The Curious Connection Between Airlines and Fashion

Policy questions and growth risks are likely to persist in the aftermath of the Trump administration’s upcoming tariffs. Our CIO and Chief U.S. Equity Strategist Mike Wilson outlines how to seek investments that might mitigate the fallout.Read more insights from Morgan Stanley. ----- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today on the podcast – our views on tariffs and the implications for equity markets. It's Monday, March 31st at 11:30am in New York. So let’s get after it. Over the past few weeks, tariffs have moved front and center for equity investors. While the reciprocal tariff announcement expected on April 2nd should offer some incremental clarity on tariff rates and countries or products in scope, we view it as a maximalist starting point ahead of bilateral negotiations as opposed to a clearing event. This means policy uncertainty and growth risks are likely to persist for at least several more months, even if it marks a short-term low for sentiment and stock prices. In the baseline for April 2nd, our policy strategists see the administration focusing on a continued ramp higher in the tariff rate on China – while product-specific tariffs on Europe, Mexico and Canada could see some de-escalation based on the USMCA signed during Trump’s first term. Additional tariffs on multiple Asia economies and products are also possible. Timing is another consideration. The administration has said it plans to announce some tariffs for implementation on April 2nd, while others are to be implemented later, signaling a path for negotiations. However, this is a low conviction view given the amount of latitude the President has on this issue. We don't think this baseline scenario prevents upside progress at the index level – as an "off ramp" for Mexico and Canada would help to counter some of the risk from moderately higher China tariffs. Furthermore, product level tariffs on the EU and certain Asia economies, like Vietnam, are likely to be more impactful on a sector basis. Having said that, the S&P 500 upside is likely capped at 5800-5900 in the near term – even if we get a less onerous than expected announcement. Such an outcome would likely bring no immediate additional increase in the tariff rate on China; more modest or targeted tariffs on EU products than our base case; an extended USMCA exemption for Mexico and Canada; and very narrow tariffs on other Asia economies. No matter what the outcome is on Wednesday, we think new highs for the S&P 500 are out of the question in the first half of the year; unless there is a clear reacceleration in earnings revisions breadth, something we believe is very unlikely until the third or fourth quarter.Conversely, to get a sustained break of the low end of our first half range, we would need to see a more severe April 2nd tariff outcome than our base case and a meaningful deterioration in the hard economic data, especially labor markets. This is perhaps the outcome the market was starting to price on Friday and this morning. Looking at the stock level, companies that can mitigate the risk of tariffs are likely to outperform. Key strategies here include the ability to raise price, currency hedging, redirecting products to markets without tariffs, inventory stockpiling and diversifying supply chains geographically. All these strategies involve trade-offs or costs, but those companies that can do it effectively should see better performance. In short, it’s typically companies with scale and strong negotiating power with its suppliers and customers. This all leads us back to large cap quality as the key factor to focus on when picking stocks. At the sector level, Capital Goods is well positioned given its stronger pricing power; while consumer discretionary goods appears to be in the weakest position. Bottom line, stay up the quality and size curve with a bias toward companies with good mitigation strategies. And see our research for more details. Thanks for listening. If you enjoy the podcast, leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

