. So in all, this suggests the Fed could raise rates later this year, although when thinking about the very next meeting we think the bar to hike in July is much higher than market pricing implies. And the new summary of economic projections, which is made up of Federal Open Market Committee participants projections for things like GDP growth, the unemployment rate, inflation and the appropriate policy path, FOMC participants revised up the policy path for this year by a full 50 basis points. So that would imply two more 25 basis point rate hikes. They also lifted their growth projections for this year, they revised down the unemployment rate and they revised upward their core PCE inflation forecast. So all in all, that's a summary of economic projections that skewed very hawkish. Now, we find the upward revision to core PCE most perplexing as incoming data on inflation had been in line with the Fed's forecasts, and especially as key measures of core services inflation have consecutively softened. Now in relation to our forecasts, we think this sets up core inflation to fall faster than the Fed currently projects, which should offset the takeaways from a higher peak rate in the DOT plot. The core inflation projection for this year and the level of the Fed funds rate could get revised downward by the time the FOMC meets in September. In our latest outlook, we continue to see a soft landing for the U.S. economy this year, with inflation and wages slowly easing, as well as job gains. Now consistent with this expectation, we continue to look for the Fed to hold the peak rate at 5.1% for an extended period before making the first .25% cut in March 2024. Like the Fed, we have to be humble here and we do see the effects of banking stresses on the economy as highly uncertain, and we'll hone our expectations for the economy and monetary policy as the incoming data unfold. 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.

22 Jun 20232min

While high oil prices at the end of last year drove down demand and freed up supply, this year many expect the market to tighten again. So why hasn’t it tightened yet?----- Transcript -----Welcome to Thoughts on the Market. I'm Martijn Rats, Morgan Stanley's Global Commodity Strategist. Along with my colleagues, bringing you a variety of perspectives, today I'll discuss the outlook for the global oil market for the rest of 2023. It is Wednesday, June 21st at 3 p.m. in London. Last year saw severe tightness in most commodity markets. Demand still benefited from the post-COVID recovery, and supply was disrupted by the war in Ukraine. In many markets, prices had to rise to a level where demand destruction occurred. In the oil markets, that led Brent crude oil to rise to $130 a barrel, gasoline to $180 and diesel $190 a barrel. Those prices clearly did the trick. In response, the global economy slowed down and oil demand softened towards year end, resulting in a slight oversupply at market earlier this year. In recent months, however, the main narrative in the oil market has been a one of re-tightening into the second half. The market was clearly in surplus in the first quarter, but was widely expected to tighten again by the second half due to a combination of China reopening, continued recovery in aviation and downside risk to supply from Russia. Those factors should see the market balance in the second quarter and reenter a meaningful deficit in the third and fourth quarter, driving prices higher. In fact, that was also our expectation at the start orrf the year. However, if this was indeed to play out, we should see it by now. Given we are currently in June, the most actively traded Brent contract is the one for August delivery. North Sea oil delivered in August will typically arrive at a refinery around about September, with end products made from that crude oil such as gasoline, diesel and jet typically delivered to end customers by October. Therefore, the oil market is already trading the anticipated supply-demand balance deep into the second half. Yet the expected tightness has not yet emerged. This is not due to China's reopening, which has boosted oil demand broadly as expected. Already in March, Chinese refinery runs and its crude oil imports reached all time highs again. The recovery in aviation, and with that jet fuel consumption, is also broadly playing out as expected. Instead, most reasons for the weaker than expected oil market balance lie on the supply side. For starters, Russian exports have been remarkably resilient. The EU sanctions on the imports of Russian oil were widely expected to result in lower oil production from the country, but this has not materialized. On top, oil production from other non-OPEC countries have surprised to the upside. Notwithstanding low investment levels over the last few years, oil production has grown in a wide variety of countries, including the United States, but also Brazil, Canada, Argentina, Guyana, Colombia, Mexico, Oman and even China. As a result, oil production from non-OPEC countries has started to grow faster than global oil demand once again. When that is the case, the balance in the oil market can only be maintained if OPEC cuts production. And that is indeed what the producers group has been doing. OPEC already announced a production cut back in October of last year, and then again in April of this year, and again earlier this month. However, in doing so, OPEC loses market share to non-OPEC producers and it builds up spare capacity, both factors that typically end up weighing on oil markets. We still foresee a small deficit in the oil market in the third and the fourth quarter, but this is mostly a function of seasonality in demand and OPEC cuts. Those factors are not inherently bullish. If second half tightening does not play out, then market participants may need to consider what lies just beyond that. Our balances for early 2024 do not look so tight. Next year, demand will no longer be supported by another year of China reopening and aviation growth. There will still be supply growth in several non-OPEC countries, and seasonality, which is currently a tailwind, will turn into a headwind. There is still likely a period ahead when global GDP growth re-accelerates and the impact of little investment in new production capacity should start to bite. However, the cyclical and the structural outlook do not always align. Over the next six months, we see oil prices broadly stable at about $75 to $80 a barrel for Brent. What market participants find right in front of them is neutral rather than constructive. Thanks for listening. If you enjoyed the show, please leave us a review on Apple Podcasts and share Thoughts on the Market with a friend or colleague today.

