While tariffs continue to dominate headlines, our Global Head of
Fixed Income Research and Public Policy Strategy Michael Zezas
suggests investors should also focus on the sectoral impacts of
additional U.S. policy choices.
----- Transcript -----
Welcome to Thoughts on the Market. I’m Michael Zezas, Morgan
Stanley’s Global Head of Fixed Income Research and Public Policy
Strategy. Today, we’ll be talking about U.S. policy impacts on
the market that aren’t about tariffs.
It’s Wednesday, March 12th, at 10:30am in New York.
If tariffs are dominating your attention, we sympathize. Again
this week we heard the U.S. commit to raising tariffs and work
out a resolution, this time all within the span of a
workday.
These twists and turns in the tariff path are likely to continue,
but in the meantime it might make sense for investors to take
some time to look away – instead focusing on some key sectoral
impacts of U.S. policy choices that our Research colleagues have
called out.
For example, Andrew Percoco, who leads our Clean Energy Equity
Research team, calls out that clean Energy stocks may be pricing
in too high a probability of an Inflation Reduction Act (IRA)
repeal. He cites a letter signed by 18 Republicans urging the
speaker of the house to protect some of the energy tax credits in
the IRA. That’s a good call out, in our view. Republicans’ slim
majority means only a handful need to oppose a legislative action
in order to block its enactment.
Another example is around Managed Care companies. Erin Wright,
who leads our Healthcare Services Research Effort, analyzed the
impact to companies of cuts to the Medicaid program and found the
impact to their sector’s bottom line to be manageable. So,
keeping an in-line view for the sector. We think the sector won’t
ultimately face this risk, as, like with the IRA, we do not
expect there to be sufficient Republican votes to enact the
cuts.
Finally, Patrick Wood, who leads the Medtech team, caught up with
a former FDA director to talk about how staffing cuts might
affect the industry. In short, expect delays in approvals of new
medical technologies. In particular, it seems the risk is most
acute in the most cutting edge technologies, where skilled FDA
staff are hard to find. Neurology and brain/computer interfaces
stand out as areas of development that might slow in this market
sector.
All that said, if you just can’t turn away from tariffs, we
reiterate our guidance here: Tariffs are likely going up, even if
the precise path is uncertain. And whether or not you’re
constructive on the goals the administration is attempting to
achieve, the path to achieving them carries costs and execution
risk. Our U.S. economics team’s recent downgrade of the U.S.
growth outlook for this and next year exemplifies this.
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.
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