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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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Episodios
  • Special Encore: For Better or Warsh

    Special Encore: For Better or Warsh
    Feb 26 2026
    Original Release Date: Feb 6, 2026Our Global Head of Fixed Income Research Andrew Sheets and Global Chief Economist Seth Carpenter unpack the inner workings of the Federal Reserve to illustrate the challenges that Fed chair nominee Kevin Warsh may face.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. Seth Carpenter: And I'm Seth Carpenter, Morgan Stanley's Global Chief Economist and Head of Macro Research. Andrew Sheets: And today on the podcast, a further discussion of a new Fed chair and the challenges they may face. It's Friday, February 6th at 1 pm in New York. Seth, it's great to be here talking with you, and I really want to continue a conversation that listeners have been hearing on this podcast over this week about a new nominee to chair the Federal Reserve: Kevin Warsh. And you are the perfect person to talk about this, not just because you lead our economic research and our macro research, but you've also worked at the Fed. You've seen the inner workings of this organization and what a new Fed chair is going to have to deal with. So, maybe just for some broad framing, when you saw this announcement come out, what were some of the first things to go through your mind? Seth Carpenter: I will say first and foremost, Kevin Warsh's name was one of the names that had regularly come up when the White House was providing names of people they were considering in lots of news cycles. So, I think the first thing that's critically important from my perspective, is – not a shock, right? Sort of a known quantity. Second, when we think about these really important positions, there's a whole range of possible outcomes. And I would've said that of the four names that were in the final set of four that we kept hearing about in the news a lot. You know, some differences here and there across them, but none of them was substantially outside of what I would think of as mainstream sort of thinking. Nothing excessively unorthodox at all like that. So, in that regard as well, I think it should keep anybody from jumping to any big conclusions that there's a huge change that's imminent. I think the other thing that's really important is the monetary policy of the Federal Reserve really is made by a committee. The Federal Open Market Committee and committee matters in these cases. The Fed has been under lots of scrutiny, under lots of pressure, depending on how you want to put it. And so, as a result, there's a lot of discussion within the institution about their independence, making sure they stick very scrupulously to their congressionally given mandate of stable prices, full employment. And so, what does that mean in practice? That means in practice, to get a substantially different outcome from what the committee would've done otherwise… So, the market is pricing; what's the market pricing for the funds rate at the end of this year? About 3.2 percent. Andrew Sheets: Something like that. Yeah. Seth Carpenter: Yeah. So that's a reasonable forecast. It's not too far away from our house view. For us to end up with a policy rate that's substantially away from that – call it 1 percentage, 2 percentage points away from that. I just don't see that as likely to happen. Because the committee can be led, can be swayed by the chair, but not to the tune of 1 or 2 percentage points. And so, I think for all those reasons, there wasn't that much surprise and there wasn't, for me, a big reason to fully reevaluate where we think the Fed's going. Andrew Sheets: So let me actually dig into that a little bit more because I know our listeners tune in every day to hear a lot about government meetings. But this is a case where that really matters because I think there can sometimes be a misperception around the power of this position. And it's both one of the most public important positions in the world of finance. And yet, as you mentioned, it is overseeing a committee where the majority matters. And so, can you take us just a little bit inside those discussions? I mean, how does the Fed Chair interact with their colleagues? How do they try to convince them and persuade them to take a particular course of action? Seth Carpenter: Great question. And you're right, I sort of spent a bunch of time there at the Fed. I started when Greenspan was chair. I worked under the Bernanke Fed. And of course, for the end of that, Janet Yellen was the vice chair. So, I've worked with her. Jay Powell was on the committee the whole time. So, the cast of characters quite familiar and the process is important. So, I would say a few things. The chair convenes the meetings; the chair creates the agenda for the meeting. The chair directs the staff on what the policy documents are that the committee is going to get. So, there's a huge amount of influence, let's say, there. But in order to ...
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    12 m
  • Why Stocks Keep Rising Despite AI Anxiety

    Why Stocks Keep Rising Despite AI Anxiety
    Feb 24 2026

    Our CIO and Chief U.S. Equity Strategist Mike Wilson explains why he still believes in a growth cycle for equity markets, even as investors show growing concerns around AI.


    Mike Wilson: 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 recent concerns around AI disruption.

    It's Tuesday, February 24th at 1pm in New York.

    So, let's get after it.

    Last week you could feel it, that anxious undercurrent in the market. The headlines were noisy, volatility ticked higher, and AI disruption, once again, dominated investor conversations. But beneath the surface level unease something important happened. The S&P 500 Equal Weight Index pushed to a new relative high, keeping our broadening thesis alive and well.

    On one hand, investors are worried about AI driven disruption, CapEx intensity, and potential labor force reductions. On the other hand, capital is still flowing into formerly lagging areas of the market, just as the median stock is seeing its strongest earnings growth in four years.

    Let's unpack this. First, there's concern AI will lead to job losses. But even if that's the case, there's typically a phase-in period. Companies don't just eliminate labor overnight. Importantly, before these productivity gains are fully realized, we need broad enterprise adoption. That means building out the agentic application layer, integrating AI into workflows, retraining systems and processes. That takes time, and it is still early days in that regard.

    Second, what we're seeing now is typical of a major investment cycle. Volatility increases as markets challenge the pace of unbridled spending. Dispersion increases as investors debate winners and losers. Leadership rotates, sometimes sharply. There's also something different this time compared to the internet bubble of the late 1990s. Today we're in an early cycle earnings backdrop. We've just emerged from what was effectively a rolling recession between 2022 and 2025. So, as capital rotates out of the perceived structural losers, it's not just chasing long-term AI beneficiaries, it's also finding classic cyclical winners.