21 Jun 20234min

While the U.S is moving towards a soft landing and Japan is seeing nominal growth, the European economy continues to face restrictive policy.----- Transcript -----Welcome to Thoughts on the Market. I'm Matthew Hornbach, Morgan Stanley's Global Head of Macro Strategy. Along with my colleagues, bringing you a variety of perspectives, today, I'll talk about our mid-year outlook for macro markets. It's Tuesday, June 20th at 10 a.m. in New York. As we look ahead at macro markets for the next 12 months, central banks are front and center again. Our economists see them finding peak rates mid-year, while growth slows and inflation remains sticky. They also see the U.S. moving towards a soft landing, while the Euro area economy continues to face more restrictive policy. The U.K. continues to muddle through, while Japan delivers a year of nominal growth. Two global risk scenarios that our economists consider, a hard landing in the U.S. and then faster disinflation also in the U.S., should keep macro markets on the defensive. We think sovereign bond yields will end the year lower than in the first half, while the U.S. dollar will end the year stronger. We think macro markets already reflect the base case outlook for a soft landing and gradual adjustments in monetary policy. The view from our economists, which is mostly in the market price, aligns neatly with this consensus. So what will move markets into year end? Price action should, of course, evolve as surprises to this consensus view unfold. As usual, uncertainties around the outlook for monetary policy are murky, raising risks that the outcome will surprise currently held consensus views. One uncertainty involves the stance of monetary policy and the impact of the previous tightening that's been put in place. Have central banks tightened enough already to bring inflation back to target, in a suitable time frame? How long and variable are the lags of monetary policy today? We think rates market volatility, currently at its local lows, under appreciates the multitude of risks that lie ahead. For example, the lack of negative headlines around regional banks in the US have made investors complacent about bank stresses being behind us. However, key data points on bank balance sheets show that things have worsened on the margin since March. As for government bonds, we expect them to end the year with a rally for which investors have been waiting for, and we wouldn't be surprised if the positive returns accrued in line with historical seasonality. For example, strength in July and August, followed by a lull and then further strength in November and December. If you look at the US dollar, there's been a debate around the extent of the dollar's dominance in the global economy. As things stand, foreign investors continue to have a voracious appetite for US dollar denominated assets thanks to their strong returns and the U.S. economy's deep and liquid capital markets. So we forecast continued U.S. dollar strength into year end as tepid growth and asymmetric downside economic risk amplify investor demand for carry and defensive assets. Thanks for listening. If you enjoy Thoughts on the Market, please take a moment to rate and review us on the Apple Podcasts app. It helps more people find the show.

