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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
  • How Consumers, CapEx and Fiscal Policy Are Driving Growth

    How Consumers, CapEx and Fiscal Policy Are Driving Growth
    Jan 23 2026
    In the second of their two-part roundtable, Seth Carpenter and Morgan Stanley’s top economists break down the forces influencing growth across different regions.Read more insights from Morgan Stanley.----- Transcript -----Seth Carpenter: Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist and Head of Macro Research. And yesterday I sat down with my colleagues, Michael Gapen, our Chief U.S. Economist, Chetan Ahya, our Chief Asia Economist, and Jen Eisenschmidt, our Chief Europe Economist. And we spent a lot of time talking about monetary policy around the world. Today, let's go back to them, talk about the real side of the economy. It's Friday, January 23rd at 10am in New York. Jens Eisenschmidt: And 4pm in Frankfurt. Chetan Ahya: And 9pm in Hong Kong. Seth Carpenter: Michael, let me start with you, back on the U.S. And when I think about the U.S. economy, we have to start by talking about the U.S. consumer. Walk us through what investors need to understand about consumer spending in the U.S. What's driving it, what's going to hold it up, and where are the risks? Michael Gapen: I think the primary thing to remember here is that the upper income consumer drives about 40 percent or more of total spending. So, there can be higher inflation that eats into real labor market income growth. There can be inflation dispersion, which hits lower income households more than upper income households. We can have tariffs that get applied to goods and lower- and middle-income households buy goods more than upper income households. But when asset markets continue to appreciate, when home prices hold on to their prior gains, sometimes that doesn't matter in the aggregate statistics because that upper income household keeps spending.I do think that's a lot of what happened in 2025. So, there is a K-shaped economy. I think one of the main risks about the U.S. is that its expansion is narrowly driven. We think that will broaden out in 2026. If we're right, that inflation comes down and we're past, kind of, the peak effect of tariffs, then we think that lower- and middle-income household can have a little more residual spending power. And you might get the consumer operating on two fronts, rather than one. Seth Carpenter: Another part of domestic spending that gets a lot of attention is business investment spending, CapEx spending. First would you agree with that statement that CapEx spending last year was characterized by AI CapEx spending? Second, should we feel confident that that underlying sort of momentum in CapEx spending should continue for this year? And then third, what's it going to take for there to be a broadening out, maybe like what you said about consumers, but a broadening out of investment spending so that it's not just the AI story that's driving CapEx. Michael Gapen: I do agree that the primary, almost exclusive story in 2025 for business spending was AI. So, when you look at residential and non-residential spending, unrelated to AI, that I think did feel the effects of policy uncertainty in a changing environment. what keeps kind of sustainability around business spending? Obviously, it's a multi-year investment story around AI. There's a level versus growth rate argument here where you can have a heck of a lot of CapEx spending. May not always show up in GDP because some of it is intermediate goods, some of it is imported. But that doesn't diminish, I think, the quality of the overall story. What gets business spending to broaden out, I do think is related to whether consumer spending broadens out. Most business spending kind of follows demand with a lag. So, AI is a different story, but there's a cyclical component to business spending. There could be a housing related component, if mortgage rates come down and stimulate at least a little more turnover in the housing market. So, if the recovery does broaden out, we see greater real income growth in low- and middle-income households. The labor market stabilizes. Maybe mortgage rates come down a little bit, then I think you could get carry through momentum to non-AI related business spending. That would look more like a cyclical upswing for the economy. May be a heavy lift, but that's what I think it would take to get there. Seth Carpenter: So, Jens, let me come to you. We talked yesterday about the ECB possibly easing more on disinflation. But when I think of disinflation, I think of a weak economy. And that's maybe not really the case. So, I guess the first question to you would you characterize euro area economic growth as strong, or a little bit more complicated? Jens Eisenschmidt: A little bit more complicated. And that's always the right answer for an economist – I think it depends. Well, it is strong in some quarters. And these quarters will change from where it has been in the past.So concretely, we think the German economy has most potential to catch ...
