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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
  • Investors Monitor Washington’s Ticking Budget Clock

    Investors Monitor Washington’s Ticking Budget Clock
    Sep 26 2025
    Our Global Head of Thematic and Fixed Income Research Michael Zezas and our U.S. Public Policy Strategist Ariana Salvatore unpack the market and economic implications of a looming government shutdown.Read more insights from Morgan Stanley.----- Transcript ----- Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income Research and Public Policy Strategy. Ariana Salvatore: And I'm Ariana Salvatore, U.S. Public Policy Strategist. Michael Zezas: Today, our focus is once again on Washington – as the U.S. government fiscal year draws to a close and a potential government shutdown hangs in the balance.It's Friday, September 26th at noon in New York. Ariana we're just four days away from the end of the month. By October 1st, Congress needs to have a funding agreement in place, or we risk a potential shutdown. To that point, Democrats and Republicans seem far apart on the deal to avoid a shutdown. What's the state of play? Ariana Salvatore: Right now, Republicans are pushing for what's called a clean continuing resolution. That's a bill that would keep funding levels flat while putting more time on the clock for negotiators to hammer out full fiscal year appropriations. And the CR they're proposing lasts until November 21st. Democrats, conversely, are seeking to tie government funding to legislative compromise in other areas, including the enhanced Obamacare or ACA subsidies, and potential spending cuts to Medicaid from the One Big Beautiful Bill Act, which Republicans signed earlier this year. Remember, even though Republicans hold a majority in both chambers, this has to be a bipartisan agreement because of exactly how thin those margins of control are. But Mike, it seems as we get closer, investors are asking more infrequently whether or not a shutdown is happening – and are more interested in how long it could potentially last. What are we thinking there? Michael Zezas: So, it's hard to know. Shutdowns typically last a few days, but sometimes there are short as a few hours, sometimes as long as a few weeks. Historically, shutdowns tend to end when the economic risk, and therefore the attached political risk gets real. So, consider the 35-day shutdown under President Trump in this first term. The compromise that ended it came quickly after there was an air traffic stoppage at New York's LaGuardia Airport – when 10 air traffic controllers who weren't being paid failed to show up for work. So, we think the more relevant question for investors is what it all means for economic activity. Our economists have historically argued that a government shutdown takes something like 0.1 percent off of GDP every single week it's happening. However, once employees go back to work, a lot of times that effect fades pretty quickly. Now it's important to understand that this time around there could be a wrinkle. The Trump administration is talking about laying employees off on a durable basis during the shutdown. And that's something that maybe would have more of a lasting economic impact. It's hard to know how credible that potential is. There would almost certainly be court challenges, but it's something we have to keep our eye on that could create a more meaningful economic consequence. Ariana Salvatore: That's right. And there are also some really important indirect macroeconomic effects here. Like delayed data releases. Much of the federal workforce, to your point, will not be working through a shutdown – which could impede the collection and the release of some key data points that matter for markets like labor and inflation data, which come from BLS, the Bureau of Labor Statistics. So, assuming we're in this scenario with a longer-term shutdown. Obviously, we're going to see an increase in uncertainty, especially as investors are looking toward each data print for guidance on what the Fed's next move might be. What do we expect the market reaction to all of this to be? Michael Zezas: Well, the obvious risk here is that markets might have to price in some weaker growth potential. So, you could see treasury yields fall. You could see equity markets wobble; be a bit more volatile. It could be that those effects are temporary, though. And that volatility could easily be amplified by having to price risk in the market without the data you were talking about, Ariana. So, investors could overreact to anecdotal signals about the economy or underweight some real risks that they're not seeing. So, that's why even a short shutdown can have outsized market effects. Well, Ariana, thanks for taking the time to talk.Ariana Salvatore: Great speaking with you, Mike. Michael Zezas: And to our audience, thanks for listening. If you enjoy Thoughts on the Market, please leave us a review wherever you get this podcast and tell your friends about it. We want everyone to listen.
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    5 m
  • When Will the U.S. Housing Market Reactivate?