21 Jun 20233min

With investors anticipating earnings surprises for US stocks, the outlook for municipal bonds is looking brighter.----- Transcript -----Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income and Thematic Research for Morgan Stanley. Mark Schmidt: And I'm Mark Schmidt, Head of Municipal Strategy. Michael Zezas: And today, we'll be talking about the core of many investors' fixed income portfolios, municipal bonds. It's Friday, June 16th at 9am in New York. Michael Zezas: As our equity strategists continue to highlight the risk of earnings surprises for U.S. stocks, the outlook for the bond market looks considerably better. A soft landing, so call it, slow growth and slowing inflation, would mean favorable total return prospects across fixed income. In fact, even as the Fed's been raising short term rates, longer term bond yields have been falling as investors anticipate both inflation and growth to decline. So, Mark, for the benefit of listeners, tell us why this is a sweet spot for munis. Mark Schmidt: Thanks, Michael. Municipal bonds, high credit quality and tax exempt income are an opportunity for investors in high tax brackets right now. Credit quality for municipals can seem confusing, but we like to think of it in a pretty simple way. What's the outlook for tax collections? Income tax collections were mixed in April, but sales and property taxes continue to grow. Also, most state and local governments still have plenty of cash on reserve in case the economy performs worse than our economists expect. That cash comes from all the aid that the federal government provided, several hundred billion dollars, in fact, to municipal issuers in response to COVID. That's created a balance sheet buffer that can still support issuers today, even as growth slows. Now, even though credit quality remains pretty good, the good news is we don't think you need to take a lot of risks to enjoy the benefits of tax free income in your portfolio. Michael Zezas: And Mark, investors ask a lot about what the right maturity of bond is for their portfolio. What do you think investors should favor right now? Shorter or longer maturity bonds? Mark Schmidt: Longer maturity bonds generally offer higher returns, but of course, with higher risk as well. Right now, we actually see superior risk adjusted returns in a 1 to 5 year or 1 to 10 year latter. We'd look for investment grade credits in those shorter maturities for investors seeking higher income with higher risk. We'd recommend a barbell approach, one that blends short 1 to 5 year maturities with select maturities between 15 and 20 years. On the long end of the curve, we prefer very high quality AA bonds. With credit spreads and risk free rates at multi-year highs, we just don't think you need to reach for yield in this environment, especially as the economy slows. But Michael, one question that always comes up with regards to municipal bonds is the risk of the tax exemption changing, given how important tax free income is for municipal investors. Congress does change the tax code from time to time, do you expect major legislation out of Washington anytime soon? Michael Zezas: In short, no. Major tax reforms tend to happen once in a generation, and they tend to need one party to control both the White House and both chambers of Congress. And even then, a big tax code change needs to be their priority. So, the earliest this could possibly happen again would be after the 2024 election, so call it 2025. And then again, even then, it's not clear that even if one party were to take control of Congress and the White House, that this would be a priority for them. So in short, it's not something I'd be particularly concerned about. But Mark, turning it back to you. Munis helped to build all kinds of infrastructures in states and cities, colleges, hospitals, airports and toll roads. They all issue municipal bonds. What sectors do you like right now? Mark Schmidt: We think the outlook for most transportation issuers remains pretty good. Summer vacations are right around the corner, and we all definitely want to pack our bags and hit the road. All those travelers going through airports and on toll roads is good news for credit quality. Now, as for one sector where credit quality is more mixed, health care providers are still recovering from all the disruptions related to COVID. You all know the story, of course, as more patients required more specialized care, the demand for nurses and frontline health care workers skyrocketed, leading to higher costs across the board. Those costs are now stabilizing, but we continue to think it will take some time for credit quality to fully recover. When it comes to some of these choices about sectors and credit quality, though, remember that volatility is relative. Compared to other asset classes, fundamentals for investment grade municipal bonds don't change very quickly or very often. They're the classic late cycle haven, as you've mentioned, Michael, in years before. Michael Zezas: Well, Mark, this has been really insightful. Thanks for taking the time to talk. Mark Schmidt: Great speaking with you today, Michael. Michael Zezas: And thanks for listening. If you enjoy thoughts on the Market, please be sure to rate and review us on the Apple Podcasts app. It helps more people find the show.