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    15 m
  • Mapping Global Central Bank Paths

    Mapping Global Central Bank Paths
    Jan 22 2026
    Our Global Chief Economist Seth Carpenter joins our chief regional economists to discuss the outlook for interest rates in the U.S., Japan and Europe.Read more insights from Morgan Stanley.----- Transcript -----Seth Carpenter: Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist and Head of Macro Research. And today we're kicking off our quarterly economic roundtable for the year. We're going to try to think about everything that matters in economics around the world. And today we're going to focus a little bit more on central banking. And when we get to tomorrow, we'll focus on the nuts and bolts of the real side of the economy. I'm joined by our chief regional economists. Michael Gapen: Hi, Seth. I'm Mike Gapen, Chief U.S. Economist at Morgan Stanley. Chetan Ahya: I'm Chetan Ahya, Chief Asia economist. Jens Eisenschmidt: And I'm Jens Eisenschmidt, Chief Europe economist. Seth Carpenter: It's Thursday, January 22nd at 10 am in New York. Jens Eisenschmidt: And 4 pm in Frankfurt. Chetan Ahya: And 9 pm in Hong Kong. Seth Carpenter: So, Mike Gapen, let me start with you as we head into 2026, what are we thinking about? Are we going into a more stable expansion? Is this just a different phase with the same amount of volatility? What do you think is going to be happening in the U.S. as a baseline outlook? And then if we're going to be wrong, which direction would we be wrong? Michael Gapen: Yeah, Seth, we took the view that we would have more policy certainty. Recent weeks have maybe suggested we're incorrect on that front. But I still believe that when it comes to deregulation, immigration policy and fiscal policy, we have much more clarity there than we did a year ago. So, I think it's another year of modest growth, above trend growth. We're forecasting something around 2.4 percent for 2026. That's about where we finished 2025. I think what's key for markets and the outlook overall will be whether inflation comes down. Firms are still passing through tariffs to the consumer. We think that'll happen at least through the end of the first quarter. It's our view that after that, inflation pressures will start to diminish. If that's the case, then we think the Fed can execute one or two more rate cuts. But we have those coming [in] the second half of the year. So, it looks like growth is strong enough. The labor market has stabilized enough for the Fed to wait and see, to look around, see the effects of their prior rate cuts, and then push policy closer to neutral if inflation comes down. Seth Carpenter: And if we go back to last year to 2025, I will give you the credit first. Morgan Stanley did not shift its forecast for recession in the U.S. the way some of our main competitors did. On the other hand, and this is where I maybe tweak you just a little bit. We underestimated how much growth there would be in the United States. CapEx spending from AI firms was strong. Consumer spending, especially from the top half of the income distribution in the U.S. was strong. Growth overall for the year was over 2 percent, close to 2.5 percent. So, if that's what we just came off of, why isn't it the case that we'd see even stronger growth? Maybe even a re-acceleration of growth in 2026? Michael Gapen: Well, some of that, say, improvement vis-à-vis our forecast, the outperformance. Some of that I think comes mechanically from trade and inventory variability. So, . I'm not sure that that says a lot about an improving trend rate of growth. Where there was other outperformance was, as you noted, from the consumer. Now our models, and I don't mean to get too technical here, but our model suggests that consumption is overshooting its fundamentals. Which I think makes it harder for the economy to accelerate further. And then AI; it's harder for AI spending to say get incrementally stronger than where it is. So, we’re getting a little extra boost from fiscal. We've got that coming through. And I just think what it is, is more of the same rather than further acceleration from here. Seth Carpenter: Do you think there's a chance that the Fed in fact does not cut rates like you have in your forecast? Michael Gapen: Yes, I do think... Where we could be wrong is we've made assumptions around the One Big Beautiful Bill and what it will contribute to the economy. But as you know, there's a lot of variability around those estimates. If the bill is more catalytic to animal spirits and business spending than we've assumed, you could get, say, a demand driven animal spirits upside to the economy, which may mean inflation doesn't decelerate all that much. But I do think that that's, say, the main upside risk that we're considering. Markets have been gradually taking out probabilities of Fed cuts as growth has come in stronger. So far, the inflation data has been positive in terms of signaling about disinflation, but I would say the jury's ...
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    13 m
  • 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
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