    On the losing side is long duration services-oriented sectors, particularly software. These areas are more sensitive to uncertainty around longer term cash flows. This area also has a large overhang of private capital deployed over the last 10 to 15 years.

    There are other forces at play too. Small cap growth, arguably the longest duration segment of the market, began breaking down in late January around the time Kevin Warsh was nominated as Fed chair. While major indices barely reacted, more speculative areas may be responding to expectations of tighter liquidity given Warsh’s, reputation as a balance sheet hawk. Finally, equity markets are typically more volatile when new Fed chairs assume office.

    Bottom line, our broader thesis of an early cycle rolling recovery remains intact. Market internals are supportive even if index level action feels choppy. That said, near term volatility is likely to persist as we enter a weaker seasonal window for retail demand, while liquidity remains ample, but far from abundant.

    With this backdrop, a quality cyclical barbell with healthcare makes sense. In small caps, the higher quality S&P 600 looks more attractive than the Russell 2000. And any short-term volatility could present opportunities to add exposure in preferred cyclical areas like Consumer Discretionary Goods, Industrials, and Financials.

    Of course, risks remain. AI adoption could accelerate faster than expected, pressuring labor markets more abruptly. Pricing power could erode as efficiency spread, and policy makers could react in ways that slow the CapEx cycle while crowded momentum positioning remains vulnerable.

    Nevertheless, the signal from the internals is clear. Beneath the volatility this looks less like a market rolling over, and more like one that is confirming an early cycle economic expansion.

    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
  • Global Trade in Flux: What’s Next After Tariff Ruling

    Global Trade in Flux: What’s Next After Tariff Ruling
    Feb 23 2026
    The Supreme Court's latest ruling on tariffs has thrown existing trade agreements into uncertainty. Our Head of Public Policy Research Ariana Salvatore and Arunima Sinha, from the U.S and Global Economics teams break down the fallout.Read more insights from Morgan Stanley.----- Transcript -----Ariana Salvatore: Welcome to Thoughts on the Market. I'm Ariana Salvatore, Head of Public Policy Research. Arunima Sinha: And I am Arunima Sinha on the U.S. and Global Economics teams. Ariana Salvatore: Today we'll be talking about the recent Supreme Court decision on tariffs, what it means for existing trade deals, and where trade policy is headed from here. It's Monday, February 23rd at 9am in New York. On Friday, the Supreme Court ruled that the president could not use the International Emergency Economic Powers Act, or IEEPA, to impose broad-based tariffs. The ruling didn't give a clear signal on what it could mean for potential refunds, but the Trump administration said it plans to replace the existing tariffs, which is something that we'd long expected – first leveraging Section 122 to impose 15 percent tariffs for 150 days. The president is simultaneously going to launch a few new Section 301 investigations to eventually replace those Section 122 tariffs, since they're only allowed to be in place temporarily. So Arunima, let's start by breaking down some of this tariff math. What does this mean for the headline and effective rate given where we are now versus before? Arunima Sinha: Before the decision, Ariana, we were at a headline tariff rate of about 13 percent. What this decision does is that with the move, especially to 15 percent, for other countries, we think that it takes about a percentage point off of the headline tariff rate. So, we would go to about 12 percent, and then we have another percentage point coming off just because of the shifts in trade patterns. And so instead of a headline tariff rate of about 13 percent, we think that we're going to be at a headline tariff of just about 11 percent. But that's really just related to the Section 122s. And as you noted, this is only going to apply for the next 150 days. So how should we be thinking about trade policy going forward? Ariana Salvatore: I think we should view the 15 percent as probably a likely ceiling for these rates in the medium term; in particular because this 150-day period expires some time around the summer, so even closer to the midterm elections. And as we've been saying politically speaking, it's unpopular to impose high levels of tariffs. We've also been saying that the president will continue to lean on trade policy as his real, only way to address the affordability issue for voters, which is something that we've actually seen on the policy side for the past few months with the imposition of exemptions, more trade framework agreements, et cetera.So really, I think this is just another way for him to continue leaning on this policy avenue. But in that vein, let's talk about specific pockets of relief. What are we thinking about some of their findings on a sector level? Arunima Sinha: So, let's tie this into the affordability aspect that you mentioned, Ariana, and specifically using the consumer goods sector. What we think is that with, just in the near-term period, with the Section 122s applying, for different consumer goods categories, we could see tariff rate differentials go down. So, they could be anywhere between 1 to 4 percentage points lower across different categories. But what we also think could happen is that once we get beyond the 150-day period, and there are no additional sector tariffs that go on. So, the 232s or the 301s, particularly for this particular sector, we could see some of the largest tariff relief that we're expecting to see. So, for example, apparel and accessories could see something like a 16 to 17 percentage point tariff drop. So that particular part I think is important. Just the upside risks to consumer goods. But that of course brings us to the question of bilateral trade deals and how they come into play. What do you think about that, Ariana? Ariana Salvatore: Yeah. So, I think when it comes to the bilateral deals, as we mentioned, there's some opportunities for relief depending on the sectors and the type of tariff exposure by country. As you mentioned, the consumer goods are a good example of this. So, in general, I think that trading partners will have little incentive to abandon the existing deals or framework agreements, just given that the president and the administration have messaged this idea of continuity. So, replacing the IEEPA tariffs with a more durable, legitimate, legal authority. But what's notable is that many of our trading partners are actually now facing potentially even lower levels than they were before. Even with the increase to 15 percent on the 122s from 10 percent over the weekend. In particular, many countries in Southeast Asia are ...
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    7 m
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