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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.

© Morgan Stanley & Co. LLC Economía Finanzas Personales
Episodios
  • The Fed’s Course Under a New Chair

    The Fed’s Course Under a New Chair
    Feb 5 2026
    Our Global Head of Macro Strategy Matthew Hornbach and Chief U.S. Economist Michael Gapen discuss the path for U.S. interest rates after the nomination of Kevin Warsh for next Fed chair.Read more insights from Morgan Stanley.----- Transcript -----Matthew Hornbach: Welcome to Thoughts on the Market. I'm Matthew Hornbach, Global Head of Macro Strategy. Michael Gapen: And I'm Michael Gapen, Morgan Stanley's Chief U.S. Economist. Matthew Hornbach: Today we'll be talking about the Federal Open Market Committee meeting that occurred last week.It's Thursday, February 5th at 8:30 am in New York.So, Mike, last week we had the first Federal Open Market Committee meeting of 2026. What were your general impressions from the meeting? And how did it compare to what you had thought going in? Michael Gapen: Well, Matt, I think that the main question for markets was how hawkish a hold or how dovish a hold would this be. As you know, it was widely expected the Fed would be on hold. The incoming data had been fairly solid. Inflation wasn't all that concerning, and most of the employment data suggested things had stabilized. So, it was clear they were going to pause. The question was would they pause or would they be on pause, right? And in our view, it was more of a dovish hold. And by that, it suggests to us, or they suggested to us, I should say, that they still have an easing bias and rates should generally move lower over time. So, that really was the key takeaway for me. Would they signal a prolonged pause and perhaps suggest that they might be done with the easing cycle? Or would they say, yes, we've stopped for now, but we still expect to cut rates later? Perhaps when inflation comes down and therefore kind of retain a dovish bias or an easing bias in the policy rate path. So, to me, that was the main takeaway. Matthew Hornbach: Of course, as we all know, there are supposed to be some personnel changes on the committee this year. And Chair Powell was asked several questions to try to get at the future of this committee and what he himself was going to do personally. What was your impression of his response and what were the takeaways from that part of the press conference? Michael Gapen: Well, clearly, he's been reluctant to, say, pre-announce what he may do when his term is chair ends in May. But his term as a governor extends into 2028. So, he has options. He could leave normally that's what happens. But he could also stay and he's never really made his intentions clear on that part. I think for maybe personal or professional reasons. But he has his own; he has his own reasons and, and that's fine. And I do think the recent subpoena by the DOJ has changed the calculus in that. At least my own view is that it makes it more likely that he stays around. It may be easier for him to act in response to that subpoena by being on staff. It's a request for additional information; he needs access to that information. I think you could construct a reasonable scenario under which, ‘Well, I have to see this through, therefore, I may stay around.’ But maybe he hasn't come to that conclusion yet. And then stepping back, that just complicates the whole picture in the sense that we now know the administration has put forward Kevin Warsh as the new Fed chair. Will he be replacing the seat that Jay Powell currently sits in? Will he be replacing the seat that Stephen Myron is sitting in? So yes, we have a new name being put forward, but it's not exactly clear where that slot will be; and what the composition of the committee will look like. Matthew Hornbach: Well, you beat me to the punch on mentioning Kevin Warsh… Michael Gapen: I kind of assumed that's where you were going. Matthew Hornbach: It was going to be my next question. I'm curious as to what you think that means for Fed policy later this year, if anything. And what it might mean more medium term? Michael Gapen: Yeah. Well, first of all, congratulations to Mr. Warsh on the appointment. In terms of what we think it means for the outlook for the Fed's reaction function and interest rate policy, we doubt that there will be a material change in the Fed's reaction function. His previous public remarks don't suggest his views on interest rate policy are substantively outside the mainstream, or at least certainly the collective that's already in the FOMC. Some people would prefer not to ease. The majority of the committee still sees a couple more rate cuts ahead of them. Warsh is generally aligned with that, given his public remarks. But then also all the reserve bank presidents have been renominated. There's an ongoing Supreme Court case about the ability of the administration to fire Lisa Cook. If that is not successful, then Kevin Warsh will arrive in an FOMC where there's 16 other people who all get a say. So, the chair's primary responsibility is to build a consensus; to herd the cats, so to speak. To communicate to markets and ...
