Thoughts on the Market

Dive into the intriguing world of credit markets, where resilience reigns despite macroeconomic turbulence. Discover how shifting sentiments and policy uncertainties shape credit fundamentals. The discussion reveals potential vulnerabilities that could challenge this stability, while emphasizing strong investor demand and solid fundamentals. Get a glimpse of how credit remains a low beta asset class, bucking trends seen in equities and treasury yields. It's a fascinating look at what keeps credit markets steady in uncertain times.

The podcast dives into the recent U.S. equity market correction, highlighting investor sentiment and the technical damage to major indices. It explores potential support levels and discusses the likelihood of a tradable rally, especially as bearish positioning begins to shift. Additionally, the impact of recent dollar weakness and declining rates on first-quarter earnings is examined, raising questions about the sustainability of any rally amidst ongoing volatility.

As U.S. policies create market turbulence, equity and credit markets react differently. Credit has shown remarkable resilience, down only 1% compared to a 10% drop in equities. Andrew Sheets highlights how business confidence and deal-making are affected by uncertain tariff policies. Investors are urged to pay attention to growth data as an indicator of future trends. The podcast dives into whether the strength in credit markets can offer any solace to those watching the stock market's decline.

Our Chief Asia Economist Chetan Ahya discusses the early indications of India’s economic recovery and why the country looks best-positioned in the region for growth.----- Transcript -----Welcome to Thoughts on the Market. I’m Chetan Ahya, Morgan Stanley’s Chief Asia Economist. Today I’ll be taking a look at the Indian economy amidst escalating trade tensions in Asia and around the globe. It’s Thursday, March 13, at 2pm in Hong Kong.Over the last few months, investors have been skeptical about India’s growth narrative. Investors – like us – have been caught off-guard by the surprising recent slowdown in India’s growth. With the benefit of hindsight, we can very clearly attribute the slowdown to an unexpected double tightening of fiscal and monetary policy. But India seems to be on its way to recovery. Green shoots are already emerging in recent data. And we believe the recovery will continue to firm up over the coming months. What makes us so confident in our outlook for India? We see several key factors behind this trend: First, fiscal policy’s turning supportive for growth again. The government has been ramping up capital expenditure for infrastructure projects like roads and railways, with growth accelerating markedly in recent months. They have also cut income tax for households which will be effective from April 2025. Second, monetary policy easing across rates, liquidity, and the regulatory front. With CPI inflation recently printing at just 3.6 per cent which is below target, we believe the central bank will continue to pursue easy monetary policy. And third, moderation in food inflation will mean real household incomes will be lifted. Finally, the strength in services exports. Services exports include IT services, and increasingly business services. In fact, post-COVID India’s had very strong growth in business services exports. And the key reason for that is, post-COVID, I think businesses have come to realize that if you can work from home, you can work from Bangalore. India's services exports have nearly doubled since December 2020, outpacing the 40 per cent rise in goods exports over the same period. This has resulted in services exports reaching $410 billion on an annualized basis in January, almost equal to the $430 billion of goods exports. Moreover, India continues to gain market share in services exports, which now account for 4.5 per cent of the global total, up from 4 per cent in 2020. To be sure there are some risks. India does face reciprocal tariff risks due to its large trade surplus with the US and high tariff rates that India imposes select imports from the U.S. But we believe that by September-October this year, India can reach a trade deal with the U.S. In any case, India's goods exports-to-GDP ratio is the lowest in the region. And even if global trade slows down due to tariff uncertainties, India's economy won't be as severely affected. In fact, it could potentially outperform the other economies in the region.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.

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.

Dive into the exciting future of AI as experts discuss its revolutionary impact on industries like tech, media, and automotive. Discover how companies like eBay and Salesforce are leveraging AI to transform operations. Get a glimpse of the advancements in autonomous vehicles, particularly with Waymo, and explore the rise of humanoid robotics. The shift from human-driven to self-driving cars is set to reshape daily life and entire industries, making this a must-listen for anyone curious about the future of technology.

