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All eyes have been on President Trump’s address at the World Economic Forum. Michael Zezas, our Deputy Global Head of Research, and Ariana Salvatore, our Head of Public Policy Research, talk about potential implications for policy and the U.S. outlook.Read more insights from Morgan Stanley.----- Transcript -----Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Deputy Global Head of Research for Morgan Stanley. Ariana Salvatore: And I'm Ariana Salvatore, Head of Public Policy Research. Michael Zezas: Today we're discussing our takeaways from President Trump's speech in Davos and what we think it means for investors. It's Wednesday, January 21st at 1pm in New York. Michael Zezas: So, Ariana, over the last couple of weeks, there's been a lot of news about policy proposals coming out of the U.S. and from President Trump around affordability, as well as some geopolitical events around the U.S. relationship with Europe. And investors really started looking towards President Trump's speech at Davos, which he gave earlier today, as a potential vehicle to learn more about what these things would actually mean and what it might mean for the economic outlook and markets. Ariana Salvatore: Yeah, that's right. I think specifically investors were looking for the President to focus on affordability proposals pertaining to housing and some commentary around Greenland. Remember last weekend, President Trump proposed a 10 percent tariff on some EU countries related to this topic specifically. So obviously that did feature in his speech. What did we learn and what do you think are the most important things for markets to know? Michael Zezas: So, maybe the most important headline we got was President Trump appearing to take off the table the use of force when it comes to an attempt to acquire Greenland. And that would seem to, therefore, take off the table the idea of a broader rupture in the U.S.-EU relationship. Both the security relationship vis-a-vis NATO, as well as the economic relationship which could have been ruptured with higher tariffs on both sides, anti coercion measures around trade, and that would be of obvious economic importance. Europe is obviously a major importer of U.S. goods. Not as big as Canada or Mexico, but still pretty significant. So, anything that would've created higher barriers between the two would've had meaningful economic consequences for the U.S. outlook. Ariana Salvatore: Yeah, that's right. And we've been saying that the bilateral trade framework agreement between the U.S. and the EU is actually pretty tenuous in nature, right? So, this doesn't yet have formal backing from the European Parliament. They, in fact, delayed a vote on this exact deal, kind of on the back of these Greenland headlines. So how are we thinking about, you know, what's been priced into markets and maybe what this could mean for something like the dollar going forward? Michael Zezas: Yeah, so it's important to point out that we're not out of the woods yet in terms of potential trade escalation on both sides around the Greenland issue. However, it seems like that bigger tail problem of a decoupling might have gone away. And so, what you saw in markets so far today was that some of the actions over the past, kind of, 24-48 hours with equity market weakness. You know, the S&P was down about 2 percent yesterday. The dollar was weaker. It seemed like more term premium was being baked into the U.S. Treasury market. A lot of that appears to be unwinding today. Said more simply, the idea of a kind of riskier investment environment for the U.S. is getting priced out. At least today, it's getting priced out. And it all makes sense when you think about if there was less of a relationship between the U.S. and Europe, there would be less demand for U.S. dollar holdings overseas. And that's the type of thing that should manifest in a weaker dollar and higher term premia, steeper yield curves for U.S. Treasuries. Ariana Salvatore: Yeah, and that dovetails really nicely with the work that we just put out with the FX team, kind of highlighting some of the policy factors as push factors for countries to move away from the dollar. We think that's happening marginally. We think it's not really a risk in the immediate term, but some of these policy drivers can actually create dollar weakness over the medium to longer term. Michael Zezas: Of course, to the extent that we get news that this is a head fake and that tensions are re-escalating, you'd expect some of those trades to start pushing markets back in the other direction again. Now, President Trump also talked quite a bit about domestic policy, largely about affordability, and some of the policy proposals he's put forward over the last couple of weeks. Was there any new details that you heard that you think are meaningful for investors? Ariana Salvatore: So, the short version is nothing really new, and the reality is that a lot of housing policy in particular is actually out of the hands of the executive. And even if you do see congressional action here, it's likely to be marginal. A lot of housing policy is done at the state level, and even bipartisan efforts to address both the demand and the supply sides of the equation have faced some resistance in Congress. That doesn't mean they can't reemerge. But we would need to see a very large decline in the mortgage rate to get noticeable effects on economic indicators like GDP, inflation and employment. And in terms of what this means for the housing outlook, the programs talked about so far should push sales marginally higher but have little impact on our expectations for our home prices. Now it's important to note that the president didn't spend that much time of the speech talking about housing affordability proposals, as was telegraphed ahead of time. And since that, the head of the NEC Kevin Hassett has said they plan to announce more details on housing in the coming days. Michael Zezas: Got it. So, on the two pieces here that investors have really focused on, which are capping institutional ownership of single-family homes and potentially capping interest rates on credit cards, it sounded like the president talked about he would go to Congress for authorization on those things.Is that right? And if so, how plausible is it that Congress could actually deliver those authorities? Ariana Salvatore: So, here's where I think it's really critical to understand the role that Congress has to play in all of these policy initiatives. So, there are not only political constraints, but there are also procedural ones. If we were to see Republicans kind of push for this 10 percent cap, for example, that likely would have to go through the reconciliation process. And that process, as we know, comes with a number of limitations because something like a 10 percent cap wouldn't have much of an impact on the federal budget in terms of revenues or outlays. We think it's most likely not going to be permissible under that framework. So, understanding that the first filter here is Congress, and the second filter is these procedural limitations that exist in and of themselves is really important context for understanding the president's proposals on housing.Michael Zezas: So, is it fair to say the starting point is that we think Congress is unlikely to act on these things? And what would you have to see that might make you think differently? Ariana Salvatore: I think where we're looking for signals from Republican leadership in Congress – because as of right now, it's been our thinking that a second reconciliation bill ahead of the midterm elections is not feasible. It's too difficult politically, it takes a lot of time, but if you see enough of a push from the president, we do think that can start to become feasible. Again, we have to keep in mind these procedural limitations and where the rest of the party falls on these issues. But I think they're possible if the administration pushes hard enough for them.Michael Zezas: Got it. So, even though we don't think it's likely, we obviously want to prepare in case that happens. When it comes to housing, it seems like our team has said institutional ownership of single-family housing is quite low, 1 percent or less. And so, restrictions there wouldn't necessarily change the game on home prices. What about the 10 percent cap on credit card interests? What are the broader ramifications that our colleagues see? Ariana Salvatore: Yeah, so I'd say generally speaking, when it comes to consumer credit affordability policies, our strategists think that these could actually translate to a benefit for consumer ABS performance because they tend to be a tailwind for a consumer that's struggled with rising delinquencies and defaults post-COVID, right? However, there are some specific proposals like this cap on credit cards, and that's likely going to have a negative consequence because it's going to limit credit access for consumers, especially for those carrying a balance. So, probably a little bit counterintuitive to the overall affordability agenda that the administration's trying to go for. Michael Zezas: So, lots of interesting stuff coming out of the speech. Lots of things we have to track over the next few weeks and months. It certainly doesn't seem like it's going to be a boring year two of the Trump term for investors. Ariana Salvatore: Certainly not, and not for us either. Michael Zezas: Well, Ariana, thanks for finding the time to talk. Ariana Salvatore: Great speaking with you, Mike. Michael Zezas: And as a reminder, if you enjoy Thoughts on the Market, please take a moment to rate and review us wherever you listen. And share Thoughts on the Market with a friend or colleague today.

