The Other Policy Choices That Matter

5 snips

Mar 12, 2025

The discussion highlights the often-overlooked effects of U.S. policy beyond tariffs. Investors are urged to consider the potential overvaluation of clean energy stocks amid legislative uncertainties. Additionally, the impact of Medicaid cuts and expected delays in FDA approvals are explored, revealing how these elements could shape market strategies. This broad perspective encourages a more nuanced understanding of investment dynamics in today's climate.

Ask episode

AI Snips

Chapters

Transcript

Episode notes

ADVICE

Beyond Tariffs

Investors should look beyond tariffs and consider sectoral impacts of U.S. policy choices.
Focus on areas like clean energy, managed care, and medical technology.

INSIGHT

IRA Repeal Unlikely

Clean energy stocks might overestimate the likelihood of an Inflation Reduction Act (IRA) repeal.
Republican support for some IRA energy tax credits makes full repeal less probable.

INSIGHT

Managed Care Impact

Potential Medicaid program cuts are manageable for managed care companies.
These cuts are unlikely due to insufficient Republican support.

Get the Snipd Podcast app to discover more snips from this episode

Get the app

While tariffs continue to dominate headlines, our Global Head of Fixed Income Research and Public Policy Strategy Michael Zezas suggests investors should also focus on the sectoral impacts of additional U.S. policy choices.

----- Transcript -----

Welcome to Thoughts on the Market. I’m Michael Zezas, Morgan Stanley’s Global Head of Fixed Income Research and Public Policy Strategy. Today, we’ll be talking about U.S. policy impacts on the market that aren’t about tariffs.

It’s Wednesday, March 12th, at 10:30am in New York.

If tariffs are dominating your attention, we sympathize. Again this week we heard the U.S. commit to raising tariffs and work out a resolution, this time all within the span of a workday.

These twists and turns in the tariff path are likely to continue, but in the meantime it might make sense for investors to take some time to look away – instead focusing on some key sectoral impacts of U.S. policy choices that our Research colleagues have called out.

For example, Andrew Percoco, who leads our Clean Energy Equity Research team, calls out that clean Energy stocks may be pricing in too high a probability of an Inflation Reduction Act (IRA) repeal. He cites a letter signed by 18 Republicans urging the speaker of the house to protect some of the energy tax credits in the IRA. That’s a good call out, in our view. Republicans’ slim majority means only a handful need to oppose a legislative action in order to block its enactment.

Another example is around Managed Care companies. Erin Wright, who leads our Healthcare Services Research Effort, analyzed the impact to companies of cuts to the Medicaid program and found the impact to their sector’s bottom line to be manageable. So, keeping an in-line view for the sector. We think the sector won’t ultimately face this risk, as, like with the IRA, we do not expect there to be sufficient Republican votes to enact the cuts.

Finally, Patrick Wood, who leads the Medtech team, caught up with a former FDA director to talk about how staffing cuts might affect the industry. In short, expect delays in approvals of new medical technologies. In particular, it seems the risk is most acute in the most cutting edge technologies, where skilled FDA staff are hard to find. Neurology and brain/computer interfaces stand out as areas of development that might slow in this market sector.

All that said, if you just can’t turn away from tariffs, we reiterate our guidance here: Tariffs are likely going up, even if the precise path is uncertain. And whether or not you’re constructive on the goals the administration is attempting to achieve, the path to achieving them carries costs and execution risk. Our U.S. economics team’s recent downgrade of the U.S. growth outlook for this and next year exemplifies this.

Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.