31 Mars 4min

As credit resilience weakens with a worsening fundamental backdrop, our Head of Corporate Credit Research Andrew Sheets suggests investors reconsider their portfolio quality.Read more insights from Morgan Stanley. ----- Transcript -----Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley. Today I’m going to talk about why we think near term improvement may be temporary, and thus an opportunity to improve credit quality. It's Friday March 28th at 2pm in London. In volatile markets, it is always hard to parse how much is emotion, and how much is real change. As you would have heard earlier this week from my colleague Mike Wilson, Morgan Stanley’s Chief U.S. Equity Strategist, we see a window for short-term relief in U.S. stock markets, as a number of indicators suggest that markets may have been oversold. But for credit, we think this relief will be temporary. Fundamentals around the medium-term story are on the wrong track, with both growth and inflation moving in the wrong direction. Credit investors should use this respite to improve portfolio quality. Taking a step back, our original thinking entering 2025 was that the future presented a much wider range of economic scenarios, not a great outcome for credit per se, and some real slowing of U.S. growth into 2026, again not a particularly attractive outcome. Yet we also thought it would take time for these risks to arrive. For the economy, it entered 2025 with some pretty decent momentum. We thought it would take time for any changes in policy to both materialize and change the real economic trajectory. Meanwhile, credit had several tailwinds, including attractive yields, strong demand and stable balance sheet metrics. And so we initially thought that credit would remain quite resilient, even if other asset classes showed more volatility. But our conviction in that resilience from credit is weakening as the fundamental backdrop is getting worse. Changes to U.S. policy have been more aggressive, and happened more quickly than we previously expected. And partly as a result, Morgan Stanley's forecasts for growth, inflation and policy rates are all moving in the wrong direction – with forecasts showing now weaker growth, higher inflation and fewer rate cuts from the Federal Reserve than we thought at the start of this year. And it’s not just us. The Federal Reserve's latest Summary of Economic Projections, recently released, show a similar expectation for lower growth and higher inflation relative to the Fed’s prior forecast path. In short, Morgan Stanley’s economic forecasts point to rising odds of a scenario we think is challenging: weaker growth, and yet a central bank that may be hesitant to cut rates to support the economy, given persistent inflation. The rising risks of a scenario of weaker growth, higher inflation and less help from central bank policy temper our enthusiasm to buy the so-called dip – and add exposure given some modest recent weakness. Our U.S. credit strategy team, led by Vishwas Patkar, thinks that U.S. investment grade spreads are only 'fair', given these changing conditions, while spreads for U.S. high yield and U.S. loans should actually now be modestly wider through year-end – given the rising risks. In short, credit investors should try to keep powder dry, resist the urge to buy the dip, and look to improve portfolio quality. Thanks for listening. If you enjoy the show, leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

28 Mars 3min

Our global economists Seth Carpenter and Rajeev Sibal discuss how global trade will need to realign in response to escalating U.S. tariff policy.Read more insights from Morgan Stanley.