22 Jan 8min

Our co-heads of Securitized Products Jay Bacow and James Egan explain why recent U.S. government measures won’t change much the outlook for mortgage rates, home prices and sales this year.Read more insights from Morgan Stanley.----- Transcript -----Jay Bacow: Jim Egan, I see you sitting across from me wearing a quarter zip. As old things become new again, my teenager would think that is trendy. James Egan: I think this is one of, if not the first, times in my life that a teenager has thought I was trendy, including back when I was a teenager. Jay Bacow: Well, as captain of the chess team in high school, I was never trendy. But Jim… Welcome to Thoughts on the Market. I'm Jay Bacow, co-head of Securitized Products Research at Morgan Stanley. James Egan: And I'm Jim Egan, the other co-head of Securitized Products Research at Morgan Stanley. Today, we're here to talk about some of the programs that are being announced and their implications for the mortgage and U.S. housing markets. It's Tuesday, January 20th at 10am in New York. Now, Jay, there have been a lot of announcements from this administration. Some of them focused on affordability, some of them focused on the mortgage market, some of them focused on the housing market. But I think one of them that had the biggest impact, at least in terms of trading sessions immediately following, was a $200 billion buy program from the GSEs. Can you talk to us a little bit about that program? Jay Bacow: Sure. As you mentioned, President Trump announced that there would be a $200 billion purchase of mortgages, which later was confirmed by FHFA director Bill Pulte, to be purchased by Fannie and Freddie. Now, we would highlight putting this $200 billion number in context. The market was probably expecting the GSEs to buy about a hundred billion dollars of mortgages this year. So, this is maybe an incremental a hundred billion dollars more. The mortgage market round numbers is a $10 trillion market, so in the scope of the size of the market, it's not huge. However, we're only forecasting about [$]175 billion of growth in the mortgage market this year, so this is the GSEs buying more than net issuance. It's also similar in size to the Fed balance sheet runoff, which is something that Treasury Secretary Scott Bessant mentioned in his comments last week. And so, the initial impact of this announcement was reasonably meaningful. Mortgage spreads tightened about 15 basis points and headline mortgage rates rallied to below 6 precent for the first time since 2022 on some mortgage measures. James Egan: Alright, so we had a 15 basis point rally almost immediately upon announcement of this program. That took us, I believe, through your bull case for agency mortgages in our 2026 outlook. So, what's next here? Jay Bacow: Well, we have a lot of questions about what is next. There's a lot of things that we're still waiting information on. But we think the initial move has sort of been fully priced in. We don't know the pace of the buying. We don't know if the purchases are going to be outright – like the Fed's purchase programs were. Or purchased and hedging the duration – like historically, the GSEs portfolios have been managed. We don't know how the $200 billion of mortgages will be funded. The way we're kind of thinking about this is if the program is just – and this is a podcast, not a video cast but I'm putting air quotes around just – $200 billion, it is probably priced in and then maybe and then some. However, if the purchases are front loaded or the purchases are increased, or maybe this purchase program indicates possible changes to the composition of the Fed's balance sheet, then there could be further moves in spreads and in mortgage rates.But Jim, what does this mean to the mortgage market writ large? James Egan: Right. So, when we think about what you're talking about, a 15 basis point move in mortgage rates, and we take that into the housing market, the first order implication is on affordability. And this is a move in the right direction, but it is small from a magnitude perspective. You mentioned mortgage rates getting below 6 percent for the first time since 2022. When we think about this in the context of our expectations for 2026, we already had the mortgage rate getting to about 5.75 in the back half of this year. This would take that forecast down to about 5.6 percent. That has a very modest upward implication for our purchase volume forecast, but I want to emphasize the modest piece. We're talking about [$]4.23 million was our original existing home sales forecast. This could take it to [$] 4.25 [million], maybe as high as [$]4.3 [million] with some media effect layered in. But any growth in demand, when we think about the home price side of the equation, we think we'll be met with additional listings. So, it really doesn't change our home price forecast for 2026, which was plus 2 percent. So very modest, slightly upward risk to some of our forecasts. And as we've been saying, when we think about U.S. housing in 2026, the risk to our modest growth forecasts, 3 percent growth in sales, 2 percent growth in home prices. The risk has always been to the upside. That could be because demand responds more to a 5 percent handle in mortgage rates than we're expecting. Or because you get more and more of these programs from the administration. So, on that note, Jay, what else do we think can be done here? Jay Bacow: I mean, there are a lot of potential things that could be done, which could be helpful on the margin or not, depending on how far they are willing to think about the possibilities. Some of the easier changes to make would be changes to the loan level pricing adjustments and the guaranteed fees, and mortgage insurance premiums, which would lower the cost in the roughly 10 to 15 basis points. There are some other changes that could be put through which we think from a legal side which would be much more difficult to make retroactive. That would be either allowing you to take your mortgage with you to the next house, which is what we call portability. Or allowing you to transfer your mortgage to the new home buyer, which is what we call assumability. We think it's extremely difficult to make that retroactive, but that could have some larger impacts, if that were to go through. Now, Jim, speaking of other impacts, mortgages spreads have tightened 15 basis points. What does that do to some of the other sectors that you cover? James Egan: Right. We do think there is a portfolio channel effect here that could be good for risk assets broader than just the agency mortgage space, even though that is clearly the primary impact of that $200 billion buying program. Securitized credit, we think is one of the clear beneficiaries of that tightening, given the relationships it has to agency mortgages. The non-QM mortgage market in particular – one that we're looking at for positive tailwinds as a result of this. Jay Bacow: All right, so we got a big announcement. We got a pretty quick market move after that, and now we're waiting to see what the next steps are. Likely going to have a marginal impact on housing activity, but we got to keep our ears and our eyes open to see what else might come. Jim, always great talking to you. James Egan: Pleasure talking to you too, Jay. And to all of you regular listeners, thank you for adding us to your playlist. Let us know what you think wherever you get this podcast and share Thoughts on the Market with a friend or colleague today. Jay Bacow: Go smash that subscribe button.*** Disclaimer ***James Egan: It's a shame it's not a video podcast. What a great cardigan.

