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Thoughts on the Market

Thoughts on the Market

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Short, thoughtful and regular takes on recent events in the markets from a variety of perspectives and voices within Morgan Stanley.

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Episodios
  • 2026 Global Outlook: Micro Themes Take the Spotlight

    2026 Global Outlook: Micro Themes Take the Spotlight
    Nov 20 2025

    Live from Morgan Stanley’s Asian Pacific Summit, our Chief Fixed Income Strategist Vishy Tirupattur explains why micro trends are likely to be more on focus than macro shocks next year.

    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, coming to you from the Morgan Stanley Asia Pacific Summit underway in Singapore. Much of the client conversation at the summit was about the market outlook for 2026.

    In the last few days, you've heard from my colleagues about our outlook for the global economy, equities and cross asset markets. On today's podcast, I will focus on the outlook and key themes ahead for the global fixed income market.

    It's Thursday, November 20th at 10am in Singapore.

    Last year, the difficulty of predicting policy really complicated our task. This year brings its own challenges. But what we see is micro trends driving the markets in ways that adapt to a generally positive stance on risk. Our economists’ base case sees continued disinflation and growth converging towards potential by 2027, with the possibility that the potential itself improves. Notably, they present upside scenarios exploring stronger demand and rising productivity, while the downside case remains relatively benign. The U.S. remains pivotal, and the U.S. led shocks – positive and negative – should drive outcomes for the global economy and markets in 2026,

    In 2025, the combination of a resilient U.S. consumer supported by healthy balance sheets and rising wealth alongside robust AI driven CapEx has underpinned growth and helped avoid recession despite the headwinds of trade policy. These same dynamics should continue to support the baseline outlook in 2026, even though the path will be likely uneven. The Fed faces a familiar conundrum softening labor markets versus solid spending. The baseline assumes cuts to neutral as unemployment rises, followed by a recovery in the second half.

    Outside the U.S., most economies trend towards potential growth and neutral policy rates by end of 2026, but the timing and the trajectory vary. And as in recent years, global outcomes will likely hinge on U.S.-led effects and their spillovers.

    Our macro strategists expect government bond yields to stay range bound, and it is really a story of two halves. A front-loaded rally as the Fed cuts 50 basis points, pushing 10-year yields lower by mid-year before drifting higher into the fourth quarter. Curve steepening remains our high conviction call, especially two stents curve. The dollar follows a similar arc, softening mid-year, and then rebounding into the year end.

    AI financing moves to the forefront putting credit markets in focus, a topic that has come up repeatedly in every single meeting I've had in Singapore so far. So, from unsecured to structured and securitized credit in both public markets and private markets, credit will likely play a central role in enabling the next wave of AI related investments. Our credit and securitized credit strategists see data center financing in 2026 dominated by investment rate issuance.

    While fundamentals in corporate and securitized credit remain solid, the very scale of issuance ahead points to spread widening investment rate and in data center related ABS. Carry remains a key driver for credit returns, but dispersion should rise. Segments relatively insulated from the AI related supply such as U.S. high yield, agency brokerage backed securities, non-agency CMBS and RMBS are poised to outperform. We favor agency MBS and senior securitized tranches over U.S. investment grade, especially as domestic bank demand for agency MBS returns post finalization of the Basel III.

    2025 was a tough year to navigate, and while we are constructive on 2026, it won't be a walk in the park. The challenges ahead look different. Less about macro shocks, more about micro shifts and market nuance. More details in our outlooks published just a few days ago.

