Our analysts Serena Tang and Seth Carpenter discuss Morgan
Stanley’s out-of-consensus view on U.S. exceptionalism, and how
investors should position their portfolios given the current
market uncertainty.
Read more insights from Morgan Stanley.
----- Transcript -----
Seth: Welcome to Thoughts on the Market.
I'm Seth Carpenter, Morgan Stanley's Global Chief Economist.
Serena: And I'm Serena Tang, Morgan
Stanley's, Chief Global Cross-Asset Strategist.
Seth: Today, we're going to pick up the
conversation where we left it off, talking about our mid-year
outlook; but this time I get to ask Serena the questions.
It's Thursday, May 22nd at 10am in New York.
Serena, we're back for part two of this podcast. Let's jump in
where we left off. We've seen a lot of policy surprise in the
last six months. We've had a big sell off in the beginning of
April, in part inspired by all of this uncertainty.
What are you telling clients? What do you think investors should
be doing? How should they be positioning their portfolios in the
current circumstances?
Serena: So, we are recommending going
overweight in U.S. equities and going overweight in core fixed
income like U.S. treasuries and like investment grade corporate
credit. And we have a very strong preference for U.S. over rest
of the world assets, except the dollar. Now I think for us, the
main message is that you have global growth slowing, which is
what you talked about yesterday.
But you know, risky assets can look past the low growth and do
well, while treasuries can look forward to the many Fed cuts you
guys are expecting in 2026 and rally. But if I look at valuations
that does suggest equities and credit have completely, almost
priced out, growth slowdown odds. Meaning that I think there
is still some downside and we'd recommend quality across the
board.
Seth: In your judgment then, looking around
the world at all the different asset classes, how well, or
perhaps how poorly, are those asset classes priced for the sort
of macro views that we were just discussing?
Serena: So I think the market that’s
probably least priced for the slowing economy that you and
your team have been forecasting is really in the government
bond space. I think the prospect of a lot more Fed cuts than what
is currently priced into the market will lower government bond
yields, particularly starting in 2026.
As you know, our rates team has a target of 3.45 percent for U.S.
Treasury 10-year yields, and 2.6 percent for U.S. Treasury
two-year yields. Meaning that we also get a steeper curve by this
time next year. And this translates to more than 10 percent of
total returns for U.S. Treasuries – very attractive; in large
part because the markets aren't priced for the Fed scenario that
you and your team are forecasting.
Seth: Let me, then push a little bit on one
of the things that I've been talking to clients about, or at
least been asked about, which is the dollar. The role of the
dollar? U.S. exceptionalism? Is it real?
Serena: Yeah that's a great question
because I think this is where we are the most out of consensus.
If you've noticed, all of our views right now really line up as
us being pretty constructive on U.S. dollar assets. Like at a
time when everyone's still really debating the end of U.S.
exceptionalism. And we really push back against the idea that
foreign investors would or should abandon U.S. assets
significantly.
There are very few alternatives to U.S. dollar assets right now.
I mean, like if you look at investible stock market cap,
U.S. is nearly five times the size of the next biggest market,
which is Europe. And in the fixed income side of things, more
than half of liquid high grade fixed income paper is in U.S.
dollars.
Now, even if there were significant outflows from U.S. dollar
assets, there are very few places that money can find a haven,
safe or otherwise. This is not to say there won't ever be any
other alternatives to U.S. dollar assets in the future. But that
shift in market size takes time, which means that TINA --
there is no alternative -- remains a theme for now.
Seth: That view on the dollar weakening
from here, it's baked into my team's economic forecast. It's
baked into the strategy team's forecast across research. So then
let me take it one step forward. What does all this mean about
portfolio preferences, your recommendation for clients when when
they're investing in assets that are not U.S. dollar denominated.
Serena: You are right. I mean, if
there's one U.S. asset that we just like, it's the U.S.
dollar. So, you know, over the next 12 months we expect key
factors, which drove the dollar strength. You know, positive
growth, yield differentials relative to other G10 economies.
Those factors will fade substantially. And we also think
because of the political uncertainty in the U.S. currency hedging
ratios on exposure to U.S. assets may increase, which could
further pressure the U.S. dollar. So, our FX team sees
euro/dollar at 1.25 and dollar/yen at 1.30 by the second quarter
of 2026.
Which means that we're really recommending non-U.S. dollar
investors to buy U.S. stocks and fixed income on an FX hedge
basis.
Seth: If we look forward but focus just on
the next, call it three to six months; what asset classes, or if
you want, what regions around the world are best positioned, and
what would you say to investors?
Serena: So, you're right. I think there is
a big difference between what we like over the next three to six
months versus what we like over the next 12 months. Because if I
look at U.S. equities and U.S. government bonds, both of which
we're overweight on most of the gains, probably won't happen
until the first half of next year because you have to have U.S.
equities really feeling the tailwind of dollar weakness. And you
need to have U.S. government bond investors to grow more
confident that we will get all of those Fed cuts next year.
What we do like over the next three to six months and feel pretty
highly convicted on is really U.S. investment grade corporate
credit, which we think can, you know, do well in the second half
of this year and do well in the first half of next year.
Seth: But then let's take a step back
[be]cause I think investors around the world are wrestling with a
lot of the same issues. They're talking to, you know, strategists
like us at lots of different places. What would you say are our
most out of consensus views right now?
Serena: I think we're pretty out of
consensus on our preference for U.S. and U.S. dollar assets. As I
mentioned, there was still a huge debate on the end of U.S.
exceptionalism. Now the other place where I think it's notable is
we're much more bullish on U.S. treasuries than what's being
priced into markets and where consensus is. And I think that's
really been driven by your economics team being much more
convicted on many Fed cuts in 2026.
And the last thing I would point out here is, again, we're more
bearish than consensus on the dollar. If I look at euro/dollar,
if I look at dollar/yen, the kind of appreciation we're
forecasting for at around through 10 percent, is higher than I
think what most investors are expecting at the moment.
Now back to Seth. Given all of the uncertainty around U.S.
fiscal, trade, and industrial policy, what indicators are you
watching to assess whether global growth is becoming more fragile
or more resilient?
Seth: Yeah, it's a great question. It's
always difficult to monitor in real time how things are going,
especially with these sorts of shocks. We are looking at a bunch
of the shipping data to see how trade flows are going. There was
clearly some front-running into the United States of imports to
try to get ahead of tariffs. There's got to be some payback for
that. I think the question becomes where do we settle in when it
comes to trade?
I'm going to be looking in the U.S. at the labor market to see
signs of reduced demand for labor. But also try to pay attention
to what's going on with the supply of labor from immigration
restriction. And then there are all the normal indicators about
spending, especially consumer spending. Consumer spending tends
to drive a lot of the big developed market economies around the
world and how well that holds up or doesn't. That's going to be
key to the overall outlook.
Serena: Thank you so much, Seth. Thanks for
taking the time to talk.
Seth: Serena, I could talk to you all day.
Serena: And thanks for listening. If you
enjoy Thoughts on the Market, please leave us a review wherever
you listen and share the podcast with a friend or colleague
today.
Kommentare (0)
Melde dich an, um einen Kommentar zu schreiben.