16 Jun 20234min

With more Asian economies on pace to join the recovery path set by China, confidence in economic outperformance versus the rest of the world is rising. ----- Transcript -----Welcome to Thoughts on the Market. I'm Chetan Ahya, Chief Asia Economist at Morgan Stanley. Along with my colleagues bringing your variety of perspectives, today I'll be discussing our mid-year outlook for Asia's economy. It's Thursday, June 15 at 9 a.m. in Hong Kong. Asia's recovery is for real. We believe its growth outperformance has just started. We expect a full fledged recovery to build up over the next two quarters across two dimensions. First, we think more economies in the region will join the recovery path. Second, the recovery will broaden from services consumption to goods consumption and in the next six months to capital investments, or CapEx. We see Asia's growth accelerating to 5.1% by fourth quarter of this year. There are three main reasons why we expect this growth outperformance for Asia. First, Asia did not experience the interest rate shock that the U.S. and Europe did. Asian central banks did not have to take rates through restrictive territory because inflation in Asia has not been as intense. Plus, Asia's inflation has already declined and we expect 80% of region’s inflation will get back into central bank's comfort zone in the next 2 to 3 months. The second reason is China. While China's consumption recovery is largely on track, we have seen downside in the last two months, in investment spending and the manufacturing sector. We believe policy easing is imminent as policymakers are keen on preventing a deterioration in labor market conditions and on minimizing social stability risks. Easing should help stabilize investment spending and broaden out the recovery in back half of 2023. Beyond China, India, Indonesia and Japan will also contribute significantly to region's growth recovery. India is benefiting from cyclical and structural factors. Cyclically beating healthy corporate and banking system balance sheets mean India can have an independent business cycle driven by domestic demand, and we are seeing that appetite for expansion translating into stronger CapEx and loan growth. As for Japan, it is in a sweet spot, having decisively left the deflation environment behind, but not facing runaway inflation. Accommodative real interest rates are helping catalyze private CapEx growth, which has already risen to a seven year high. And, in another momentous shift, Japan's nominal GDP growth is now rising at a healthy pace after a long period of flatlining. Finally, we believe Indonesia will be able to sustain a 5% pace of growth. Indonesia runs the most prudent macro policy mix amongst emerging markets. In particular, the fiscal deficit has been maintained below 3%, since the adoption of the fiscal rule and has only exceeded that in 2020 during the worst of the pandemic. This has resulted in a consistent improvement in macro stability indicators and led to a structural decline in the cost of capital supporting private domestic demand. The risks to our next 12 month Asia outlook are hard landing in the U.S., which Morgan Stanley's U.S. economists think it's unlikely and a deeper slowdown in China. But we believe China's recovery will only broaden out in the second half of 2023. And given this, we feel confident about our outlook for Asia's outperformance in 2023 vis-à-vis rest of the world. Thanks for listening. If you enjoyed the show, please leave us a review on Apple Podcasts and share Thoughts on the Market with a friend or colleague today.