27 Mars 9min

Our European Sustainability Strategists Rachel Fletcher and Arushi Agarwal discuss how fermentation presents a new opportunity to tap into the alternative proteins market, offering a solution to mounting food supply challenges.Read more insights from Morgan Stanley. ----- Transcript -----Rachel Fletcher: Welcome to Thoughts on the Market. I'm Rachel Fletcher Morgan Stanley's, Head of EMEA Sustainability Research.Arushi Agarwal: And I'm Arushi Agarwal European Sustainability Strategist, based in London.Rachel Fletcher: From kombucha to kimchi, probiotic rich fermented foods have long been staples at health-focused grocers. On the show today, a deeper dive into the future of fermentation technology. Does it hold the key to meeting the world's growing nutrition needs as people live longer, healthier lives?It's Wednesday, 26th of March, at 3 pm in London.Many of you listening may remember hearing about longevity. It's one of our four long-term secular themes that we're following closely at Morgan Stanley; and this year we are looking even more closely at a sub-theme – affordable, healthy nutrition. Arushi, in your recent report, you highlight that traditional agriculture is facing many significant challenges. What are they and how urgent is this situation?Arushi Agarwal: There are four key environmental and social issues that we highlight in the note. Now, the first two, which are related to emissions intensity and resource consumption are quite well known. So traditional agriculture is responsible for almost a third of global greenhouse gas emissions, and it also uses more than 50 percent of the world's land and freshwater resources. What we believe are issues that are less focused on – are related to current agricultural practices and climate change that could affect our ability to serve the rising demand for nutrition.We highlight some studies in the note. One of them states that the produce that we have today has on average 40 percent less nutrition than it did over 80 years ago; and this is due to elevated use of chemicals and decline in soil fertility. Another study that we refer to estimates that average yields could decline by 30 to 50 percent before the end of the century, and this is even in the slowest of the warming scenarios.Rachel Fletcher: I think everyone would agree that there are four very serious issues. Are there potential solutions to these challenges?Arushi Agarwal: Yes, so when we've written about the future of food previously, we've identified alternative proteins, precision agriculture, and seeds technology as possible solutions for improving food security and reducing emissions.If I focus on alternative proteins, this category has so far been dominated by plant-based food, which has seen a moderation in growth due to challenges related to taste and price. However, we still see significant need for alternative proteins, and synthetic biology-led fermentation is a new way to tap into this market.In simple terms, this technology involves growing large amounts of microorganisms in tanks, which can then be harvested and used as a source of protein or other nutrients. We believe this technology can support healthy longevity, provide access to reliable and affordable food, and also fill many of the nutritional gaps that are related to plant-based food.Rachel Fletcher: So how big is the fermentation market and why are we focusing on it right now?Arushi Agarwal: So, we estimate a base case of $30 billion by 2030. This represents a 5,000-kiloton market for fermented proteins. We think the market will develop in two phases. Phase one from 2025 to 2027 will be focused on whey protein and animal nutrition. We are already seeing a few players sell products at competitive prices in these markets. Moving on to phase two from 2028 to 2030, we expect the market will expand to the egg, meat and daily replacement industry.There are a few reasons we think investors should start paying attention now. 2024 was a pivotal year in validating the technology's proof of concept. A lot of companies moved from labs to pilot state. They achieved regulatory approvals to sell their products in markets like U.S. and Singapore, and they also conducted extensive market testing. As this technology scales, we believe the next three years will be critical for commercialization.Rachel Fletcher: So, there's potentially significant growth there, but what's the capital investment needed for this scaling effort?Arushi Agarwal: A lot of CapEx will be required. Scaling of this technology will require large initial CapEx, predominantly in setting up bioreactors or fermentation tanks. Achieving our 2030 base case stamp will require 200 million liters in bioreactor capacity. This equals to an initial investment opportunity of a hundred billion dollars. But once these facilities are all set up, ongoing expenses will focus on input costs for carbon, oxygen, water, nitrogen, and electricity. PWC estimates that 40 to 60 percent of the ongoing costs with this process are associated with electricity, which makes it a key consideration for future commercial investments.Rachel Fletcher: Now we've talked a lot about the potential opportunity and the potential total addressable market, but what about consumer preferences? Do you think they'll be easy to shift?Arushi Agarwal: So, we are already seeing evidence of shifting consumer trends, which we think can be supportive of demand for fermented proteins. An analysis of Google Trends, data shows that since 2019, interest in terms like high protein diet and gut health has increased the most. Some of the products we looked at within the fermentation space not only contain fiber as expected, but they also offer a high degree of protein concentration, a lot of times ranging from 60 to 90 percent.Additionally, food manufacturers are focusing on new format foods that provide more than one use case. For example, free from all types of allergens. Fermentation technology utilizes a very diverse range of microbial species and can provide solutions related to non-allergenic foods.Rachel Fletcher: We've covered a lot today, but I do want to ask a final question around policy support. What's the government's role in developing the alternative proteins market, and what's your outlook around policy in Europe, the U.S., and other key regions, for example?Arushi Agarwal: This is an important question. Growth of fermentation technology hinges on adequate policy support; not just to enable the technology, but also to drive demand for its products. So, in the note, we highlight various instances of ongoing policy support from across the globe. For example, regulatory approvals in the U.S., a cellular agriculture package in Netherlands, plant-based food fund in Denmark, Singapore's 30 by 30 strategy.We believe these will all be critical in boosting the supply side of fermented products. We also mentioned Denmark's upcoming legislation on carbon tax related to agriculture emissions. We believe this could provide an indirect catalyst for demand for fermented goods. Now, whilst these initiatives support the direction of travel for this technology, it's important to acknowledge that more policy support will be needed to create a level playing field versus traditional agriculture, which as we know currently benefits from various subsidies.Rachel Fletcher: Arushi, this has been really interesting. Thanks so much for taking the time to talk.Arushi Agarwal: Thank you, Rachel. It was great speaking with you,Rachel Fletcher: 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.