Our Head of U.S. IT Hardware Erik Woodring gives his key takeaways from Morgan Stanley’s Technology, Media and Telecom (TMT) conference, including why there appears to be a long runway ahead for AI infrastructure spending, despite macro uncertainty. ----- Transcript -----Welcome to Thoughts on the Market. I’m Erik Woodring, Morgan Stanley’s Head of U.S. IT Hardware Research. Here are some reflections I recorded last week at Morgan Stanley’s Technology, Media, and Telecom Conference in San Francisco. It’s Monday, March 10th at 9am in New York. This was another year of record attendance at our TMT Conference. And what is clear from speaking to investors is that the demand for new, under-discovered or under-appreciated ideas is higher than ever. In a stock-pickers’ market – like the one we have now – investors are really digging into themes and single name ideas. Big picture – uncertainty was a key theme this week. Whether it’s tariffs and the changing geopolitical landscape, market volatility, or government spending, the level of relative uncertainty is elevated. That said, we are not hearing about a material change in demand for PCs, smartphones, and other technology hardware. On the enterprise side of my coverage, we are emerging from one of the most prolonged downcycles in the last 10-plus years, and what we heard from several enterprise hardware vendors and others is an expectation that most enterprise hardware markets – PCs , Servers, and Storage – return to growth this year given pent up refresh demand. This, despite the challenges of navigating the tariff situation, which is resulting in most companies raising prices to mitigate higher input costs. On the consumer side of the world, the demand environment for more discretionary products like speakers, cameras, PCs and other endpoint devices looks a bit more challenged. The recent downtick in consumer sentiment is contributing to this environment given the close correlation between sentiment and discretionary spending on consumer technology goods. Against this backdrop, the most dynamic topic of the conference remains GenerativeAI. What I’ve been hearing is a confidence that new GenAI solutions can increasingly meet the needs of market participants. They also continue to evolve rapidly and build momentum towards successful GenAI monetization. To this point, underlying infrastructure spending—on servers, storage and other data center componentry – to enable these emerging AI solutions remains robust. To put some numbers behind this, the 10 largest cloud customers are spending upwards of [$]350 billion this year in capex, which is up over 30 percent year-over-year. Keep in mind that this is coming off the strongest year of growth on record in 2024. Early indications for 2026 CapEx spending still point to growth, albeit a deceleration from 2025. And what’s even more compelling is that it’s still early days. My fireside chats this week highlighted that AI infrastructure spending from their largest and most sophisticated customers is only in the second inning, while AI investments from enterprises, down to small and mid-sized businesses, is only in the first inning, or maybe even earlier. So there appears to be a long runway ahead for AI infrastructure spending, despite the volatility we have seen in AI infrastructure stocks, which we see as an opportunity for investors. I’d just highlight that amidst the elevated market uncertainty, there is a prioritization on cost efficiencies and adopting GenAI to drive these efficiencies. Company executives from some of the major players this week all discussed near-term cost efficiency initiatives, and we expect these efforts to both help protect the bottom line and drive productivity growth amidst a quickly changing market backdrop. 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.

The discussion highlights the ongoing shifts in global trade dynamics, emphasizing the transition to a multipolar world. Key topics include the impact of recent U.S. policy changes on tariffs and international relations. Investors face challenges amidst soaring policy uncertainty, particularly in sectors like European defense and fixed income markets. The hosts also reflect on the shifting role of the U.S. in international affairs, which underscores the complexity of navigating today's economic landscape.

The discussion dives into the remarkable rise of technology in the investment-grade market, now nearing 10%. It addresses why tech used to be a small player in this space and what has fueled its growth. Attention shifts to AI, revealing increasing capital needs from major tech firms and their innovative funding strategies. The podcast also explores bespoke capital solutions in private credit, particularly for the semiconductor sector. Finally, it examines the complexities of corporate decision-making influenced by the shifting economic landscape.

The discussion dives into the significance of Federal Reserve rate changes on the markets. Andrew Sheets argues that frequent cuts may not be as beneficial as investors believe. Instead, he emphasizes the need for stability in monetary policy. Other factors, like US trade and immigration policies, play a crucial role in shaping market conditions. The conversation challenges listeners to reconsider their focus on the Fed’s moves and the potential advantages of a more consistent approach.