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Thoughts on the Market

Podcast Thoughts on the Market
Morgan Stanley
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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5 of 1335
  • Investors Look Beyond U.S. for Opportunities
    Amid lower growth and inflation concerns in the US, investors have begun scouring international markets for other opportunities. Our analysts Andrew Sheets, Neville Mandimika and Anlin Zhang dig into one potential outperforming category. Read more insights from Morgan Stanley.
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  • Risks and Uncertainty in the Fed’s New Outlook
    Our Global Head of Macro Strategy Matthew Hornbach and Chief U.S. Economist Michael Gapen discuss the outcome of the recent FOMC meeting, and the outlook for interest rates in 2025 and 2026.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're talking about the March Federal Open Market Committee meeting and the path for rates from here.It's Thursday, March 20th at 10am in New York.Mike, the Fed released a new set of projections yesterday. What do these say and what did you learn from them?Michael Gapen: Yeah, Matt, well, the Fed's forecast actually now look a lot like our outlook for the U.S. economy. So, they revised down their expectation of growth. They revised up their expectation for inflation. So, it has a bit of a stagflation, slower growth, stickier inflation outlook – which is very much what we were thinking coming into this year. The Fed also, though, highlighted high policy uncertainty. They wrote down a forecast, but I'm not all that convinced that they have a lot of confidence in how things will evolve.So, I think for me, really, the bigger story were their updated perceptions about uncertainty and risks to the outlook. So, in December, if you remember, they told us; virtually everybody on the committee said, uncertainty around inflation is high and risk to inflation to the upside. They complemented that this week with the fact that uncertainty around growth in the labor market is high, but risk to growth is to the downside, the unemployment rate to the upside. So, you have kind of competing risks here around the Fed's dual mandate. They've got upside risk to inflation, downside risk to growth.To me, that's kind of the really important message. It's hard to have a confidence in a forecast right now, but I think that risk assessment is really interesting.Matthew Hornbach: And with that in mind, and given all the policy uncertainty that the Fed mentioned, what did Powell say about how the Fed should react? In other words, what is appropriate policy at this stage?Michael Gapen: Right. Yeah, it's tricky, right? So, on one side of your mandate, you think risks to inflation are squarely to the upside and growth in labor markets to the downside. So, what do you do? And I think Powell said, I think that the logical answer, which is, well, right now you do nothing, and you wait.But then I think what Powell said is: How we think this plays out is – tariffs may boost inflation in the short run. Which we're going to try to ignore. And if the economy does weaken and the labor market softens, we'll ease policy in order to support activity, right? So, there might be, say, symmetric risks around their dual mandate, but there's asymmetry in the policy outlook.He said we're either going to be on hold or we're going to be cutting rates. And generally, I think that's the right thing.Matthew Hornbach: So, Mike, what I heard from you was that the Fed was going to look through inflation in the near term, and then eventually cut. I mean, do you think they can do that?Michael Gapen: Yeah, I think, Matt, that's a great question. My answer to that is, I think it's easier said than done. We agree that the next move from the Fed is going to be a cut, but we think that cut comes much later.This is a very data dependent Fed. So, I think in the moment, if tariffs boost inflation now and weaken activity later, it's easy to say, ‘I'm going to look through that and cut.’ But in practice, I think it's hard.So, Matt, actually, at this point, though, I think I would actually kind of ask you the same question, but in a different way, right? We doubt the Fed may be able to do this. But the market priced in more rate cuts this year than we think is likely. How would you explain the market pricing and how far away from my expectation do you think it could run?Matthew Hornbach: What’s really interesting about how the market has priced the recent events is – it’s actually pricing more in line with the spirt of your view. In the sense that the market has priced more rate cuts in 2026 than it’s pricing in 2025. So, in spirit, the market is very much with you. But as we like to say, the market price is an average of all possible outcomes. And if one of the outcomes is the Fed does nothing for the foreseeable future. And the other outcome is the Fed cuts aggressively this year. Then the market price has to reflect some degree of additional easing in 2025 that wouldn't necessarily be aligned with a rational