    When Will the U.S. Housing Market Reactivate?
    Sep 25 2025
    Our Co-Head of Securitized Products Research James Egan joins our Chief Economic Strategist Ellen Zentner to discuss the recent challenges facing the U.S. housing market, and the path forward for home buyers and investors. Read more insights from Morgan Stanley.----- Transcript ----- James Egan: Welcome to Thoughts on the Market. I'm James Egan, U.S. Housing Strategist and Co-Head of Securitized Products Research for Morgan Stanley. Ellen Zentner: And I'm Ellen Zentner, Chief Economic Strategist and Global Head of Thematic and Macro Investing at Morgan Stanley Wealth Management. James Egan: And today we dive into a topic that touches nearly every American household, quite literally. The future of the U.S. housing market. It's Thursday, September 25th at 10am in New York. So, Ellen, this conversation couldn't be timelier. Last week, the Fed cut interest rates by 25 basis points, and our chief U.S. Economist, Mike Gapen expects three more consecutive 25 basis point cuts through January of next year. And that's going to be followed by two more 25 basis point cuts in April and July. But mortgage rates, they're not tied to fed funds. So even if we do get 6.25 bps cuts by the end of 2026, that in and of itself we don't think is going to be sufficient to bring down mortgage rates, though other factors could get us there.Taking all that into account, the U.S. housing market appears to be a little stuck. The big question on investors' minds is – what's next for housing and what does that mean for the broader economy? Ellen Zentner: Well, I don't like the word stuck. There's no churn in the housing market. We want to see things moving and shaking. We want to see sellers out there. We want to see buyers out there. And we've got a lot of buyers – or would be buyers, right? But not a lot of sellers. And, you know, the economy does well when things are moving and shaking because there's a lot of home related spending that goes on when we're selling and buying homes. And so that helps boost consumer spending. Housing is also a really interest rate sensitive sector, so you know, I like to say as goes housing, so goes the business cycle. And so, you don't want to think that housing is sort of on the downhill slide or heading toward a downturn [be]cause it would mean that the entire economy is headed toward a downturn. So, we want to see housing improve here. We want to see it thaw out. I don't like, again, the word stuck, you know. I want to see some more churn. James Egan: As do we, and one of the reasons that I wanted to talk to you today is that you are observing all of these pressures on the U.S. housing market from your perspective in wealth management. And that means your job is to advise retail clients who sometimes can have a longer investment time horizon. So, Ellen, when you look at the next decade, how do you estimate the need for new housing units in the United States and what happens if we fall short of these estimated targets? Ellen Zentner: Yeah, so we always like to say demographics makes the world go round and especially it makes the housing market go round. And we know that if you just look at demographic drivers in the U.S. Of those young millennials and Gen Z that are aging into their first time home buying years – whether they're able to immediately or at some point purchase a home – they will want to buy homes. And if they can't afford the homes, then they will want to maybe rent those single-family homes. But either way, if you're just looking at the sheer need for housing in any way, shape, or form that it comes, we're going to need about 18 million units to meet all of that demand through 2030. And so, when I'm talking with our clients on the wealth management side, it's – Okay, short term here or over the next couple of years, there is a housing cycle. And affordability is creating pressures there. But if we look out beyond that, there are opportunities because of the demographic drivers – single family rentals, multi-family. We think modular housing can be something big here, as well. All of those solutions that can help everyone get into a home that wants to be. James Egan: Now, you hit on something there that I think is really important, kind of the implications of affordability challenges. One of the things that we've been seeing is it's been driving a shift toward rentership over ownership. How does that specific trend affect economic multipliers and long-term wealth creation? Ellen Zentner: In terms of whether you're going to buy a single-family home or you're going to rent a single-family home, it tends to be more square footage and there's more spending that goes on with it. But, of course, then relatively speaking, if you're buying that single family home versus renting, you're also going to probably spend a lot more time and care on that home while you're there, which means more money into the economy. In terms of wealth creation, we'd ...
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    15 m
  • Capital Markets Pick Up as U.S. Policy Settles

    Capital Markets Pick Up as U.S. Policy Settles
    Sep 24 2025

    Our Global Head of Fixed Income Research and Public Policy Strategy, Michael Zezas, examines growth in IPOs and M&A amid greater certainty around trade, immigration and regulation.

    Read more insights from Morgan Stanley.


    ----- Transcript -----


    Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income Research and Public Policy Strategy.

    Today, let’s talk about how changes in U.S. policy are shaping the markets in 2025—and why we’re seeing a pickup in capital markets activity.

    It’s Wednesday, September 24th at 10:30am in New York.

    At the start of this year, one thing investors agreed on was that with President Trump back in office, U.S. policy would shift in big ways. But there was less agreement about what those changes would mean for the economy and markets. Our team built a framework to help investors track changes in trade, fiscal, immigration, and regulatory policy – focusing on the sequencing and severity of these choices. That lens remains useful. But now, 250 days into the administration, we think it’s more valuable to look at the impacts of those shifts, the durable policy signals, and how markets are pricing it all.

    Let’s start with policy uncertainty. It is still high, but it’s come down from the peaks we saw earlier this year. For example, the White House has made deals with key trading partners, which means tariff escalation is on pause for now. Of course, things could change if those partners don’t meet their commitments, but any fallout may take a while to show up. Even if courts challenge new tariffs, the administration has ways to bring them back. And with Congress divided, most big policy moves are coming from the executive branch, not lawmakers.

    With policy changes slowing down, it’s worth reflecting on a new durable consensus in Washington. For years, both parties mostly agreed on lowering trade barriers and keeping the government out of private business. But it seems that’s changed. Industrial policy—where the government takes a more active role in shaping industries—is now a key part of U.S. strategy. Tariffs that started under Trump stayed under Biden, and even current critics focus more on how tariffs are applied than whether they should exist at all. You see this shift in areas like healthcare, energy, and especially technology. Take semiconductors. The CHIPS act under Biden aimed to build a secure domestic supply chain while Trump's approach includes licensing fees on exports to China and considering more government stakes in companies.

    So, why is capital markets activity picking up then? There are several drivers.

    First, less uncertainty about policy means companies feel more confident making big decisions. Earlier this year, activity like IPOs and mergers was unusually low compared to the size of the economy. But corporate balance sheets are strong—companies have plenty of cash, and private investors are looking to put money to work. Add in new needs for investment driven by artificial intelligence and technology upgrades, and you get a recipe for more deals.

    Our corporate clients have told us that having a smaller range of possible policy outcomes helped them move forward with strategic plans. Now, we’re seeing the results: IPOs are up 68 percent year-on-year, and M&A is up 35 percent. Those numbers are coming off low levels, so the pace may slow, but we expect growth to continue for a while.

    This all syncs up with other trends in the market. For example, we continue to see steeper yield curves and a weaker dollar. Why? Well, trade policy is likely to stay restrictive. The fiscal policy trajectory appears locked in as the President and Congress have already made the fiscal choices that they prefer. And the Federal Reserve appears willing to tolerate more inflation risk in order to support growth. That means the dollar could keep falling and longer maturity bond yields could be sticky, even as shorter maturity yields decline to reflect the more dovish Fed.

    As always, it's important to watch how these trends interact with the broader economy, and that will be important to how we start deliberating on our outlook for 2026. We'll keep analyzing and share more with you as we go.

    Thanks for listening. If you enjoy Thoughts on the Market, please leave us a review and tell your friends about the podcast. We want everyone to listen.
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    4 m
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