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Thoughts on the Market

Thoughts on the Market

De: Morgan Stanley
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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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  • The 20 million Barrels of Oil Conundrum

    The 20 million Barrels of Oil Conundrum
    Mar 11 2026
    Our analysts Andrew Sheets and Martijn Rats discuss why a prolonged disruption of oil flow through the Strait of Hormuz would be unprecedented—and nearly impossible for the market to absorb.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.Martijn Rats: I'm Martijn Rats, Head of Commodity Research at Morgan Stanley.Andrew Sheets: Today on the program we're going to talk about why investors everywhere are tracking ships through the Strait of Hormuz.It's Wednesday, March 11th at 2pm in London.Andrew Sheets: Martijn, the oil market, which is often volatile, has been historically volatile over the last couple of weeks following renewed military conflict between the United States and Iran.Now, there are a lot of different angles to this, but the oil market is really at the center of the market's focus on this conflict. And so, I think before we get into the specifics, I think it's helpful to set some context. How big is the global oil market and where does the Persian Gulf, the Strait of Hormuz fit within that global picture?Martijn Rats: Yeah, so the global oil consumption is a little bit more than a 100 million barrels a day. But that splits in two parts. There is a pipeline market and there is a seaborne market. And when it comes to prices, the seaborne market is really where it's at. If you're sitting in China, you're buying oil from the Middle East, all of a sudden, it's not available. Sure, if there is a pipeline that goes from Canada into the United States, that doesn't really help you all that much.Andrew Sheets: So, it's the oil on the ships that really matters.Martijn Rats: It's the oil on ships that is the flexible part of the market that we can redirect to where the oil is needed. And that is also the market where prices are formed. The seaborne market is in the order of 60 million barrels a day. So, only a subset of the 100 [million]. Now relative to that 60 million barrel a day, the Strait of Hormuz flows about 20 [million]. So, the Strait of Hormuz is responsible for about a third of seaborne supply, which is, of course, very large and therefore, you know, very critical to the system.Andrew Sheets: And I think an important thing we should also discuss here, which we were just discussing earlier today on another call, is – this is a market that could be quite sensitive to actually quite small disruptions in oil. So, can you give just some sense of sensitivity? I mean, in normal times, what sort of disruptions, in terms of barrels of oil, kind of, move markets; get investors' attention?Martijn Rats: Yeah, look, this is part of why this situation is so unusual, and oil analysts really sort of struggle with this. Look normally, at relative to the 100 million barrels a day of consumption, we care about supply demand imbalances of a couple of 100,000 barrels a day. That becomes interesting.If that, increases to say 1 million barrel a day, over- or undersupplied, you can expect prices to move. You can expect them to move by meaningful amounts. We can write research; the clients can trade. You have a tradable idea in front of you. When that becomes 2 to 3 million barrels a day, either side, you have major historical market moving events.So, in [20]08-09, oil famously fell from over 100 [million] down to something like 30 [million], on the basis that the oil market was 2-2.5 million barrel day oversupplied for two quarters. In 2022, we all thought – this actually never happened, but we all thought that Russia was going to lose about 3 million barrel day of supply. And on that basis, just on the basis of the expectation alone, Brent went to $130 per barrel. So, 2-3 [million] either side you have historically large moves. Now we're talking about 20 [million].Andrew Sheets: And I think that's what's so striking. I mean, again, I think investors, people listening to this, they can do that arithmetic too. If this is a market where 2 to 3 million barrels a day have caused some of the largest moves that we've seen in history, something that's 20 [million] is exceptional. And I think it's also fair to say this type of closure of the Strait [of Hormuz] is something we haven't seen before.Martijn Rats: No, which also made it very hard to forecast, by the way. Because the historical track records did not point in that direction, and yet here we are. The historical track record – look, you can look at other major disruptions historically.The largest disruption in the history of the oil market is the Suez Crisis in the mid-1950s that took away about 10 percent of global oil consumption. This is easily double that. So really unusual. If you look at supply and demand shocks of this order of magnitude, you can think about COVID. In April 2020, for one month, at the peak of COVID, when we're all sitting at home. Nobody driving, nobody flying. Yeah, we lost very briefly 20 ...
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    12 m
  • Oil Rally Tests Diversification Strategy

    Oil Rally Tests Diversification Strategy
    Mar 10 2026

    Our Chief Cross-Asset Strategist Serena Tang discusses how rising oil prices and geopolitical tensions could make stocks and bonds move in the same direction, challenging one of the key principles of portfolio diversification.

    Read more insights from Morgan Stanley.


    ----- Transcript -----


    Welcome to Thoughts on the Market. I’m Serena Tang, Morgan Stanley’s Chief Cross-Asset Strategist.

    Today: what happens if your main diversification strategy suddenly stops working because of oil price moves?

    It’s Tuesday, March 10th, at 10am in New York.

    For decades, investors have relied on the idea that stocks and bonds return tend to move in opposite directions. When equities fall, bonds often rise, helping cushion portfolio losses. But that relationship isn’t guaranteed. Between 2021 and 2023, coming out of the pandemic, stocks and bonds sold off together, and the traditional 60/40 equity-bond portfolio suffered its worst annual performance in nearly a century.

    Now, recent geopolitical tensions and rising oil prices are raising a familiar concern for investors: Could that uncertainty dynamic return? At first glance, oil prices may seem like a narrow commodity story. But in reality, they can shape the entire macroeconomic environment.

    The classic negative correlation between stocks and bonds depends on a fairly simple economic pattern: growth and inflation moving in the same direction. When economic growth accelerates, inflation often rises as well. In that environment, equities may perform well while bonds weaken. But when growth and inflation move in opposite directions, the relationship between stocks and bonds can flip. That’s what happened coming out of the pandemic. Bond investors worried about rising inflation, while equity investors were worried about slowing growth. In that scenario, both asset classes' returns declined at the same time.