    Thanks for listening If you like the podcast, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.
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    5 m
  • 2026 U.S. Outlook: The Bull Market’s Underappreciated Narrative

    2026 U.S. Outlook: The Bull Market’s Underappreciated Narrative
    Nov 19 2025
    Our CIO and Chief U.S. Equity Strategist Mike Wilson explains why he continues to hold on to an out-of-consensus view of a growth positive 2026, despite near-term risks.Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today I’ll discuss our outlook for 2026 that we published earlier this week. It’s Wednesday, Nov 19th at 6:30 am in New York. So, let’s get after it. 2026 is a continuation of the story we have been telling for the past year. Looking back to a year ago, our U.S. equity outlook was for a challenging first half, followed by a strong second half. At the time of publication, this was an out of consensus stance. Many expected a strong first half, as President Trump took office for his second term. And then a more challenging second half due to the return of inflation. We based our differentiated view on the notion that policy sequencing in the new Trump administration would intentionally be growth negative to start. We likened the strategy to a new CEO choosing to ‘kitchen sink’ the results in an effort to clear the decks for a new growth positive strategy. We thought that transition would come around mid-year. The U.S. economy had much less slack when President Trump took office the second time, compared to the first time he came into office. And this was the main reason we thought it was likely to be sequenced differently. Earnings revisions breadth and other cyclical indicators were also in a phase of deceleration at the end of 2024. In contrast, at the beginning of 2017—when we were out of consensus bullish—earnings revisions breadth and many cyclical gauges were starting to reaccelerate after the manufacturing and commodity downturn of 2015/2016. Looking back on this year, this cadence of policy sequencing did broadly play out—it just happened faster and more dramatically than we expected. Our views on the policy front still appear to be out of consensus. Many industry watchers are questioning whether policies enacted this year will ultimately lead to better growth going forward, especially for the average stock. From our perspective, the policy choices being made are growth positive for 2026 and are largely in line with our ‘run it hot’ thesis. There’s another factor embedded in our more constructive take. April marked the end of a rolling recession that began three years prior. The final stages were a recession in government thanks to DOGE, a rate of change trough in expectations around AI CapEx growth and trade policy, and a recession in consumer services that is still ongoing. In short, we believe a new bull market and rolling recovery began in April which means it’s still early days, and not obvious—especially for many lagging parts of the economy and market. That is the opportunity. The missing ingredient for the typical broadening in stock performance that happens in a new business cycle is rate cuts. Normally, the Fed would have cut rates more in this type of weakening labor market. But due to the imbalances and distortions of the COVID cycle, we think the Fed is later than normal in easing policy, and that has held back the full rotation toward early cycle winners. Ironically, the government shutdown has weakened the economy further, but has also delayed Fed action due to the lack of labor data releases. This is a near-term risk to our bullish 12-month forecasts should delays in the data continue, or lagging labor releases do not corroborate the recent weakness in non-govt-related jobs data. In our view, this type of labor market weakness coupled with the administration's desire to ‘run it hot’ means that, ultimately, the Fed is likely to deliver more dovish policy than the market currently expects. It's really just a question of timing. But that is a near-term risk for equity markets and why many stocks have been weaker recently. In short, we believe a new bull market began in April with the end of a rolling recession and bear market. Remember the S&P [500] was down 20 percent and the average S&P stock was down more than 30 percent into April. This narrative remains underappreciated, and we think there is significant upside in earnings over the next year as the recovery broadens and operating leverage returns with better volumes and pricing in many parts of the economy. Our forecasts reflect this upside to earnings which is another reason why many stocks are not as expensive as they appear despite our acknowledgement that some areas of the market may appear somewhat frothy. For the S&P 500, our 12-month target is now 7800 which assumes 17 percent earnings growth next year and a very modest contraction in valuation from today’s levels. Our favorite sectors include Financials, Industrials, and Healthcare. We are also upgrading Consumer Discretionary to overweight and prefer Goods over Services for the first time since 2021. Another relative trade we like ...
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    5 m
  • 2026 Global Outlook: A Strong Year for Risk Assets