26 Mars 7min

Our European Heads of Diversified Financials and Banks Research Bruce Hamilton and Alvaro Serrano discuss the biggest themes and debates from the recent Morgan Stanley European Financials Conference.Read more insights from Morgan Stanley. ----- Transcript -----Bruce Hamilton: Welcome to Thoughts on the Market. I'm Bruce Hamilton, Head of European Diversified Financials.Alvaro Serrano: And I'm Alvaro Serrano, Head of European Banks.Bruce Hamilton: Today we'll discuss our key takeaways from Morgan Stanley's 21st European Financials Conference last week.It's Tuesday, March 25th, 3pm, here in London.We were both at the conference here in London where we had more than 550 registered clients and roughly a hundred corporates in attendance. Alvaro, once again, you were the conference chair, and I wondered if you could first talk about the title of the conference this year – Europe's moment. What inspired this and was it a clear theme at the conference?Alvaro Serrano: European banks are probably one of the strongest performing sectors globally. That has been on the back of expectations and prospects of a Ukraine peace deal, expectations of high defense spending, and we were going to German elections. I think it's fair to say that post German elections, Germany has delivered above expectations on the fiscal package. And the announcement was a big boost, at a time where U.S. growth is starting to be questioned. I think it's turning the investment flows into Europe. It's Europe's moment to shine, and hence the title.Bruce Hamilton: And what were some of the other sort of key themes and debates that emerge from company presentations and panels at the conference?Alvaro Serrano: The German fiscal/financial package definitely dominated the debate. But it was how it fed through the PNL that was the more tangible discussion. First of all, on NII – Net Interest Income – definitely more optimism among banks. The yield curve has steepened more than 50 basis points since the announcement together with increased prospects of loan growth. Accelerated loan growth is definitely improving the confidence from management teams on the median term growth outlook. I think that was the biggest takeaway for me.Bruce Hamilton: Got it. And our North American colleagues have been tracking the risks and opportunities for U.S. financials under the Trump administration. How, if at all, are European financials better positioned than their U.S. counterparts?Alvaro Serrano: Ultimately deregulation has been a big theme in the U.S. from the new administration. We've seen tangible sort of measures like the delay in implementation of Basel endgame; and some steps in around consumer legislation – so that we haven't seen [in] Europe.We had events from the supervisory arm of the ECB. And I think the overall message is that there's unlikely to be deregulation on the capital front.What grabbed a lot of the headlines, a lot of the debate was the proposal from the European Commission on Capital Markets Union now rebranded Savings and Investment Union. There's been measures and proposals around savings products, around a reform of the securitization market, which have pretty positive implications. Medium term, it should increase the velocity of the bank's balance sheets, and ultimately the profitability. So, more optimistic on the medium-term outlook.Bruce, I wanted to turn it over to you. The capital markets recovery cycle was a very big topic of discussion, especially given the rising investor concerns lately. What did you learn at the conference?Bruce Hamilton: So, yeah, you're right. I mean, obviously the capital markets cycle is pretty key for the performance of the diversified financial sector – as was clear from investor polling. I would say the messages from the companies were mixed. On the one hand, the more transactional driven models – so, some of the exchanges that the investment platforms – were relatively upbeat, across asset classes. Volume, momentum has been strong through the first quarter of this year. And so that was encouraging.And looking further out – the confidence around some of these secular growth drivers, across the business model. So, data growth, software solutions growth, post-trade opportunities, expanding fixed income offerings were all clear from the exchanges.On the other hand, the business models that are more geared to sort of deal activity, to M&A – sort of private market firms. Clearly there, the messaging was more mixed, given the slower start to the year in the light of tariff uncertainty, which has driven a widening in bid our spread. So certainly there, the messaging was a little bit more downbeat. Though in the context of a still-improving sort of multi-year recovery cycle anticipated in capital markets. So, a pause rather than a cancellation of that improvement.Alvaro Serrano: And what about private markets? Especially in light of the sluggish capital markets activity since the start of the year?Bruce Hamilton: Well encouragingly, I think, you know, investors still had private markets, the private market sub-sector, as the most popular of the diverse vote financial sub-sectors. Which I think you could take to read as meaning that the pullback in shares has already captured some of the concerns around a slower start to the year in terms of capital markets activity.The view of most investors remains that some of the longer-term growth drivers, including increasing allocations from wealth, remain pretty supportive for the longer-term structural growth in the sector. So, I think, some clearly worry that a worsening in credit conditions could still cause share price moves down. But I think generally, we still feel the longer term looks pretty encouraging.Finally, Alvaro, any significant updates on the use of AI within the financial sector?Alvaro Serrano: It definitely came up pretty much in every session because ultimately AI and broader digitization efforts in mass market models like the banks are – is a key tool to improve efficiency. It came up as a key lever to improve user experience and at the same time improve cost efficiency. And when it comes to underwriting loans, it's also a very important tool, although asset quality's not a key theme at the moment.It’s a race to embrace, I would say, because it's a key competitive advantage. And if you're not, you fall behind.Bruce Hamilton: Great Alvaro. Thanks for taking the time to talk.Alvaro Serrano: Great speaking with you, Bruce.Bruce Hamilton: 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.

