Thoughts on the Market

Mike Wilson discusses the resilience of stocks amid challenges like Fed rates and a potential government shutdown. He highlights the broadening growth seen during earnings season, with the median stock achieving its best earnings growth in four years. There's a notable improvement in earnings revisions, particularly in sectors like software and healthcare. While market reactions to the Fed's stance remain tense, Wilson suggests that clarity on these issues could bring relief, even as volatility lingers.

Dive into the complexities of the recent Fed rate cut, which saw unexpected dissent among committee members. Discover how strong economic activity clashes with weak labor data, complicating future policy decisions. Learn about the potential impact of a U.S. government shutdown on crucial data releases and how this could influence December's financial landscape. The discussion also tackles the outlook for 2026 amidst concerns over growth and investor sentiment as year-end holidays approach.

The U.S. Supreme Court is deliberating on the legality of tariffs imposed during the Trump administration. A ruling could significantly impact markets by potentially rolling back recent tariff hikes. Experts are divided on how the court will decide, complicating predictions. Even if the International Emergency Economic Powers Act is challenged, other presidential authorities could maintain tariffs. The discussion also includes the possibility of shifting to Section 232 tariffs, which may stabilize effective rates amid market volatility.

In a thought-provoking discussion, Stephen Byrd, Global Head of Thematic Research at Morgan Stanley, and Jeff McMillan, Head of Firmwide AI, dive into AI's transformative effect on the workforce. They explore how approximately 90% of jobs will feel AI's influence, prompting widespread concern and potential job loss. Yet, both guests express optimism about the opportunities for upskilling and the rising value of domain expertise. They emphasize the importance of human strengths in building relationships and advise students to embrace generative AI, turning challenges into new avenues for growth.

Join Stephen Byrd, Global Head of Thematic Research at Morgan Stanley, and Jeff McMillan, Head of Firmwide AI, as they explore the transformative effects of AI on various industries. Stephen reveals an estimated $900 billion in net benefits for S&P 500 companies and discusses surprising winners like labor-intensive sectors. Jeff shares insights on banking use cases, focusing on efficiencies in document processing and the challenges of aligning skills with AI capabilities. Don’t miss their forward-looking analysis on AI’s accelerating adoption timeline!

Explore how recent U.S.-China trade agreements have positively impacted markets, highlighting a significant de-escalation in tensions. The Fed's cautious stance on interest rates leads to a narrow leadership in equities, with an emphasis on quality investments. Discover the potential for earnings growth supported by recent surprises, and how funding-market stress might create year-end buying opportunities. Gain insights into investment strategies as the market navigates these evolving macroeconomic conditions.

Our Japan Financials Analyst Mia Nagasaka discusses how the country’s new stablecoin regulations and digital payments are set to transform the flow of money not only locally, but globally.Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I’m Mia Nagasaka, Head of Japan Financials Research at Morgan Stanley MUFG Securities. Today – Japan’s stablecoin revolution and why it matters to global investors. It’s Friday, October 31st, at 4pm in Tokyo. Japan may be late to the crypto market. But its first yen-denominated stablecoin is just around the corner. And it has the potential to quietly reshape how digital money moves across the country and globally. You may have heard of digital money like Bitcoin. It’s significantly more volatile than traditional financial assets like stocks and bonds. Stablecoins are different. They are digital currencies designed to maintain a stable value by being pegged to assets such as the yen or U.S. dollar. And in June 2023, Japan amended its Payment Services Acts to create a legal framework for stablecoins. Market participants in Japan and abroad are watching closely whether the JPY stablecoin can establish itself as a major global digital currency, such as Tether. Stablecoins promise to make payments faster, cheaper, and available 24/7. Japan’s cashless payment ratio jumped from about 30 percent in 2020 to 43 percent in 2024, and there’s still room to grow compared to other countries. The government’s push for fintech and digital payments is accelerating, and stablecoins could be the missing link to a truly digital economy. Unlike Bitcoin or other cryptocurrencies, stablecoins are designed to suppress price volatility. They’re managed by private companies and backed by assets—think cash, government bonds, or even commodities like gold. Industry watchers think stablecoins can make digital payments as reliable as cash, but with the speed and flexibility of the internet. Japan’s regulatory approach is strict: stablecoins must be 100 percent backed by high-quality, liquid assets, and algorithmic stablecoins are prohibited. Issuers must meet transparency and reserve requirements, and monthly audits are standard. This is similar to new rules in the U.S., EU, and Hong Kong. What does this mean in practice? Financial institutions are exploring stablecoins for instant payments, asset management, and lending. For example, real-time settlement of stock and bond trades normally take days. These transactions could happen in seconds with stablecoins. They also enable new business models like Banking-as-a-Service and Web3 integration, although regulatory costs and low interest rates remain hurdles for profitability.Or think about SWIFT transactions, the backbone of international payments. Stablecoins will not replace SWIFT, but they can supplement it. Payments that used to take days can now be completed in seconds, with up to 80 percent lower fees. But trust in issuers and compliance with anti-money laundering rules are critical. There’s another topic on top of investors’ minds. CBDCs – Central Bank Digital Currencies. Both      stablecoins and CBDCs are digital. But digital currencies are issued by central banks and considered legal tender, whereas stablecoins are private-sector innovations. Japan is the world’s fourth-largest economy and considered a leader in technology. But it takes a cautious approach to financial transformation. It is preparing for a CBDC but hasn’t committed to launching one yet. If and when that happens, stablecoins and CBDCs can coexist, with the digital currency serving as public infrastructure and stablecoins driving innovation. So, what’s the bottom line? Japan’s stablecoin journey is just beginning, but its impact could ripple across payments, asset management, and even global finance. 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.

Healthcare takes center stage as analysts discuss its crucial role in the ongoing government shutdown negotiations. With ACA exchange enrollment booming and enhanced subsidies drawing millions, the stakes are high. They explore the potential fallout if subsidies expire, including skyrocketing premiums that could leave millions uninsured. Political divides on subsidy extensions create a complex bargaining landscape, while other pressing issues like military pay and Medicaid cuts loom large. It's a pivotal moment for healthcare in the U.S.

M&A activity is on the rise, with strong incentives fueling this momentum. Declining policy uncertainty and anticipated central bank rate cuts are boosting corporate confidence. There's over $4 trillion in private equity waiting to be deployed, driving urgent deal-making. Sectors like healthcare, biotech, and media are positioned for significant activity. With regional strengths highlighted, especially in Japan, the forecast suggests M&A volumes will continue to intensify in the coming months.

Analysts delve into the healthcare sector's rally, spurred by favorable macro conditions and a shifting regulatory landscape. They explore how recent U.S. manufacturing investments are reshaping supply chains and reducing tariff impacts. Patent expirations are driving a surge in M&A activity within the biotech space, while undervalued stocks attract investor interest amidst improved policy clarity. The discussion also touches on AI's transformative role in drug development, speeding trial processes and discovery.