20 Jan 7min

Our Head of Research Product in Europe Paul Walsh and Chief European Equity Strategist Marina Zavolock break down the main themes for European stocks this year. Read more insights from Morgan Stanley.----- Transcript -----Paul Walsh: Welcome to Thoughts on the Market. I'm Paul Walsh, Morgan Stanley's Head of Research Product here in Europe.Marina Zavolock: And I'm Marina Zavolock, Chief European Equity Strategist.Paul Walsh: Today, we are here to talk about the big debates for European equities moving into 2026.It's Friday, January the 16th at 8am in London.Marina, it's great to have you on Thoughts on the Market. I think we've got a fascinating year ahead of us, and there are plenty of big debates to be exploring here in Europe. But let's kick it off with the, sort of, obvious comparison to the U.S.How are you thinking about European equities versus the U.S. right now? When we cast our eyes back to last year, we had this surprising outperformance. Could that repeat?Marina Zavolock: Yeah, the biggest debate of all Paul, that's what you start with. So, actually it's not just last year. If you look since U.S. elections, I think it would surprise most people to know that if you compare in constant currency terms; so if you look in dollar terms or if you look in Euro terms, European equities have outperformed U.S. equities since US elections. I don't think that's something that a lot of people really think about as a fact.And something very interesting has happened at the start of this year. And let me set the scene before I tell you what that is.In the last 10 years, European equities have been in this constantly widening discount range versus the U.S. on valuation. So next one's P/E there's been, you know, we have tactical rallies from time to time; but in the last 10 years, they've always been tactical. But we're in this downward structural range where their discount just keeps going wider and wider and wider. And what's happened on December 31st is that for the first time in 10 years, European equities have broken the top of that discount range now consistently since December 31st. I've lost count of how many trading days that is. So about two weeks, we've broken the top of that discount range. And when you look at long-term history, that's happened a number of times before. And every time that happens, you start to go into an upward range.So, the discount is narrowing and narrowing; not in a straight line, in a range. But the discount narrows over time. The last couple of times that's happened, in the last 20 years, over time you narrow all the way to single digit discount rather than what we have right now in like-for-like terms of 23 percent.Paul Walsh: Yeah, so there's a significant discount. Now, obviously it's great that we are seeing increased inflows into European equities. So far this year, the performance at an index level has been pretty robust. We've just talked about the relative positioning of Europe versus the U.S.; and the perhaps not widely understood local currency outperformance of Europe versus the U.S. last year. But do you think this is a phenomenon that's sustainable? Or are we looking at, sort of, purely a Q1 phenomenon?Marina Zavolock: Yeah, it's a really good question and you make a good point on flows, which I forgot to mention. Which is that, last year in [Q1] we saw this really big diversification flow theme where investors were looking to reduce exposure in the U.S., add exposure to Europe – for a number of reasons that I won't go into.And we're seeing deja vu with that now, mostly on the – not really reducing that much in U.S., but more so, diversifying into Europe. And the feedback I get when speaking to investors is that the U.S. is so big, so concentrated and there's this trend of broadening in the U.S. that's happening; and that broadening is impacting Europe as well.Because if you're thinking about, ‘Okay, what do I invest in outside of seven stocks in the U.S.?’ You're also thinking about, ‘Okay, but Europe has discounts and maybe I should look at those European companies as well.’ That's exactly what's happening. So, diversification flows are sharply going up, in the last month or two in European equities coming into this year.And it's a very good question of whether this is just a [Q1] phenomenon. [Be]cause that's exactly what it was last year. I still struggle to see European equities outperforming the U.S. over the course of the full year because we're going to come into earnings now.We have much lower earnings growth at a headline level than the U.S. I have 4 percent earnings growth forecast. That's driven by some specific sectors. It's, you know, you have pockets of very high growth. But still at a headline level, we have 4 percent earnings growth on our base case. Consensus is too high in our view. And our U.S. equity strategists, they have 17 percent earnings growth, so we can't compete.Paul Walsh That's a very stark difference.Marina Zavolock: Yeah, we cannot compete with that. But what I will say is that historically when you've had these breakouts, you don't get out performance really. But what you get is a much narrower gap in performance. And I also think if you pick the right pockets within Europe, then you could; you can get out performance.Paul Walsh: So, something you and I talked about a lot in 2025, is the bull case for Europe. There are a number of themes and secular dynamics that could play out, frankly, to the benefits of Europe, and there are a number of them. I wondered if you could highlight the ones that you think are most important in terms of the bull case for Europe.Marina Zavolock: I think the most important one is AI adoption. We and our team, we have been able to quantify this. So, when we take our global AI mapping and we look at leading AI adopters in Europe, which is about a quarter of the index, they are showing very strong earnings and returns outperformance. Not just versus the European index, but versus their respective sectors. And versus their respective sectors, that gap of earnings outperformance is growing and becoming more meaningful every time that we update our own chart.To