Thoughts on the Market

What If Rates Are Higher for Longer?

May 6, 2024
Lisa Shalett, member of Morgan Stanley’s Wealth Management Division, and Andrew Sheets discuss the potential impact of higher interest rates on various asset classes, focusing on credit markets. They also explore the dynamics and disparities in the credit markets, unintended risks of high concentration in mega-cap tech stocks, and navigating uncertainties in economic scenarios and stock performance.
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INSIGHT

Higher Rates and Credit Spreads

  • The tightest corporate credit spreads in the last 40 years occurred in the mid-90s during economic strength, not during periods of quantitative easing or pre-crisis leverage.
  • This suggests a stable growth environment, even with higher rates, may be preferable for credit markets compared to weaker growth with lower rates.
INSIGHT

Haves and Have-Nots in Credit Markets

  • This business cycle has seen a divide between large-cap companies insensitive to interest rates and smaller, unprofitable companies sensitive to rate changes.
  • Lisa Shalett asks how this impacts credit markets and if certain sectors show concern.
INSIGHT

Micro vs. Macro Market Dynamics

  • Despite macroeconomic factors dominating headlines, current markets show high micro-level differentiation.
  • Credit markets demonstrate this by pricing C-rated issuers significantly higher than single-B issuers, indicating risk assessment based on individual company strength.
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