Thoughts on the Market

Discussion of why easier fiscal, monetary, and regulatory policy could keep valuations elevated. Examination of central bank rate paths and how lower or slower-than-expected moves might support risk-taking. Consideration of markets’ current pricing on inflation, rate volatility, the dollar, and credit spreads. A look at geopolitical and policy risks that could change the outlook.

Marina Zavolock, Chief European Equity Strategist at Morgan Stanley, offers concise market analysis. She discusses Europe vs US performance, AI adoption as a key earnings catalyst, rising M&A and policy shifts, sector calls like banks, defense and AI infrastructure, and why stock-picking matters in 2026.

A breakdown of near-term U.S. government funding risks and why a brief shutdown is plausible. A comparison of this risk with other policy threats like Venezuela and Iran. A timeline for a likely short lapse in funding and how negotiations and calendar constraints drive it. Discussion of historical economic and market responses and why effects tend to be modest and reversible.

Praveen Choudhary, Morgan Stanley’s head of Asian Gaming & Lodging and Hong Kong/India real estate research, explains why Hong Kong property is turning. He highlights a rare synchronized upturn across residential, Central office rents, and retail. He points to stamp duty cuts, stronger mainland buyer activity, and demographic and monetary tailwinds driving the rebound.

Our Global Head of Thematic and Sustainability Research Stephen Byrd discusses Morgan Stanley’s key investment themes for this year and how they’re influencing markets and economies.Read more insights from Morgan Stanley.----- Transcript -----Welcome to Thoughts on the Market. I’m Stephen Byrd, Morgan Stanley’s Global Head of Thematic and Sustainability Research. Today – the four key themes that will define markets and economies in 2026. It’s Monday, January 26th, at 10am in New York. If you're feeling overwhelmed by all the market noise and constant swings, you're not alone. One of the biggest hurdles for investors today is really figuring out how to tune out the short-term ups and downs and focus on the bigger trends that are truly changing the world. At Morgan Stanley Research, thematic analysis has long been central to how we think about markets, especially in periods of extreme volatility. A thematic lens helps us step back from the noise and really focus on the structural forces reshaping economies, industries, and societies. And that perspective has delivered results. In 2025, on average, our thematic stock categories outperformed the MSCI World Index by 16 percent and the S&P 500 by 27 percent. And this really reinforces our view that long-term themes can be powerful drivers of alpha. For 2026, our framework is built around four key themes: AI and Tech Diffusion, The Future of Energy, The Multipolar World, and Societal Shifts. Now three of these themes carry forward from last year, but each has evolved meaningfully – and one of our themes represents a major expansion on our prior work. First, the AI and Tech Diffusion theme remains central, but has clearly matured and evolved. In 2025, the focus was on rapid capability gains. In 2026, the emphasis shifts to non-linear improvement and the growing gap between AI capabilities and real-world adoption. A critical evolution is our view that compute demand is likely to exceed supply meaningfully, even as software and hardware become more efficient. As AI use cases multiply and grow more complex, the infrastructure – especially computing power – emerges as a defining constraint. Next is The Future of Energy, which has taken on new urgency. Energy demand in developed markets, long assumed to be flat, is now inflecting upwards. And this is driven largely by AI infrastructure and data centers. Compared with 2025, this theme has expanded from a supply conversation into one focused on policy. Rising energy costs are becoming increasingly visible to consumers, elevating a concept we call the ‘politics of energy.’ Policymakers are under pressure to prioritize low-cost, reliable energy, even when trade-offs exist, and new strategies are emerging to secure power without destabilizing grids or increasing household bills. Our third theme, The Multipolar World, also builds on last year but with sharper edges. Globalization continues to fragment as countries prioritize security, resilience, and national self-sufficiency. Since 2025, competition has become more clearly defined by access to critical inputs – such as energy, materials, defense capabilities, and advanced technology. Notably, the top-performing thematic categories in 2025 were driven by Multipolar World dynamics, underscoring how geopolitical and industrial shifts are translating directly into market outcomes. Now the biggest evolution comes with our fourth key theme – which we call Societal Shifts – and this expands on our prior work on Longevity. This new framework captures a wider range of forces shaping societies globally: AI-driven labor disruption and evolution, aging populations, changing consumer preferences, the K-economy, the push for healthy longevity, and challenging demographics across many regions. These shifts increasingly influence government policy, corporate strategy, and economic growth – and their impact spans far more industries than investors often expect. Now crucially these themes don’t operate in isolation. AI accelerates energy demand. Energy costs shape politics. Politics influence supply chains and national priorities. And all of this feeds directly into societal outcomes: from employment to consumption patterns. The power of thematic investing lies in understanding these intersections, where multiple forces reinforce one another in underappreciated ways. So to sum it up, the most important investment questions for 2026 aren’t just about growth rates. They’re about structure. Understanding how technology, energy, geopolitics, and society evolve together may be the clearest way to see where opportunity, and risk, are truly heading. 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.

Jens Eisenschmidt, Morgan Stanley’s Europe chief, discusses uneven euro‑area growth and German fiscal levers. Chetan Ahya, Morgan Stanley’s Asia chief, focuses on China’s deflation risks, RMB policy and export‑led recovery. Michael Gapen, Morgan Stanley’s U.S. chief, covers consumer spending, AI‑led CapEx and how investment and tariffs shape growth.

Michael Gapen, Chief U.S. Economist at Morgan Stanley, shares insights on the U.S. growth outlook and inflation dynamics, predicting modest growth but cautioning against over-reliance on AI-driven expansion. Chetan Ahya, Chief Asia Economist, discusses Japan's macro outlook and how currency fluctuations could force the Bank of Japan to adjust its policies. Jens Eisenschmidt, Chief Europe Economist, analyzes upcoming inflation data in the eurozone and argues that wage disinflation could lead to European Central Bank rate cuts as early as this year.

President Trump's speech at Davos captured investor attention with speculation on housing affordability and tariffs. Insights reveal concerns over the strained U.S.-EU trade framework, alongside reassurances that force regarding Greenland is off the table. Market reactions unfolded as risks were reevaluated, although no groundbreaking housing policies emerged. Legislative hurdles dampen the likelihood of significant congressional action. The hosts advise tracking ongoing policy developments and market responses for future investment strategies.

The podcast dives into recent U.S. government measures affecting the housing market. A notable $200 billion buy program from Fannie Mae and Freddie Mac is discussed, highlighting its limited effects on mortgage rates and home prices. Initial market reactions saw a minor dip in rates, but uncertainties remain about the program's specifics. While some affordability gains are expected, overall home price forecasts stay unchanged. The hosts also explore other policy options and the potential positive effects on securitized credit.

In this insightful discussion, Marina Zavolock, Chief European Equity Strategist at Morgan Stanley, shares her expertise on European equities and their surprising outperformance compared to the U.S. since the elections. She explores the sustainability of this trend amid lower earnings growth and highlights compelling bull themes such as AI adoption and rising M&A activity. Zavolock emphasizes the importance of stock picking, naming favored sectors like banks and defense, while advising against investing in traditional industries with less growth potential.