the point that I think at this rate, by the second half of this year, it's going to grow to a point that it’s more difficult for investors to ignore. That group of stocks, first of all, they trade again at a big discount to U.S. equivalent – 27 percent discount. Also, if you see adoption broadening overall, and we start to go into the phase of the AI cycle where adopters are, you know, are being sought after and are seen as in the front line of beneficiaries of AI. It's important to remember Europe; the European index because we don't have a lot of enablers in our index. It is very skewed to AI adopters. And then we also have a lot of low hanging fruit given productivity demographic challenges that AI can help to address. So that's the biggest one.Paul Walsh: Understood.Marina Zavolock: And the one I've spent most time on. But let me quickly mention a few others. M&A, we're seeing it rising in Europe, almost as sharply as we're seeing in the U.S. Again, I think there's low hanging fruit there. We're seeing easing competition commission rules, which has been an ongoing thing, but you know, that comes after decade of not seeing that. We're seeing corporate re-leveraging off of lows. Both of these things are still very far from cycle peaks. And we're seeing structural drivers, which for example, savings and investment union, which is multifaceted. I won't get into it. But that could really present a bull case.Paul Walsh: Yeah. And that could include pensions reform across Europe, particularly in Germany, deeper capital…Marina Zavolock: We're starting to see it.Paul Walsh: And in Europe as well, yeah. And so just going back to the base case, what are you advocating to clients in terms of what do we buy here in Europe, given the backdrop that you've framed?Marina Zavolock: Within Europe, I get asked a lot whether investors should be investing in cyclicals or value. Last year value really worked, or quality – maybe they will return. I think it's not really about any of those things. I think, similar to prior years, what we're going to see is stock level dispersion continuing to rise. That's what we keep seeing every month, every quarter, every year – for the last couple of years, we're seeing dispersion rising.Again, we're still far from where we normally get to, when we get to cycle peaks. So, Europe is really about stock picking. And the best way that we have at Morgan Stanley to capture this alpha under the surface of the European index. And the growth that we have under the surface of the index, is our analyst top picks – which are showing fairly consistent outperformance, not just versus the European index, but also versus the S&P. And since inception of top picks in 2021, European top picks have outperformed the S&P free float market cap weighted by over 90 percentage points. And they've outperformed, the S&P – this is pre-trade – by 17 percentage points in the last year. And whatever period we slice, we're seeing out performance.As far as sectors, key sectors, Banks is at the very top of our model. It's the first sector that non-dedicated investors ask me about. I think the investment case there is very compelling. Defense, we really like structurally with the rearmament theme in Europe, but it's also helpful that we're in this seasonal phase where defense tends to really outperform between; and have outsized returns between January and April. And then we like the powering AI thematic, and we are getting a lot of incoming on the powering AI thematic in Europe. We upgraded utilities recently.Paul, maybe if I ask you a question, one sector that I've missed out on, in our data-driven sector model, is the semis. But you've worked a lot with our semi's team who are quite constructive. Can you tell us about the investment case there?Paul Walsh: Yeah, they're quite constructive, but I would say there's nuance within the context of the sector. I think what they really like is the semi cap space, which they think is really well underpinned by a robust, global outlook for wafer fab equipment spend, which we see growing double digits globally in both 2026 and 2027.And I think within that, in particular, the outlook for memory. You have something of a memory supercycle going on at the moment. And the outlook for memory is especially encouraging. And it's a market where we see it as being increasingly capacity constrained with an unusually long order book visibility today, driven really by AI inference. So strong thematic overlay there as well.And maybe I would highlight one other key area of growth longer term for the space, which is set to come from the proliferation of humanoid robots. That's a key theme for us in 2025. And of course, we'll continue to be so, in the years to come. And we are modeling a global Humanoids Semicon TAM of over $300 billion by 2045, with key pillars of opportunity for the semi names to be able to capitalize on. So, I think those are two areas where, in particular, the team have seen some great opportunities.Now bringing it back to the other side of the equation, Marina, which sectors would you be avoiding, within the context of your model?Marina Zavolock: There's a collection of sectors and they, for the most part, are the culprits for the low growth that we have in Europe. So simply avoiding these could be very helpful from a growth perspective, to add to that multiple expansion. These are at the bottom of our data driven, sector models. So, these are Autos, Chemicals, Luxury Transport, Food and Beverage.Most of these are old economy cyclicals. Many of these sectors have high China/old economy exposure – as well where we're not seeing really a demand pickup. And then lastly, a number of these sectors are facing ever rising China competition.Paul Walsh: And I think, when we weigh up the skew of your views according to your model, I think it brings it back to the original big debate around cyclicals versus defensives. And your conclusion that actually it's much more complicated than that.Marina, thanks for taking the time to talk.Marina Zavolock: Great to speak with you Paul.Paul Walsh: And thanks 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.