25 Mars 6min

Our CIO and Chief U.S. equity strategist Mike Wilson discusses investors’ outlook following last week’s Fed meeting, and lists the key signals to gauge whether stocks can fully rebound from the recent correction. Read more insights from Morgan Stanley. ----- Transcript -----Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today on the podcast I’ll be discussing the recent rally in stocks and why it can continue. It's Monday, March 24th at 11:30am in New York. So let’s get after it. Last week's Fed meeting appeared to come as a relief to many market participants as Chair Powell seemed to downplay concerns about inflation, offering a bit more emphasis on the growth side of the Fed’s mandate. The Fed also made the decision to slow the pace of balance sheet runoff, a development that came sooner than some expected and indicated the Fed is ready to act, if necessary. Looking ahead, investors are now very focused on the April 2nd reciprocal tariff deadline. While this catalyst could offer some incremental clarity on tariff rates and countries and products in scope, we think it's more a starting point for tariff negotiations – as opposed to a clearing event. In short, a Fed put seems closer to being in the money than a Trump put though it probably would require material labor weakness or choppier credit and funding markets. So far, DOGE firings have had little impact on data like jobless claims or the overall unemployment rate. There may also be a lag between when employees are laid off and when these individuals show up as unemployed, given that severance is offered to most. The more important question for labor markets is whether the recent decline in the stock market, fall in confidence and rise in economic trade uncertainty will lead to layoffs in the private economy. Our economists' base case assumes that these factors won't drive an unemployment cycle this year; but payrolls, claims, and the unemployment rate will be critical to monitor to inform that view going forward. As usual, looking at the S&P 500 alone does not fully describe the magnitude of the correction in equities. As I noted last week, equity markets got as oversold in this correction as they were during the bear market of 2022. One could ask: Is this the bottom or the beginning of something more severe? In our experience, it’s rare for volatility to end when price momentum is at its lows. However, you can get strong rallies from these conditions which is why we expected one to begin when the S&P 500 reached the bottom end of our first half trading range of 5500 on March 13th. Since then, stocks have rallied with lower quality, higher beta equities leading the bounce, so far. We believe that can continue in the near-term even though we are still advocating higher quality stocks in one's core portfolio for the intermediate term – given weakness in earnings revisions since last November. More specifically, earnings revisions have remained in negative territory for the major U.S. averages all year and have not yet showed signs of bottoming. However, we are starting to see some interesting shifts in revisions trends under the surface. The most notable change here is that the Magnificent 7 earnings revisions look to be stabilizing after a steep decline. This could halt the underperformance of these mega cap stocks in the near term as we head into earnings season and this would help stabilize the S&P 500, in line with our call from two weeks ago. It could also help to attract flows back into the U.S. In our view, one of the reasons why we've seen capital rotate to international markets is that the high-quality leadership cohort of the U.S. equity market began to underperform. So, if this group regains relative strength we could see a rotation back to the U.S. Finally, the weaker U.S. dollar could also reverse the relative earnings revisions downtrend between U.S. and European companies. If you remember, at the end of last year, the U.S. dollar was very strong and provided a headwind to U.S. relative revisions when companies reported fourth quarter results, as we previewed. This may be going the other way for first quarter results season and drive money back to the U.S., at least temporarily. Thanks for listening. If you enjoy the podcast, leave us a review wherever you listen, and share Thoughts on the Market with a friend or colleague today.