15 Jun 20233min

While investors are feeling optimistic with the strong performance in markets despite some predicted challenges, it may be too soon to tell if these possible hurdles have been completely avoided.----- Transcript -----Welcome to Thoughts on the Market. I'm Andrew Sheets, Chief Cross-Asset Strategist for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about trends across the global investment landscape and how we put those ideas together. It's Wednesday, June 14th at 2 p.m. in London. It's hard to ignore a sense of relief and increased optimism that's starting to percolate among investors. After a hard 2022, there was widespread trepidation entering this year that slower growth, quantitative tightening and further rate hikes would continue to pressure markets. Yet year-to-date, performance has been pretty good. Is that evidence that these problems aren't really problems anymore? Markets have been strong. But in terms of that strength showing that markets have passed the test of slower growth or policy tightening, I think it's more accurate to say that it's too soon to tell. Let's start with the idea that markets have already weathered a period of weaker growth. While leading economic indicators of the economy are soft, so far, actual activity has held up pretty well. The U.S. economy grew 1.3% in the first quarter and has added 1.6 million new jobs year-to-date. It's the coming quarters, specifically the next 3 to 6 months, where our economists see the weakest stretch of economic activity. Next, how about market resilience suggesting that rate hikes don't matter, or at least don't matter very much? Here we think the question is to what extent rate increases hit with a lag. The optimistic case is that markets are forward looking, and thus have already discounted the full impact of very large recent rate increases by both the Fed and the European Central Bank. But there's also a school of thought that higher rates don't fully hit the economy for 12 months, or more. 12 months ago, the federal funds rate was still just 1%. Maybe the full effects of policy tightening haven't yet hit. Another part of the theme of tighter policy is the reduction of central bank balance sheets or quantitative tightening. Again, it's tempting to view recent market strength as evidence that this dynamic doesn't matter as much as expected, and that may be true. But I think the jury's still out. Year-to-date, the aggregate bond holdings of the world's central banks have actually risen, not fallen, thanks to continued easing from the Bank of Japan and support for the US banking sector from the Federal Reserve. That should now change going forward, with these balance sheets shrinking, giving us a better measure of the true impact. Third is the effect of tighter lending conditions. The optimistic case is that following quite a bit of banking sector volatility in March, recent market resiliency shows that this is just another test that the current market has passed. But lending, like monetary policy, could act with a lag. Morgan Stanley's banking analysts see tighter lending from the U.S. banking sector playing out over an extended period of time, rather than quickly, and all at once. Markets have been resilient year-to-date, a welcome respite from a poor 2022. We don't think, however, that this resilience is yet proof that markets have successfully answered the question of what the impact of lower growth, tighter policy or tighter bank credit will be. Rather, these questions are still sitting there, waiting to be answered over the next several months. Thanks for listening. Subscribe to Thoughts on the Market on Apple Podcasts, or wherever you listen, and leave a review. We'd love to hear from you.

14 Jun 20233min

With the European economy losing momentum amidst a rally in growth stocks globally, the time of European equity outperformance may be in the past for now.----- Transcript -----Welcome to Thoughts on the Market. I'm Graham Secker, Head of Morgan Stanley's European Equity Strategy Team. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the outlook for European equities in the second half of this year. It's Tuesday, June 13th at 2 p.m. in London. After a record burst of outperformance between October and March, European equities have started to underperform their international peers over the last couple of months, and we think this is likely to continue over the summer for two reasons. Firstly, the European economy seems to be losing some momentum, with many of the region's leading economic indicators turning back down over the last month or so. Now, while the magnitude of their reversal is small so far in absolute terms, the European Economic Surprise Index, which tracks how the data comes in relative to expectations, has fallen much more sharply and is now close to a ten year low. We think this is an important development, as this index is often a good lead indicator for future earnings and hence is now pointing to downside risks ahead for corporate profitability in Europe. The second factor starting to drag on Europe's relative performance, is the strong rally in growth stocks that we are seeing globally. While Europe has its own fair share of such companies, its tech weight overall remains considerably below that of most other regions. For example, tech is at about 7% of the European equity market versus 13% for Asia and over 30% for the U.S.. Quite simply, the size of this differential makes it difficult for Europe to keep pace with other regions when growth stocks are outperforming more broadly, such as now. While these two factors are likely to weigh on Europe's relative performance in the near term, we also see downside risks to broader global equity indices over the summer, given the potential for slowing growth and deteriorating liquidity dynamics in both the US and Europe. Taken together, we think these headwinds could see European equities fall by up to 10% over the next few months. Given this backdrop, we have further increased our preference for defensives over cyclicals, by upgrading pharmaceuticals to overweight, to sit alongside telecoms and utilities in our most preferred list. In contrast, we remain underweight cyclical sectors such as autos, capital goods, chemicals and energy. From a style perspective, we think it is too soon to take profits in the growth sectors and hence remain positive on the likes of luxury goods, medtech, semis and software. The biggest change to our view recently has become more downbeat on the outlook for European financials, which we think fits a, "right place but wrong time narrative". Specifically, while the sector looks attractive from a bottom up perspective in terms of low valuations, strong balance sheets and healthy earnings trends, we think the top down macro environment has become more challenging as we near the end of the current rate hiking cycle and with the prospect of slower economic growth and lower bond yields ahead. Notwithstanding our near-term caution, however, we are more positive on European stocks over the longer term, given the backdrop of what we think will ultimately be relatively resilient earnings and low equity valuations. For example, Europe's price to earnings ratio is now down to just 12.5 times versus the U.S. at close to 18 times. Looking out further on a 12 month view, our models suggest 8% price upside from here, which would rise closer to 12% if we include dividends and buybacks. So, when we put all of the above together, we think the outlook for European stocks is perhaps best described as one of short term pain, but for longer term gain. 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 Jun 20233min