16 Jan 11min

Our Global Head of Fixed Income Research Andrew Sheets looks at the implications of the U.S. government’s efforts to ease regulations, from bank balance sheets to asset valuations.Read more insights from Morgan Stanley.----- Transcript -----Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley. Today, a core theme of easing policy, and the latest iteration in the U.S. mortgage market. It's Thursday, January 15th at 2pm in London. Central to our thinking for the year ahead is that we're seeing an unusual combination of easing monetary policy, fiscal policy, and regulatory policy – all at the same time. This isn't normal, and usually this type of support is only deployed under much more dire economic conditions. All this is also happening alongside another large supportive force – over $3 trillion of AI- and datacenter-related spending that Morgan Stanley expects all to happen through the end of 2028. This broad-based easing is a global theme. Equities in Japan have been rallying on hopes of even a larger fiscal leasing in that country. In Europe, we think that Germany will continue to spend more while the European Central Bank and Bank of England cut rates more than the market expects.But like many things these days, it's the United States that's at the heart of the story. We think that the U.S. Federal Reserve will continue to lower interest rates this year, even as core inflation persists above its target. The U.S. government will spend about $1.9 trillion more than it takes in, even after adjusting for tariffs as tax cuts from the One Big Beautiful Bill Act kick in. But my focus today is on the third leg of this proverbial three-legged stimulative stool. While easing monetary and fiscal policy probably get the most focus, easing regulatory policy is another big lever that's being pulled in the same direction. Regulatory policy is opaque, and let's face it can be a little boring. But it's extremely important for how financial markets function. Regulation drives the incentives for the buyers of many assets, especially in the all-important banking and insurance sectors. It can set almost by definition what price an asset needs to trade at to be attractive, or how much of an asset a particular actor in the market can or cannot hold. Regulatory policy tightened dramatically in the wake of the Global Financial Crisis, but now it's starting to ease. Our U.S. bank equity analysts expect that finalization of key capital rules later this year – an important regulatory step – could free up about [$]5.8 trillion – with a T – of balance sheet capacity across the Global Systematically Important Banks. In mid-December, the office of the comptroller of the currency and the FDIC withdrew lending guidelines from 2013 that had discouraged banks from making loans to more highly indebted companies. And just last week, the U.S. administration announced that the U.S. mortgage agencies, Fannie Mae and Freddie Mac would buy [$]200 billion of mortgages to hold on their own balance sheet; a significant move that quickly tightens spreads in this key market. For investors, we see several implications. This simultaneous easing across monetary, fiscal, and now regulatory policy supports a market that runs hot and where valuations may overshoot. And in the specific case of these agency mortgages, my colleague Jay Bacow and our mortgage strategy team think that this shift is now very quickly in the price. Having previously been positive on agency mortgage spreads, they've now turned to neutral. Thank you as always for your time. If you find Thoughts on the Market useful, let us know by leaving a review wherever you listen. And also tell a friend or colleague about us today.

