Morgan Stanley(US:MS)2025-05-21 06:36Investment Rating - The report maintains an Overweight (OW) rating on US equities and core fixed income, while being Neutral on global stocks and Underweight (UW) on commodities [6][40]. Core Insights - The global economy is expanding but at a slower pace, with the US expected to achieve approximately 1% growth year-over-year. Despite policy uncertainties, US assets are projected to outperform those in the rest of the world (RoW) [40][42]. - A weaker US dollar is anticipated due to converging US rates and growth with peers, alongside increased currency hedging flows benefiting safe-haven currencies like EUR, JPY, and CHF [9][42][91]. - The report emphasizes a preference for US equities over RoW, with a constructive outlook on core fixed income [40][42][91]. Cross-Asset Strategy - The report suggests a strong regional preference for US assets across various classes, recommending an Overweight in US equities and core fixed income while being Neutral on global equities [6][40]. - US Treasury yields are expected to remain range-bound until late 2025, with a forecasted 10-year yield of 3.45% by 2Q26 [8][40]. Global Equities - US stocks are projected to benefit from earnings revisions and a weaker dollar, with the S&P 500 target set at 6,500 by 2Q26 [7][38]. - The report anticipates that trade tensions will de-escalate, reducing recession risks and supporting equity valuations [50][91]. G10 Rates - The report forecasts a steeper yield curve in the US, UK, and euro area, while Japan's curve is expected to flatten. The anticipated 10-year UST yield is 3.45% by 2Q26 [8][40]. FX Outlook - The USD is expected to weaken by approximately 10% by the end of 2026, with EUR/USD projected at 1.25 and USD/JPY at 130 by 2Q26 [9][52][91]. EM Fixed Income - Emerging Market (EM) fixed income is expected to yield benign and positive returns, driven by mild inflation and lower UST yields. Specific countries like Brazil, Turkey, and India are highlighted for local rates, while Colombia and Morocco are noted for credit [10][40]. Corporate Credit - High-quality credit is viewed as attractive, particularly in the US, with spreads for US Investment Grade (IG) expected at 90 basis points and High Yield (HY) at 335 basis points by 2Q26 [11][40]. Commodities - The report indicates risks in the commodities market, particularly for Brent prices, while gold is expected to remain elevated. Brent is forecasted at $55 per barrel and gold at $3,250 per ounce by 2Q26 [13][40].