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    11 m
  • Affordability Takes Center Stage in U.S. Policy

    Affordability Takes Center Stage in U.S. Policy
    Feb 4 2026
    Affordability is back in focus in D.C. after the brief U.S. shutdown. Our Deputy Global Head of Research Michael Zezas and Head of Public Policy Research Ariana Salvatore look at some proposals in play.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 the continued focus on affordability, and how to parse signals from the noise on different policy proposals coming out of D.C.It's Wednesday, February 4th at 10am in New York. Ariana Salvatore: President Trump signed a bill yesterday, ending the partial government shutdown that had been in place for the past few days. But affordability is still in focus. It's something that our clients have been asking about a lot. And we might hear more news when the president delivers his State of the Union address on February 24th and possibly delivers his budget proposal, which should be around the same time. So, needless to say, it's still a topic that investors have been asking us about and one that we think warrants a little bit more scrutiny. Michael Zezas: But maybe before we get into how to think about these affordability policies, we should hit on what we're seeing as the real pressure points in the debate. Ariana, you recently did some work with our economists. What were some of your findings? Ariana Salvatore: So, Heather Berger and the rest of our U.S. econ[omics] team highlighted three groups in particular that are feeling more of the affordability crunch, so to speak. That's lower income consumers, younger consumers, and renters or recent home buyers. Lower income households have experienced persistently higher inflation and more recently weaker wage growth. Younger consumers were hit hardest when inflation peaked and are more exposed to higher borrowing costs. And lastly, renters and recent buyers are dealing with much higher shelter burdens that aren't fully captured in standard inflation metrics. Now, the reason I laid all that out is because these are also the cohorts where the president's approval ratings have seen the largest declines. Michael Zezas: Right. And so, it makes sense that those are the groups where the administration might be targeting some of these affordability initiatives. Ariana Salvatore: That's right. But that's not the only variable that they're solving for. Broadly speaking, we think that the president and Republicans in Congress really need to solve for four things when it comes to affordability policies. First, targeting these quote right cohorts, which are those, as we mentioned, that have either moved furthest away from the president politically, or have been the most under pressure. Second feasibility, right? So even if Republicans can agree on certain policies, getting them procedurally through Congress can still be a challenge. Third timing – just because the legislative calendar is so tight ahead of the November elections. And fourth speed of disbursement. So basically, how long it would take these policies to translate to an uplift for consumers ahead of the elections. Michael Zezas: So, thinking through each of these constraints, starting with how easy it might be to actually get some of these policies done, most of the policies that are being proposed on the housing side require congressional approval. In terms of these cohorts, it seems like these policies are most likely to focus on – that seems aimed at lower-income and younger voters. And in terms of timing, we know the legislative calendar is tight ahead of the midterms, and the policy makers want to pursue things that can be enacted quickly and show up for voters as soon as possible. Ariana Salvatore: So, using that lens, we think the most realistic near-term tools are probably mostly executive actions. Think agency directives and potential changes to tariff policy. If we do see a second reconciliation bill emerge, it will probably move more slowly but likely cover some of those housing related tax credit changes. But of course, not all these policies would move the needle in the same way. What do we think matters most from a macro perspective? Michael Zezas: So, what our economists have argued is that the affordability policies being discussed – tax credits subsidies, payment pauses – they could be meaningful at a micro level for targeted households, but for the most part, they don't materially change the macro outlook. The exception might be tariffs; that probably has the broadest and most sustained impact on affordability because it directly affects inflation. Lower tariffs would narrow inflation differentials across cohorts, support real income growth and make it easier for the Fed to cut rates. Ariana Salvatore: Right. And just to add a finer point on that, I think directionally...