baseline for Fed policy.So, market in some ways is reflecting the idea that you're proposing in your forecast. But it's also reflecting the idea that it's a market and that it has to be priced for some amount of risk premia that the Fed is ultimately forced to cut rates more.And in fact, if I can ask you a question relating to that, Mike, you know, the equity market at one point last week had fallen about 10 per cent from the highs.Michael Gapen: Mm hmm.Matthew Hornbach: Number one, is there a percentage drawdown that gets the Fed’s attention? You know, how does the Fed think about the equity market in an environment like this?Michael Gapen: Yeah, I think the equity market, in my view, and I think the view of the Fed, is what I'll call a key spillover channel. Trade and manufacturing are relatively small shares of the economy. So, if we pursue restrictive trade policies, growth should slow, inflation may be firm. That's the Fed's essential baseline; it's ours. The risk here though is that somewhere in there you get a destabilizing period, equity markets fall, upper income consumers take a step back, and you have a much broader downturn at that point.So, you ask a great question, how far do equity markets have to fall? Well, we get 10 per cent declines in equity markets on average about once a year, so it's not that. And the theory would say households have to view that decline in wealth as permanent, right? So, it has to be a fairly substantial decline.Given how far wealth has risen, we're over [$]51 trillion now and an increase in net wealth since COVID. I think that decline has to be large. I would pencil in something, probably need about a 30 per cent decline in equity markets – before maybe that spillover risk gets very elevated.So, Matt, if I can turn back, because, you know, I think we're in general agreement here on what we heard yesterday. But what I'd like to do in terms of looking forward, so aside from the usual communications coming from the Fed, after the blackout period, following the meeting. What do you think investors will be focusing on over the next month?Matthew Hornbach: My sense is that there is already an unusual amount of focus on April 2nd.You know, that is the day when the Trump administration is supposed to unveil their plan for reciprocal tariffs. It's unclear what tariffs will be implemented on April 2nd; what tariffs will be saved for a negotiating process thereafter. So, clients are very focused on April 2nd. I also suspect that at some various periods between now and then, we are likely to receive previews, in the form of various communications coming from the Trump administration on the types of policies that we may end up seeing delivered on April 2nd.And so, I suspect that between now and then there will be a crescendo in concern, perhaps, over what will come of U.S. trade policy for the balance of this year. And really for the balance of the next three and a half years.So, with that, Michael, thanks for taking the time to talk.Michael Gapen: Great speaking with you, Matt.Matthew Hornbach: And thanks for listening. If you enjoy Thoughts on the Market, please leave us a review wherever you listen and share the podcast with a friend or colleague today.
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  • Making a Bet on the Future of Betting
    Our analysts Michael Cyprys and Stephen Grambling discuss prediction markets’ rising popularity and how they could disrupt the U.S. sports betting industry.----- Transcript -----Michael Cyprys: Welcome to Thoughts on the Market. I'm Mike Cyprys, Morgan Stanley's head of U.S. Brokers, Asset Managers, and Exchanges Research.Stephen Grambling: And I'm Stephen Grambling, head of U.S. Gaming, Lodging, and Leisure.Michael Cyprys: Today, we'll talk about sports betting and how prediction markets can disrupt it.It's Wednesday, March 19th at 10 am in New York.Sports betting used to be against the law in most of America, outside of Nevada. That changed in 2018, when the U.S. Supreme Court declared a federal ban on sports betting to be unconstitutional. As a result, many American states legalized sports betting. Over the last seven years, it's become even more popular and profitable. The American sports betting industry posted a record [$]13.7 billion of revenues last year. That's up from 2023's record of [$]11 billion, according to the American Gaming Association.Now, prediction markets are set to potentially disrupt this industry.Stephen, to set the stage, how is the U.S. sports betting industry currently organized and regulated?Stephen Grambling: Well, as you mentioned, Mike, with the overturning of the Professional and Amateur Sports Protection Act in 2018, legalization of sports betting turned to the states. The path to legislation varies by state with different constituents to consider – beyond even the local government. You know, Senate and Congress, but also tribal casinos, commercial casinos, sports teams, leagues, etc.We now have 38 states plus D.C. and Puerto Rico offering legal sports betting in some format, collecting billions of dollars in taxes in aggregate. At this