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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
  • Pricing in Trump’s Speech at Davos

    Pricing in Trump’s Speech at Davos
    Jan 22 2026
    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 ...
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    9 m
  • Housing Market: Limited Impact from Policy

    Housing Market: Limited Impact from Policy
    Jan 20 2026
    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...
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    7 m
  • What’s Driving European Stocks in 2026

    What’s Driving European Stocks in 2026
    Jan 16 2026
    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...
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    12 m
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