15 Jan 4min

Our Head of India Research and Chief India Equity Strategist Ridham Desai addresses a big debate: whether India stocks are poised for a recovery after underperforming other emerging markets in 2025.Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I’m Ridham Desai, Morgan Stanley’s Head of India Research and Chief India Equity Strategist. Today: one of the big debates in Asia this year. Can Indian equities recover their strength after a historic slump? It’s Wednesday, January 14th, at 2pm in Mumbai.India ended 2025 with its weakest relative performance versus Emerging Markets since 1994. That’s right – three decades. The reason? A mid-cycle growth slowdown, rich valuations, and the fact that India doesn’t offer an explicit AI-related trade. Add in delays on the U.S. trade deal plus India’s low beta in a global bull market, and you’ve got a recipe for underperformance. But we think the tide is turning. Valuations have corrected meaningfully and likely bottomed out in October. More importantly, India’s growth cycle looks poised for a positive surprise. Policymakers have gone all-in on reflation, deploying a mix of aggressive measures to revive momentum. The Reserve Bank of India has cut rates, reduced the cash reserve ratio, infused liquidity and gone in for bank deregulation which are adding fuel to the fire. The government has front-loaded capital expenditure and announced a massive ₹1.5 trillion GST rate cut to encourage people to spend more on goods and services. All these moves – along with improving ties between India and China, Beijing’s new anti-involution push, and the possibility of a major India-U.S. trade deal – are laying solid groundwork for recovery. Put simply, India’s once-tough, post-pandemic economic stance is easing up. And that could open the door to a major shift in how investors see the market going forward. India’s macro backdrop is also evolving. The reduced reliance on oil in GDP, the growing share of exports, especially in services, the ongoing fiscal consolidation – all indicate a smaller saving imbalance. This means structurally lower interest rates ahead. And flexible inflation targeting, and volatility in both inflation and interest rates should continue to decline. High growth with low volatility and falling rates should translate into higher P/E multiples. And don’t forget the household balance sheet shift toward equities. Systematic flows into domestic mutual funds are evidence of this trend. Investor concerns are understandable, but let’s keep them in context. More companies raising capital often signals growth ahead, not just high valuations. Domestic investment remains strong, thanks to a steady shift toward equities. India’s premium valuations reflect solid long-term growth prospects and expectations for lower real interest rates. On the policy front, efforts to boost growth are robust, and we see real growth potentially surprising to the upside. While India isn’t a leader in AI yet, the upcoming AI summit in February could help address concerns about India’s role in tech innovation. What key catalysts should investors watch? Look for positive earnings revisions, further dovishness from the RBI, reforms from the government including privatization, and the long-awaited U.S. trade deal. But also keep an eye on key risks – slower global growth and shifting geopolitical dynamics. So, after fifteen months of relative pain, could India be on the cusp of a structural re-rating? If growth surprises to the upside – and we think it will – the story of 2026 may just be India’s comeback. Stay tuned.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.