point, the big states that are remaining are really only Texas, Florida, Georgia, and California. Each state forms its own framework across taxes, what sports can or can't bet on, and regulations around advertising. This means a separate commission for each state regulates the industry, in conjunction with state lawmakers,Michael Cyprys: I see. And what exactly are betting exchanges and how do they fit within the U.S. sports betting market?Stephen Grambling: Betting exchanges have existed for a long time in markets around the world. These are really exchanges – and are platforms – where individuals can bet directly against each other on an event outcome, rather than against a bookmaker. These exchanges match opposing bets and then take a commission on the winnings and typically offer better odds by eliminating traditional bookmaker margins.That said, the all in commission can range at two to five per cent. Whereas the spread on a traditional singles bet is about five to six per cent. So, it's relatively small. This is also known as the, the vigorish or the vig, or what the book gets to keep. Due to the need to be perfectly balanced as an exchange, these platforms, which operate in various markets, as I said around the world, are generally more akin to premarket, single bets. So single bet, or sometimes people call them straight bets, are really just betting on the outcome of a match or the over-under. They don't typically impact things like multi leg bets, also known as parlays, since there's less of a consistent betting pool.Because the type of bets are more limited than what a sports book offers, these exchanges somewhat plateaued in popularity in markets like the UK. For frame of reference, we estimate these singles bets are about $900 million in markets where it's legal for sports betting, and roughly another $800 million in states without legislation.Again, this is really just the market for people who only bet on that type of bet; that don't do both singles bets and parlays, or parlays alone.Mike, maybe turning it back to you, sports betting is a type of prediction market. But from where you sit, how would you define prediction markets more broadly, and can you give some examples?Michael Cyprys: Sure. So prediction markets are a type of marketplace where event contracts trade. Sometimes they're called forecast markets or even information markets. A core feature here is trading an outcome at an event, such as the November election, economic indicators, or even corporate events. But unlike futures contracts, event contracts have a defined risk and defined reward.Generally, they're structured as binary options, which can be easily understood. For instance, a contract could pay a dollar if the consumer price index, or CPI, exceeds say, 3 per cent in March. If an investor buys that contract for 75 cents, they could generate a 25 percent potential return if CPI comes in over 3 per cent and they collect a dollar on that contract.Now, the counterparty on the other side of that trade is the investor who sold that contract, collected the 75 cents, and they would stand to lose 25 cents potentially – if they held on to that contract, paid out the full dollar in the event that CPI came in hot.What's interesting is the price of that contract becomes the best forecast of that event happening, and so this can provide a lot of information value.Stephen Grambling: So, it sounds like you could bet on just about anything, so are these prediction markets legal?Michael Cyprys: Not only are they legal, they've been around for some time – though perhaps more esoteric in nature, in terms of where we have seen contracts and types of events traded on marketplaces. They've been geared more towards end users and farmers. For example, event contracts on the weather have been listed on a Chicago derivative exchange for over 25 years.What's new and interesting is that we're seeing new exchange upstarts enter the space. They're innovating, they're broadening access to retail investors, and they're benefiting from the confluence of a number of different trends around technology improvements – with mobile trading in recent years, the speed and access to information, the ease of account opening, broadly retail investors coming into the marketplace, and the pure simplicity and intuitive nature of event contracts.The 2024 election sparked people's interest in event contracts. And that's persisting post election. In the coming months, we do expect a large retail brokerage platform in the U.S. to really help potentially mainstream event contracts.Coming back to your legality point and question. One area of open debate, though, is around the legality of sports event contracts, where we expect regulators to provide some clarity around that in the months ahead.Stephen Grambling: Interesting, so some have also argued that the prediction markets are not just the future of trading, but for information in general. Do you think prediction markets can be a disruptive force in finance then?Michael Cyprys: Over time, potentially, yes. I do think that's going to require participation from