    A sustained oil price shock could potentially recreate those conditions. Higher oil prices can push up inflation while also weighing on economic activity – a combination that economists often refer to as stagflation. If markets begin to price in that kind of environment again, the relationship between stocks and bonds could shift back toward that less favorable regime.

    Despite recent volatility tied to tensions in the Middle East, the relationship between stocks and bonds today still largely reflects the traditional pattern. Overall, stock-bond returns correlation remains negative, meaning bonds can still help diversify equity risk. In fact, correlations between U.S. stocks and 2-year Treasury returns have been trending negative since 2024, and on a longer-term basis they are now extremely negative relative to the past three years. But the key point here is that not all bonds behave the same way.

    Many investors think of government bonds as a single asset class. But the maturity of the bond – how long it takes to repay – matters a lot for diversification. Shorter-dated bonds, such as 2-year U.S. Treasuries, have maintained stronger negative correlations with equities. Longer-dated bonds, however – particularly the 30-year Treasury – have behaved a bit differently. Their correlation with stocks has been stickier and less negative, partly because markets increasingly view longer-dated bonds as risky. As a result, the difference between how 2-year and 30-year Treasuries move relative to stocks has remained unusually wide for several years.

    In recent days oil prices have been rising -- linked in part to concerns around the Strait of Hormuz. That’s pushing up yields at the front end of the Treasury curve, creating what’s known as a bear-flattening. In other words, short-term interest rates are rising faster than long-term ones, reflecting markets placing more emphasis on inflation risks. And that brings us to the key questions for investors: Which risks will dominate from here – is it going to be higher inflation or slower growth? The answer could determine which assets provide better diversifications in the months ahead.

    So the takeaway is this: Higher oil prices and geopolitical risks could increase the chances that stocks and bonds move together again. But diversification isn’t disappearing. It’s just becoming more nuanced. For investors, the real question isn’t whether bonds diversify portfolios. It’s which bonds do.

    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.
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    5 m
  • The Reasons for the Bull Market to Resume

    The Reasons for the Bull Market to Resume
    Mar 9 2026
    Our CIO and Chief U.S. Equity Strategist Mike Wilson explains why history, technicals and fundamentals suggest a clearer runway for U.S. stocks six months out, despite geopolitical concerns.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 conflict in Iran and what it means for equities. It's Monday, March 9th at 11:30 am in New York. So, let’s get after it. While most believe the current equity market correction began in February, it's clear to me that it actually began last fall when liquidity began to tighten. In fact, back in September I warned that the Fed was not doing enough with the balance sheet – and financial conditions were likely to tighten and cause some stress in equities. Starting in October, that stress manifested as a sharp correction in the most speculative parts of the equity market and crypto currencies. The Fed responded by ending its balance sheet reduction earlier than expected and restarting asset purchases which led to strong equity performance in January. At this point, the correction is very well advanced in both time and price, with many stocks down 30 percent, or more. Meanwhile, dispersion has rarely been higher with the spread between winners and losers the highest we have seen in 20+ years. As usual, the markets got it right by anticipating many of the concerns that are now obvious to all. The questions for equity investors now are what will the world look like in six months and are prices cheap enough to start assuming a better future? The short answer is not yet, but get your shopping lists ready. In many ways, we find ourselves in a very similar position to last year. Recall that the major indices started to accelerate lower in Late February and early March. The concern at the time was centered around tariffs, but like today, equity markets had already been trading poorly for months on concerns that had nothing to do with tariffs. This time around, markets have been worried about AI labor disruption, private credit defaults and liquidity shortages long before the Iran conflict escalated. Corrections typically don’t end until the best stocks and highest quality indices get hit and that usually takes a bigger shock, like Liberation Day or war. That process has begun with the S&P 500 having its worst week since October. The other thing to consider is that market levels tend to be tied to where they were a year ago. This year-over-year comparison is very important when thinking about support. Given the sharp decline last year, it tells me we have another month during which the equity markets are likely to struggle. Based on this simple observation and other technical indicators, I think the S&P 500 could trade toward 6300 by early April before our favorable fundamental outlook can take hold again. Does this mean we shouldn’t worry about the conflict in Iran taking oil prices sustainably above $100? No, but since no one seems to be able to predict the outcome of military conflicts or oil prices, I am not going to try either. Instead, I am going to assume that in six months, things have likely settled down after this initial surge, much like we saw after Russia invaded Ukraine. Importantly, the spike in oil prices is the result of a logistical logjam in the Straits of Hormuz rather than a shortage of supply. That logjam is a real constraint, but necessity is the mother of ingenuity and will likely be solved. Another reason to be optimistic six months out is the broadening in earnings growth, a trend that remains intact and a key call in our 2026 outlook. Secondarily, the US is much more resilient than Asia and Europe to an oil shock given its energy independence. This should attract investor flows back to the US. And finally, tax incentives for capital spending and tax cuts for individuals in the [One] Big Beautiful Bill should provide a positive offset to the higher oil prices in the short term. On the negative side, the flight to quality and safety could lead to more US dollar strength which is a headwind to global liquidity. Bottom line, oil and US dollar strength is likely to persist until the conflict simmers down. While much of the damage has likely been done to the most vulnerable parts of the equity market, the index remains vulnerable to another 5-7 percent downside in my opinion while crowded stocks could see double digit declines before a final low appears next month. Remember market lows happen faster than tops so be ready to add risk in anticipation of the bull market resuming later this year. Thanks for tuning in; I hope you found it informative and useful. Let us know what you think by leaving us a review. And if you find Thoughts on the Market worthwhile, tell a friend or colleague to try it out!
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    5 m
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