With AI gaining momentum among investors and the Fed potentially pausing on rate hikes, signs are now pointing towards the end of the bear market rally.----- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Chief investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, June 12th at 11 a.m. in New York. So let's get after it. At the beginning of the year, we noted that our view is much more in line with the consensus and we discussed that it might take some time for that to change. Suffice it to say, it has taken longer than we expected. At the end of January, sentiment and positioning had improved enough to put stocks in a vulnerable state, and sure enough, we had a 10% correction in the S&P 500 over the following six weeks, with the average stock down about 13%. Since then, the average stock has lagged the overall index by about 10%. We think this is mostly due to increased liquidity from the depositor bailouts, at the same time artificial intelligence began to gain momentum with investors. The combination of perceived safety and of newfound open ended growth story was too much for investors to resist. Hence, we have one of the most concentrated markets in history. For most of the past two months, sentiment has remained somewhat pessimistic, which is part of the reason why the average stock hasn't done very well. But sentiment has turned outright bullish in the past week. Furthermore, it's not just sentiment, as both retail and institutional flows have returned to the equity markets with technology and artificial intelligence the dominant themes. This past week there were several other warning signs that this bear market rally may have finally exhausted itself after eight months. First, several sell side strategists and market commentators have publicly stated the bear market is now over at this point. Second, we don't find much value in the 20% threshold for declaring new bull markets. Instead, our conclusion is driven more by the fundamentals, valuations and expectations relative to our outlook. In short, our earnings view is much more pessimistic than the current consensus expectation, which is now assuming a second half reacceleration story. We can also find several instances of bear market rallies that exceeded the 20% threshold, only to eventually give way to new lows. One example is particularly relevant, given our 1940s and fifties boom bust framework that we discussed in last week's podcast. After the boom in 1946, following the end of the war, the S&P 500 corrected by 28%, followed by a 24% choppy bear market rally that lasted almost eighteen months before succumbing to new lows a year later. Thus far, it appears similar to the current bear market, which corrected 27 and a half percent last year and is now rallied 24% from its intraday lows, but is still 10% below the highs. Third, when we called for a bear market rally last October, it was predicated on two key assumptions. First, market concern around the Fed and terminal rate had likely peaked, and second, the US dollar was also peaking. Both of these developments occurred as long term interest rates and the U.S. dollar topped last October. Falling rates and the US dollar have combined to drive both valuations and earnings expectations higher. On the latter point, the U.S. dollar index is now flat on a year-over-year basis, which compares to up 21% at its peak last fall. The question is how much did a weaker dollar help the top line for multinational companies and the S&P 500 overall? Furthermore, will this dollar weakness continue or will it flatten out and or even reverse into a headwind? It's hard to know for sure, but our house view is for a stronger dollar, and it's important to acknowledge the S&P 500 has become very negatively correlated to the dollar over the last decade. Finally, we think the Fed's potential pause on rate hikes this week could serve as the perfect bookend to this bear market rally that began with a peak in the Fed's terminal rate last fall. In many ways, it's often easier to travel than arrive at the destination. The bottom line, sentiment and positioning are now 180 degrees from where they were on January 1st. This means stocks are no longer set up for the disappointment we think is coming in the form of much weaker than expected earnings this year. This reset can happen either slowly as companies miss expectations one by one, or quickly from another exogenous shock that is just too much for the market to absorb. In that latter case, the equity risk premium is likely to spike, price earnings multiples are likely to fall sharply and we may make a new bear market price low before estimates fall in earnest. We suspect the weaker liquidity backdrop from greater Treasury issuance discussed last week could serve as that exogenous shock. Thanks for listening. If you enjoy Thoughts on the Market, please take a moment to rate and review us on the Apple Podcast app. It helps for people to find the show.

12 Jun 20234min