24 Mars 4min

Amid lower growth and inflation concerns in the US, investors have begun scouring international markets for other opportunities. Our analysts Andrew Sheets, Neville Mandimika and Anlin Zhang dig into one potential outperforming category. Read more insights from Morgan Stanley.

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Our Global Head of Macro Strategy Matthew Hornbach and Chief U.S. Economist Michael Gapen discuss the outcome of the recent FOMC meeting, and the outlook for interest rates in 2025 and 2026.Read more insights from Morgan Stanley. ----- Transcript -----Matthew Hornbach: Welcome to Thoughts on the Market. I'm Matthew Hornbach, Global Head of Macro Strategy.Michael Gapen: And I'm Michael Gapen, Morgan Stanley's Chief U.S. Economist.Matthew Hornbach: Today we're talking about the March Federal Open Market Committee meeting and the path for rates from here.It's Thursday, March 20th at 10am in New York.Mike, the Fed released a new set of projections yesterday. What do these say and what did you learn from them?Michael Gapen: Yeah, Matt, well, the Fed's forecast actually now look a lot like our outlook for the U.S. economy. So, they revised down their expectation of growth. They revised up their expectation for inflation. So, it has a bit of a stagflation, slower growth, stickier inflation outlook – which is very much what we were thinking coming into this year. The Fed also, though, highlighted high policy uncertainty. They wrote down a forecast, but I'm not all that convinced that they have a lot of confidence in how things will evolve.So, I think for me, really, the bigger story were their updated perceptions about uncertainty and risks to the outlook. So, in December, if you remember, they told us; virtually everybody on the committee said, uncertainty around inflation is high and risk to inflation to the upside. They complemented that this week with the fact that uncertainty around growth in the labor market is high, but risk to growth is to the downside, the unemployment rate to the upside. So, you have kind of competing risks here around the Fed's dual mandate. They've got upside risk to inflation, downside risk to growth.To me, that's kind of the really important message. It's hard to have a confidence in a forecast right now, but I think that risk assessment is really interesting.Matthew Hornbach: And with that in mind, and given all the policy uncertainty that the Fed mentioned, what did Powell say about how the Fed should react? In other words, what is appropriate policy at this stage?Michael Gapen: Right. Yeah, it's tricky, right? So, on one side of your mandate, you think risks to inflation are squarely to the upside and growth in labor markets to the downside. So, what do you do? And I think Powell said, I think that the logical answer, which is, well, right now you do nothing, and you wait.But then I think what Powell said is: How we think this plays out is – tariffs may boost inflation in the short run. Which we're going to try to ignore. And if the economy does weaken and the labor market softens, we'll ease policy in order to support activity, right? So, there might be, say, symmetric risks around their dual mandate, but there's asymmetry in the policy outlook.He said we're either going to be on hold or we're going to be cutting rates. And generally, I think that's the right thing.Matthew Hornbach: So, Mike, what I heard from you was that the Fed was going to look through inflation in the near term, and then eventually cut. I mean, do you think they can do that?Michael Gapen: Yeah, I think, Matt, that's a great question. My answer to that is, I think it's easier said than done. We agree that the next move from the Fed is going to be a cut, but we think that cut comes much later.This is a very data dependent Fed. So, I think in the moment, if tariffs boost inflation now and weaken activity later, it's easy to say, ‘I'm going to look through that and cut.’ But in practice, I think it's hard.So, Matt, actually, at this point, though, I think I would actually kind of ask you the same question, but in a different way, right? We doubt the Fed may be able to do this. But the market priced in more rate cuts this year than we think is likely. How would you explain the market pricing and how far away from my expectation do you think it could run?Matthew Hornbach: What’s really interesting about how the market has priced the recent events is – it’s actually pricing more in line with the spirt of your view. In the sense that the market has priced more rate cuts in 2026 than it’s pricing in 2025. So, in spirit, the market is very much with you. But as we like to say, the market price is an average of all possible outcomes. And if one of the outcomes is the Fed does nothing for the foreseeable future. And the other outcome is the Fed cuts aggressively this year. Then the market price has to reflect some degree of additional easing in 2025 that wouldn't necessarily be aligned with a rational baseline for Fed policy.So, market in some ways is reflecting the idea that you're proposing in your forecast. But it's also reflecting the idea that it's a market and that it has to be priced for some amount of risk premia that the Fed is ultimately forced to cut rates more.And in fact, if I can ask you a question relating to that, Mike, you know, the equity market at one point last week had fallen about 10 per cent from the highs.Michael Gapen: Mm hmm.Matthew Hornbach: Number one, is there a percentage drawdown that gets the Fed’s attention? You know, how does the Fed think about the equity market in an environment like this?Michael Gapen: Yeah, I think the equity market, in my view, and I think the view of the Fed, is what I'll call a key spillover channel. Trade and manufacturing are relatively small shares of the economy. So, if we pursue restrictive trade policies, growth should slow, inflation may be firm. That's the Fed's essential baseline; it's ours. The risk here though is that somewhere in there you get a destabilizing period, equity markets fall, upper income consumers take a step back, and you have a much broader downturn at that point.So, you ask a great question, how far do equity markets have to fall? Well, we get 10 per cent declines in equity markets on average about once a year, so it's not that. And the theory would say households have to view that decline in wealth as permanent, right? So, it has to be a fairly substantial decline.Given how far wealth has risen, we're over [$]51 trillion now and an increase in net wealth since COVID. I think that decline has to be large. I would pencil in something, probably need about a 30 per cent decline in equity markets – before maybe that spillover risk gets very elevated.So, Matt, if I can turn back, because, you know, I think we're in general agreement here on what we heard yesterday. But what I'd like to do in terms of looking forward, so aside from the usual communications coming from the Fed, after the blackout period, following the meeting. What do you think investors will be focusing on over the next month?Matthew Hornbach: My sense is that there is already an unusual amount of focus on April 2nd.You know, that is the day when the Trump administration is supposed to unveil their plan for reciprocal tariffs. It's unclear what tariffs will be implemented on April 2nd; what tariffs will be saved for a negotiating process thereafter. So, clients are very focused on April 2nd. I also suspect that at some various periods between now and then, we are likely to receive previews, in the form of various communications coming from the Trump administration on the types of policies that we may end up seeing delivered on April 2nd.And so, I suspect that between now and then there will be a crescendo in concern, perhaps, over what will come of U.S. trade policy for the balance of this year. And really for the balance of the next three and a half years.So, with that, Michael, thanks for taking the time to talk.Michael Gapen: Great speaking with you, Matt.Matthew Hornbach: 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.

20 Mars 8min