both retail as well as institutional investors that can help fuel robust and liquid marketplace. The sheer simplicity is helpful in terms of driving retail adoption; but for institutional investors and corporates, they could look to prediction markets as a valuable hedging tool, with insurance-like properties – not to mention the information value that can be derived.Stephen, given our discussion of prediction markets and their relevance for sports betting, how are you framing the potential for risk and opportunity for the sports betting industry from the application of prediction market models?Stephen Grambling: There's a bit of a put and take wherein existing sports betting markets, that's where it's legal, the industry may face new competition. So, the incumbents will face new competition from these prediction markets being opened up. On the other hand, a new regulatory framework could also open up new states; so the states that I referenced before that are still out there that haven't been legalized, all of a sudden become fair game.Given the size of these new states, as I mentioned, folks like California, Texas, Florida; these are enormous economies, and they're roughly equal to the size of the existing markets. So, the potential upside opportunity, we think, actually outweighs the competitive risks. And we quantify this as being potentially in the hundreds of millions of dollars, an incremental EBITDA to some of the incumbents that operate in the space.Michael Cyprys: That's fascinating, Stephen. Thanks for taking the time to talk.Stephen Grambling: Great speaking with you, Mike.Michael Cyprys: And thanks for listening. If you enjoy Thoughts on the Market, please leave us a review wherever you listen and share the podcast with a friend or colleague today.
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  • What Could Weaken Strong Credit
    Our Chief Fixed Income Strategist Vishy Tirupattur explains why credit markets have held firm amid macro volatility, and the scenarios which could hurt its strong foundation.----- Transcript -----Welcome to Thoughts on the Market. I am Vishy Tirupattur, Morgan Stanley’s Chief Fixed Income Strategist. Today, I will talk about why credit markets have been resilient even as other markets have been volatile – and market implications going forward. It's Tuesday, March 18th, at 11 am in New York. Market sentiment has shifted quickly from post-election euphoria and animal spirits to increasingly growing concern about downside risks to the U.S. economy, driven by ongoing policy uncertainty and a spate of uninspiring soft data. However, signaling from different markets has not been uniform. For example, after reaching an all-time high just a few weeks ago, the S&P 500 index has given up all of its gains since the election and then some. Treasury yields have also yo-yoed, from a 40-basis points selloff to a 60+ basis points rally. Yet in the middle of this volatility in equities and rates, credit markets have barely budged. In other words, credit has been a low beta asset class so far. This resilience which resonates with our long-standing constructive view on credit has strong underpinnings. We had expected that many of the supporting factors from 2024 would continue – such as solid credit fundamentals, strong investor demand driven by elevated overall yields rather than the level of spreads. While we expected the economic growth in 2025 to slow somewhat, to about 2 per cent, we thought that would still be a robust level for credit investors. These expectations have largely played out until recently. While we maintain our overall positive stance on credit, some of the factors contributing to its resilience are changing, calling the persistence of credit’s low beta into question. While we did anticipate that sequencing and severity of policy would be key drivers of the economy and markets in 2025, growth constraining policies, especially tariffs, have come in faster and broader than what we had penciled in. Incorporating these policy signals, our U.S. economists have marked down real GDP growth to 1.5 per cent in 2025 and 1.2 per cent in 2026. From a credit perspective, we would highlight that our economists are not calling for a recession. Their growth expectations still leave us in territory we would deem credit friendly, although edging towards the bottom of our comfort zone. On the positive side of the ledger, cooling growth may also temper animal spirits and continue to constrain corporate debt supply, keeping market technicals supportive. Also, while treasury yields have rallied, overall yields are still at levels that sustain demand from yield-motivated buyers. That said, if growth concerns intensify from these levels, with weakness in soft data spreading notably to hard data, the probability of markets assigning above-average recession probabilities will increase. This could challenge credit’s low beta, that has prevailed so far, and the credit beta could increase on further drawdowns in risk assets. Thanks for listening. If you enjoy the show, leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.