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    6 m
  • A New Playbook for Equity Investors

    A New Playbook for Equity Investors
    Feb 3 2026
    Our Chief Cross-Asset Strategist Serena Tang and senior leaders from Investment Management Andrew Slimmon and Jitania Kandhari unpack new investment trends from supportive monetary and fiscal policy and shifting market leadership. Read more insights from Morgan Stanley.----- Transcript -----Serena Tang: Welcome to Thoughts on the Market. I'm Serena Tang, Morgan Stanley's Chief Cross Asset Strategist. Today we're revisiting the 2026 global equity outlook with two senior leaders from Morgan Stanley Investment Management. Andrew Slimmon: I am Andrew Slimmon, Head of Applied Equity Team within Morgan Stanley Investment Management. Jitania Kandhari: And I'm Jitania Kandhari, Deputy CIO of the Solutions and Multi-Asset Group, Portfolio Manager for Passport Strategies and Head of Macro and Thematic Research for Emerging Market Equities within Morgan Stanley Investment Management.It's Tuesday, February 3rd at 10 am in New York. So as investors are entering in 2026, after several years of very strong equity returns with policy support reaccelerating. As regular listeners have probably heard, Mike Wilson, who of course is CIO and Chief Equity Strategist for Morgan Stanley – his view is that we ended a three-year rolling earnings recession in last April and entered a rolling recovery and a new bull market. Now, Andrew, in the spirit of debate, I know you have a different take on valuations and where we are at in the cycle. I’d love to hear how you're framing this for investment management clients. Andrew Slimmon: Yeah, I mean, I guess I focus a little bit more on the behavioral cycle. And I think that from a behavioral cycle we're following a very consistent pattern, which is we had a bad bear market in 2022 that bottomed down 25 percent. And that provided a wonderful opportunity to invest. But early in a behavioral cycle, investors are very pessimistic. And that was really the story of [20]23 and really 2024, which were; investors, you know, were negative on equities. The ratios were all very negative and investors sold out of equities. And that's consistent with a early cycle. And then as you move into the third-fourth year, investors tend to get more optimistic about returns. Doesn't necessarily mean the market goes down. But what it does mean is the market tends to get more volatile and returns start to compress, and ultimately, bull markets die on euphoria. And so, I think it's late cycle, but it's not end of cycle. And that's my theme; is late cycle but not end of cycle.Serena Tang: And I think on that point, one very unusual feature of this environment is that you have both monetary and fiscal policy being supportive at the same time, which, of course, rarely happens outside of recession. So how do you see those dual policy forces shaping market behavior and which parts of the market tend to benefit? Andrew Slimmon: Well, that's exactly right. Look, the last time I checked, page one of the investment handbook says, ‘Don't fight the Fed.’ And so, you have monetary policy easing. And what we; remember what happened in 2021? The Fed raised rates and monetary policy was tightening. Equities do well when the Fed is easing, and that's one of the reasons why I think it's not end of cycle. And then you layer in fiscal policy with tax relief coming, it is a reason to be relatively optimistic on equities in 2026. But it doesn't mean there can't be bumps along the way – and I think a higher level of optimism as we're seeing today is a result of that. But I think you stick with those more procyclical areas: Finance, Industrials, Technology, and then you move down the cap curve a little bit. I think those are the winning trades. They really started to come to the fore in the second half of last year, and I think that will continue into 2026. Serena Tang: Right. And we've definitely seen some bumps recently, but I think on your point around yields. So, Jitania, I think that policy backdrop really ties directly to your idea of the age of capped real rates. In very simple terms, can you explain what that means and what's behind that view? Jitania Kandhari: Sure. When I say age of real rates being capped, I mean like the structural template within which I'm operating, and real rates here are defined by the 10-year on the Treasury yield adjusted for CPI.Firstly, I'd say there was too much linear thinking in markets post Liberation Day. That tariffs equals inflation equals higher rates. Now, tariff impacts, as we have seen, can be offset in several ways, and economic relationships are rarely linear.So, inflation may not go up to the extent market is expecting. So that supports the case for capped rates. And the real constraint is the debt arithmetic, right? So, if you look at the history of public debt in the U.S., whenever there was a surge in public debt during the Civil War, two World Wars, Global Financial Crisis, even during COVID. In all these periods, when debt spiked, real rates have ...
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    14 m
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