    2026 Global Outlook: A Strong Year for Risk Assets
    Nov 18 2025
    Our Chief Global Economist Seth Carpenter and Global Cross-Asset Strategist Serena Tang return to conclude their two-part episode on 2026 outlooks and explain why the market environment is turning in favor of risk assets, especially U.S. stocks.Read more insights from Morgan Stanley.----- Transcript -----Seth Carpenter: Welcome to Thoughts in the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist.Serena Tang: And I'm Serena Tang, Morgan Stanley's Chief Global Cross-Asset Strategist.Seth Carpenter: Yesterday, Serena, we discussed our views on the global economy, and today I'm going to turn the tables on you and start asking you questions about our market outlook and how to invest across regions and across asset classes.It's Tuesday, November 18th at 10am in New York.Alright, Serena in 2025, global markets rode some significant volatility driven by tariffs, policy uncertainty. Things went up, they went down. Equities ultimately outperformed bonds as rate cuts began. But cross-asset strategy depended so much on identifying correlations, opportunities – all in a world that is still adapting to the new geopolitical dynamics and what seemed like evolving rules.So, with that backdrop, could you just broadly tell us what the investment strategy should be in 2026?Serena Tang: We think 2026 will be a strong year for risk assets as you have unusually pro-cyclical policy mix that's supportive of earnings. And that frees up markets to shift the focus from global macro concerns, which of course have dominated this year, to more micro asset specific narratives. Particularly those related to AI CapEx investment.And I think such a constructive environment really calls for a risk on tilt. We recommend equities over credit and government bonds, with a preference for U.S. assets.Seth Carpenter: Okay. I think last year we had some preference, at least for U.S. equities. Are there any other big rotations versus more of the same that you really want to highlight for folks?Serena Tang: In terms of, I think the strategy outlook itself, a big shift has been what we think drive investor focus the most. Our strategy mid-year outlook had focused heavily on global macro risks, right? Especially those, I think, emanated from trade tensions, which you alluded to earlier.I think this time around as the distribution of outcomes on tariffs, I think, has become a bit narrower, it's very much more about asset specific stories. And yes, you know, to your point about being, bullish on U.S. equities, we've maintained that view this time round and believe that U.S. equities can generally do better than rest of world.As you know, Mike Wilson, a colleague and chief U.S. equity strategist, he has a price target of 7800 for the S&P 500 index …Seth Carpenter: Wow.Serena Tang: Beating the expected returns from other regional equities by like quite a bit. So that's not changed. But I think that with this backdrop of post cyclical policy combo lifting U.S. earnings, we've also turned more bullish on high-yield corporate credit – that is bonds which are riskier.I think very much like U.S. equities, we believe that the asset class can benefit from the combination of monetary deregulation policy. But there's also like a very interesting technical component there, which is, as we expect, a surge in investment grade issuance to fund AI related CapEx. I think the high-yield market will be more insulated from this, which means outperformance versus higher quality corporate bonds.Seth Carpenter: Got it. Okay. So, as you're coming up with these strategies and these recommendations in lots of ways, it just relies on forecasting. And I have to say I'm sympathetic to how hard forecasting is, especially when it comes to the future. In our economic forecast, we also included a bunch of different alternate scenarios because I just see that much uncertainty in the global economy.So, with that as a backdrop, nothing is for sure. But where would you say your highest conviction calls are when it comes to investing in 2026?Serena Tang: Well, as I mentioned, we like U.S. equities and that remains a very high conviction call for us. [I] sort of dug through the details of that already. And so, I want to turn to a[n]other high conviction view, which is curve steepening. We see pretty material U.S. treasury curve steepening over the next year. I think even as a macro strategist, actually expect yields at least in the backend to be mostly range bound. And this steepening will be very much driven by what happens in the two-year point – I think as markets continue to, we think, underpriced, future Fed easing and growth slow down tail risks.Seth Carpenter: So that's super helpful in terms of the places where you're convicted. Let me be perhaps a little bit unfair because nothing is in fact certain. And so, if there are things that we feel pretty sure about, there've got to be things where we're either not sure or parts of the market that really pose ...
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    11 m
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