14 Jan 4min

Our U.S. Thematic Strategist Michelle Weaver and U.S. Multi-Industry Analyst Chris Snyder discuss a North America Big Debate for 2026: Whether investments in efficiency and productivity will spark a transformation of U.S. manufacturing. 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 and Equity Strategist. Chris Snyder: I'm Chris Snyder, U.S. Multi-Industry Analyst. Michelle Weaver: Today: Will 2026 be the year of U.S. Manufacturing's transformation? It's Tuesday, January 13th at 10am in New York. U.S. reshoring has been an important component of our multipolar world theme, and manufacturing is one of those topics we have always had our eyes on. We've been making some big predictions about a transformation in this sector, so it makes sense that it features prominently in the big debates we've identified for North America in 2026. In the last few years, there's been a steady stream of investments in automation controls and upgrades across U.S. manufacturing. And this is happening against a backdrop of shifting global supply chains and lingering policy uncertainty. Now, the big market debate is whether these investments will generate a whole wave of greenfield projects – that is brand new, multi-year construction initiatives to build facilities, factories, and infrastructure from the ground up. Chris, what exactly is driving this current wave of efficiency and productivity investment in U.S. manufacturing? And how long term of a trend is it? Chris Snyder: I think what's driving the inflection is tariffs. The view that has underpinned my U.S. reshoring call is that I believe companies have to serve the U.S. market. The U.S. accounts for 30 percent of global consumption – equal to EU and China combined. It is also the best margin region in the world. So, companies have to serve the market, and now what they're doing is they're going back and they're looking at their production assets that they have in the U.S. and they're saying, how can I get more out of what's already here? So, the quickest, cheapest, fastest way to bring production online in the U.S. is drive better productivity and efficiency out of the assets you already have. And we're seeing it come through very quickly after Liberation Day. Michelle Weaver: And you think these investments are an on ramp to larger greenfield projects. What evidence do we have that this efficiency spend is setting the stage for a ramp up in new factory builds? Chris Snyder: I think this is absolutely the leading indicator for greenfields because this is telling us that the supply chain cost calculation has changed. What all of these companies are doing are saying, ‘Okay, how can I get products into the U.S. at the cheapest cost possible?’ What we're seeing is the cost of imports have gone higher with tariffs, and now it's more economically advisable for these companies to make the product in the United States. And if that's the case, that means that when they need a new factory, it's going to come to the United States. They might not need a factory now, but when they do, the U.S. is at least incrementally better positioned to get that factory. Other data that we're seeing; I think the most interesting data that's come out of all of this is the bifurcation in global PPI or producer price data. If you look at it on a regional basis, North America markets saw PPI go higher in 2025. They were all the tariff exempt regions – U.S., Canada, and Mexico. Every other region in the world saw PPI down year-to-date. That means that these companies and factories are having to lower prices to stay competitive in the global market and sell their products into the United States. That tells us also where the next factory is going. If you have a factory in the U.S. and a factory in Malaysia, and your U.S. factory is pricing up, that means the return profile is getting better. If your factory in Malaysia is pricing down, it means the returns are getting worse and you're pricing down because it's over-capacitized. That's not a region where you're going to add a factory. You know, what I like to say is – price drives returns, and supply is going to follow returns. And right now, that price data tells us the returns are in the United States. Michelle Weaver: And, for people that might not be familiar with PPI, can you explain it to everyone? It's sort of like CPIs cousin, but how should people think about it? Chris Snyder: Yeah, yeah, so PPI, Producer Price Inflation, it's effectively the prices that my companies, the producers of goods are charging. So maybe this is the price that they would then charge a distributor, who then the distributor ultimately is selling it to a store. And then that's, you know, kind of factoring its way into CPI. But it starts with PPI. Michelle Weaver: And what are some of the key catalysts investors should be looking for in 2026 that could confirm that this greenfield ramp is underway? Chris Snyder: The number one, you know, metric I think the market looks at is manufacturing project starts. Every month there's data that comes out and says how many manufacturing projects were announced in the U.S. that month. And what we've seen coming out of Liberation Day is that number on a project value has gone higher. You know, it hasn't totally inflected, but it has pushed higher. The thing that has inflected is the number of announcements. So, this is not like two or three years ago where we had these mega projects. What we're seeing right now is very broad. And to me that's more important because that shows that there's durability behind it. And it shows that this is because the economics are saying it makes sense. It's not necessarily just because, okay, I got an incentive and I'm trying to follow alongside that. Michelle Weaver: Mm-hmm. The market seems skeptical though, pointing out that the ISM manufacturing purchasing managers index has been shrinking. This could be a sign that demand isn't strong enough to justify building new factories right now. How would you address that concern? Chris Snyder: Yeah, no, I mean, you're definitely right. Like the biggest pushback on the reshoring theme is the demand for goods is not very strong. Consumers are not in a good place. So why would companies add capacity in this backdrop? That's never happened before. Companies only add capacity when they're producing a lot and the utilization goes up. This is not a normal cycle. Throughout history, the motivation to add capacity was when your production rates go higher, your utilization hits a certain level, and then you add capacity. So, it always started with demand to your point. The motivation right now is tariff mitigation. And you do not need higher demand to support that. The U.S. is a $1.2 trillion trade deficit. So, that more than anything gets me confident in the theme and the duration behind it. And I think it's a very different outlook when you look across the international markets. They're the ones that need to find incremental demand to justify investment. Michelle Weaver: And given the scale of U.S. purchasing power and the shift in global capital flows, how do you see these manufacturing trends impacting broader performance in 2026? Chris Snyder: We published our outlook and we're calling for the U.S. Industrial Economy to hit decade high growth levels in the back half of [20]26 and into [20]27. And this is a big reason why. We think about this a lot from a CapEx perspective. And we're seeing the investment, we think that ramps into larger greenfields. But we're also seeing it in the production economy. If you look at the delta between U.S. consumer spend and U.S. manufacturing production, that has really narrowed in recent months. And that tells us that we're increasingly serving U.S. demand through domestic production. So that's another factor that's going to drive activity higher and it doesn't need a cycle. And I think that's what's really important. And I think that is what creates this as a more secular and also durable opportunity. So obviously reassuring is something that's, you know, very close to me and important for the industrial economy. But as you think about the multipolar world theme more broadly, how do you think that evolves in 2026? Michelle Weaver: Yeah, absolutely. Last year the multipolar world was an incredibly powerful theme. And when investors were thinking about the multipolar world last year, it was largely about how are companies going to mitigate the risk of tariffs in the near term. We had the policies come out and surprise everyone in terms of the breadth and the magnitude of the tariffs we saw. We had a lot of policy uncertainty around what is that final level of tariffs going to look like. And a lot of the reaction was really short term. It's how can we use our inventory buffers to try and preserve our margins? How much of these additional tariff costs can we pass off to the end customer? How can we insulate ourselves in the near term? I think this year it's going to turn to more longer-term strategic thinking. Reshoring and a lot of the greenfield projects you were talking about, I think will absolutely be an important component of the multipolar world this year. I think we're also likely to see a greater emphasis on U.S. defense. With the action we just saw in Venezuela. I think we're going to see more of that defense component of the multipolar world starting to be expressed in the U.S. It was a big part of the expression of the theme in Europe last year, but I think it will gain relevance in the U.S. this year. Chris Snyder: Yeah. And I think the next chapter in U.S. industrial growth is just getting going. It's taken 25 years for the U.S. to seed roughly 12 percentage points of global share in manufacturing. We don't think they take that much back. But we think this is a very long runway opportunity. Michelle Weaver: Mm-hmm. And as we watch for the next wave of greenfields, it's clear that efficiency and productivity investments are more than just a stop gap. They're a longer-term theme and they're a foundation for a new era in U.S. manufacturing. Chris, thank you for taking the time to talk. Chris Snyder: Great speaking with you, Michelle. 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.