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  • Is the Correction Over Yet?
    Our CIO and Chief U.S. Equity Strategist Mike Wilson explains the stock market tumble and whether investors can hope for a rally.----- 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 recent Equity Market correction and what to look for next. It's Monday, March 17th at 11:30am in New York. So let’s get after it. Major U.S. equity Indices are as oversold as they've been since 2022. Sentiment, positioning gauges are bearish, and seasonals improve in the second half of March for earnings revisions and price. Furthermore, recent dollar weakness should provide a tailwind to first quarter earnings season and second quarter guidance, particularly relative to the fourth quarter results; and the decline in rates should benefit economic surprises. In short, I stand by our view that 5,500 on the S&P 500 should provide support for a tradable rally led by lower quality, higher beta stocks that have sold off the most, and it looks like it may have started on Friday. The more important question is whether such a rally is likely to extend into something more durable and mark the end of the volatility we’ve seen YTD? The short answer is – probably not. First, from a technical standpoint there has been significant damage to the major indices—more than what we witnessed in recent 10 per cent corrections, like last summer. More specifically, the S&P 500, Nasdaq 100, Russell 1000 growth and value indices have all traded straight through their respective 200-day moving averages, making these levels now resistance, rather than support. Meanwhile, many stocks are closer to a 20 per cent correction with the lower quality Russell 2000 falling below its 200 week moving average for the first time since the 2022 bear market. At a minimum, this kind of technical damage will take time to repair, even if we don’t get additional price degradation at the index level. In order to forecast a larger, sustainable recovery, it’s important to acknowledge what’s really been driving this correction. From my conversations with institutional investors, there appears to be a lot of focus on the tariff announcements and other rapid-fire policy announcements from the new administration. While these factors are weighing on sentiment and confidence, other factors started this correction in December. In our year ahead outlook, we forecasted a tougher first half of the year for several reasons. First, stocks were extended on a valuation basis and relative to the key macro and fundamental drivers like earnings revisions, which peaked in early December. Second, the Fed went on hold in mid-December after aggressively cutting rates by 100 basis points over the prior three months. Third, we expected AI capex growth to decelerate this year and investors now have the DeepSeek development to consider. Add in immigration enforcement, the Department of Government Efficiency (DOGE) exceeding expectations, and tariffs – and it’s no surprise that growth expectations are hitting equities in the form of lower multiples. As noted, we highlighted these growth headwinds in December and have been citing a first half range for the S&P 500 of 5500-6100 with a preference for large cap quality. Finally, President Trump has recently indicated he is not focused on the stock market in the near term as a barometer of his policies and agenda. Perhaps more than anything else, this is what led to the most recent technical breakdown in the S&P 500. In my view, it will take more than just an oversold market to get more than a tradable rally. Earnings revisions are the most important variable and while we could see some seasonal strength or stabilization in revisions, we believe it will take a few quarters for this factor to resume a positive uptrend. As noted in our outlook, the growth-positive policy changes like tax cuts, de-regulation, less crowding out and lower yields could arrive later in the second half of the year – but we think that’s too far away for the market to contemplate for now. Finally, while the Trump put apparently doesn’t exist, the Fed put is alive and well, in our view. However, that will likely require conditions to get worse either on growth, especially labor, or in the credit and funding market, neither of which would be equity-positive, initially. Bottom line, a short-term rally from our targeted 5500 level is looking more likely after Friday’s price action. It’s also being led by lower quality stocks. This helps support my secondary view that the current rally is unlikely to lead to new highs until the numerous growth headwinds are reversed or monetary policy is loosened once again. The transition from a government heavy economy to one that is more privately driven should ultimately be better for many stocks. But the path is going to take time and it is unlikely to be smooth. Thanks for listening. If you enjoy the podcast, leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.
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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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