Morgan Stanley(US:MS)2025-07-16 00:55Investment Rating - The report maintains an Overweight (OW) rating on US stocks, Treasuries, and US IG Corporate Credit, while expressing caution towards the USD [3][4]. Core Insights - The US labor market is gradually cooling, with real GDP growth expected to decline from 2.5% in 2024 to 0.9% in 2025, and global growth projected to decrease from 3.5% to 2.5% in the same period [2][7]. - Despite a slowing global economy, risk assets may perform well as markets adjust to less negative growth expectations, with a focus on quality investments [2][3]. - The report highlights a preference for quality cyclicals, large caps, and defensives in the US, while recommending sectors such as defense, banks, software, telecoms, and diversified financials in Europe [5][6]. Economic Outlook - The report forecasts a step-down in global growth due to tariff impacts and immigration restrictions, with specific GDP growth estimates for 2025: Global at 2.5%, US at 0.9%, Euro Area at 0.8%, Japan at 0.3%, and Emerging Markets at 3.8% [8][12]. - Inflation is expected to peak in the US in Q3 2025, with projections of 2.9% for the US and 1.9% for the Euro Area in 2025 [8][12]. Sector Recommendations - In the US, the report favors quality cyclicals and defensives with lower leverage and cheaper valuations, while in Japan, it supports domestic reflation beneficiaries and defense-related spending [5][6]. - European recommendations include repositioning into resilient sectors, particularly defense and financials, while in Emerging Markets, the focus is on financials and domestic businesses [5][6]. Credit Market Insights - Credit quality is expected to hold up despite macroeconomic challenges, with a recommendation to focus on higher quality assets and CDX hedges [21][22]. - The report anticipates strong total returns in credit markets, with Bs/CCCs expected to decompress relative to BBs [21][22].