13 Jan 10min

Our Chief Fixed Income Strategists Vishy Tirupattur discusses the calm market reaction to the latest developments in Venezuela and the potential implications for oil, stocks and bonds.Read more insights from Morgan Stanley.----- Transcript -----Vishy Tirupattur: Welcome to thoughts on the Market. I am Vishy Tirupattur, Morgan Stanley’s Chief Fixed Income Strategist. On today’s podcast, I will talk about the markets’ response to the complex political developments in Venezuela, and examine the opportunities and risks it presents to the markets. It is Monday, January 12th at 11 am in New York. Despite the far-reaching geopolitical implications of last weekend’s developments in Venezuela, the financial markets have been strikingly calm. Oil prices have barely budged, global equities have rallied, and the reaction in the safe-haven markets – U.S. Treasuries, for example – has been fairly muted. So what explains all of this? Let’s start with oil – the commodity most exposed to the situation in Venezuela. The near-term supply appears very manageable. As Morgan Stanley’s chief commodities strategist Martijn Rats notes, the market entered 2026 oversupplied, and inventories remain flush. That cushion explains why Brent prices have barely budged, and why Martijn sees prices sliding into the mid-$50s in the coming months.The bigger story is medium term. The prospect of reviving Venezuela’s oil industry tilts production risks higher. Despite holding over 300 billion barrels, the world’s largest reserves, [the] current output of Venezuela is just 0.8-1 million barrels per day, making it the smallest producer among the major reserve holders. More Venezuelan barrels hitting global markets could keep prices soft, even against a backdrop of rising geopolitical tensions. For oil, the near-term price risk is low while medium-term price risk leans bearish. Let’s talk about energy stocks. In line with the expectation of our equity energy analysts led by Devin McDermott, energy equities have largely responded favorably, reflecting the potential for increased oil supply and specific company opportunities. U.S. refiners stand out as poised to gain. A post-Maduro Venezuela could mean higher crude exports of the heavy, sour oil that these refiners are built to process. More imported heavy crude is a clear tailwind for U.S. Gulf Coast refiners like Valero (VLO) and Marathon Petroleum (MPC), potentially lowering their input costs and improving their margins. Similarly, Chevron (CVX), the only U.S. major still operating there under a sanctions waiver, is also poised to rally on the back of this. So for energy stocks, while [the] geopolitical story is complex, the market’s message is straightforward. The prospect of greater supply is good news, and some companies appear uniquely positioned to gain as Venezuela’s next chapter unfolds. Nowhere has the market reaction been more dramatic than in Venezuela’s own sovereign debt. As Simon Waever, Morgan Stanley’s global head of sovereign credit strategy anticipated, prices of Venezuela’s defaulted bonds – both the government bonds (VENZ) as well as the bonds of state oil company PDVSA – soared to multi-year highs following the weekend’s events. The bond complex has already rallied over 25 percent since last weekend to reach an average price of about $35, thanks to the increased likelihood of a creditor-friendly transition. A clearer path for a potential debt restructuring deal improves the prospects for future debt recovery. We expect further upside as the markets price a higher recovery rate if Venezuela’s oil production increases further. So what's the bottom line: Last week’s developments in Venezuela are a major geopolitical event, but the financial market reaction reflects both the contained nature of the shock and the prospect of constructive outcomes ahead – more oil supply, creditor-friendly debt resolution, etc. Oil markets are signaling that global supply can weather the storm, equity investors are cheering beneficiaries like refiners and seeing the broader risk backdrop as unchanged, and bond investors are selectively adding Venezuela’s beaten-down debt in hopes of an eventual recovery. For now, the takeaway is that this political event has not affected the market’s positive momentum – if anything, it has created pockets of opportunity and reinforced prevailing trends such as ample oil, and strong credit appetite. As always, we’ll keep you informed of any material changes. Thanks for listening. If you enjoy the podcast, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.Important note regarding economic sanctions. This report references jurisdictions which may be the subject of economic sanctions. Readers are solely responsible for ensuring that their investment activities are carried out in compliance with applicable laws.

12 Jan 4min

Our Global Head of Fixed Income Research Andrew Sheets takes a look at multiple indicators that are pointing on the same direction: strong growth for markets and the economy.Read more insights from Morgan Stanley.----- Transcript -----Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley. Today I'm going to talk about an unusual alignment of signs of optimism for the global cyclical backdrop and why these are important to watch. It's Friday, January 9th at 2pm in London. 2026 is now well underway. Forecasting is difficult and a humbling exercise; and 2025 certainly showed that even in a good year for markets, you can have some serious twists and turns. But overall, Morgan Stanley Research still thinks the year ahead will be a positive one, with equities higher and bond yields modestly lower. It's off to an eventful start, certainly, but we think that core message remains in place. But instead of going back again to our forecasts through the year ahead, I wanted to focus instead on a wide variety of different assets that have long been viewed as leading indicators of the global cyclical environment. I think these are important, and what's notable is that they're all moving in the same direction – all indicating a stronger cyclical backdrop. While today's market certainly has some areas of speculative activity and excessive valuations, the alignment of these things suggests something more substantive may be going on. First, Copper prices, which tend to be volatile but economically sensitive, have been rising sharply up about 40 percent in the last year. A key index of non-traded industrial commodities for everything from Glass to Tin, which is useful because it means it's less likely to be influenced by investor activity, well, it's been up 10 percent over the last year. Korean equities, which tend to be highly cyclical and thus have long been viewed by investors as a proxy for global economic optimism, well, they were the best performing major market last year, up 80 percent. Smaller cap stocks, which again, tend to be more economically sensitive, well, they've been outperforming larger ones. And last but not least, Financial stocks in the U.S. and Europe. Again, a sector that tends to be quite economically sensitive. Well, they've been outperforming the broader market and to a pretty significant degree. These are different assets in different regions that all appear to be saying the same thing – that the outlook for global cyclical activity has been getting better and has now actually been doing so for some time. Now, any individual indicator can be wrong. But when multiple indicators all point in the same direction, that's pretty worthy of attention. And I think this ties in nicely with a key message from my colleague, Mike Wilson from Monday's episode; that the positive case for U.S. equities is very much linked to better fundamental activity. Specifically, our view that earnings growth may be stronger than appreciated. Of course, the data will have a say, and if these indicators turn down, it could suggest a weaker economic and cyclical backdrop. But for now, these various cyclical indicators are giving a positive read. If they continue to do so, it may raise more questions around central bank policy and to what extent further rate cuts are consistent with these signs of a stronger global growth backdrop. For now, we think they remain supporting evidence of our core view that this market cycle can still burn hotter before it burns out. Thank you as always, for your time. If you find Thoughts on the Market useful, let us know by leaving a review wherever you listen. And also, please tell a friend or colleague about us today.

9 Jan 3min