Market Overview - Since the nomination of Kevin Worsh as the new Fed chair, markets have experienced a decline, particularly in tech stocks, with gold, silver, and Bitcoin also seeing decreases [1][2] - The current market situation is characterized by a technical-driven selloff, primarily influenced by institutional investors rotating out of high-performing stocks [3][4] Commodity Insights - The CRB metals index is showing a significant rally, indicating strong performance in commodity markets, despite the mixed performance of precious metals like gold and silver [7][9] - Rising commodity prices may suggest that lower interest rates are not necessary and could even be inflationary [9][10] Economic Growth and Productivity - The U.S. economy is reportedly growing at an astonishing rate of 4% to 5%, which is more than double the growth seen in Europe [13] - There is a belief that the economy is on the verge of a productivity boom, which could lead to non-inflationary growth and allow for lower interest rates [14][16] Federal Reserve Policy - Kevin Worsh aims to shift the Fed's focus away from traditional models that equate economic growth with inflation, advocating for a more forward-looking approach [6][10] - The potential elimination of quantitative easing (QE) and a more rule-based monetary policy could provide clearer signals to market participants [10][18]

Group 1: Market Overview - US stock futures are mixed following a tech-led sell-off, particularly affecting software stocks due to fears of AI disruption [1][5] - Nvidia's CEO Jensen Wong dismissed concerns about AI replacing software, calling such ideas illogical [1][6] - Investors are rotating out of risk assets, with Bitcoin briefly falling below $73,000, marking a 14% decline since the start of the year and a 40% drop from its record high in October [3][4] Group 2: Earnings Highlights - AMD reported fourth-quarter earnings that exceeded estimates, but its first-quarter forecast disappointed investors, leading to a decline in its stock [2][15] - Eli Lilly projected a significant sales increase of up to 27% this year, reaching $83 billion, driven by its diabetes and obesity drugs [8][9] - Uber announced a new CFO amid disappointing earnings forecasts, with adjusted earnings per share expected to be lower than analysts' expectations [10][11] Group 3: Company-Specific Insights - Chipotle's earnings report indicated flat comparable sales for the year, with plans to open 370 new stores to improve performance after a 39% stock decline last year [12][13] - Analysts noted that AMD's strong revenue included $390 million from China, but there are concerns about the sustainability of this revenue [17][19] - The upcoming launch of AMD's Helios system is anticipated to close the performance gap with Nvidia, with significant volumes expected in the fourth quarter [22][25] Group 4: Broader Industry Trends - The AI trade is experiencing reassessment, with concerns about the impact of AI on software businesses leading to significant stock declines [48][49] - Analysts suggest that the selling in the software sector may be overdone, indicating potential for recovery as companies adapt to AI technologies [49][50] - The semiconductor industry is under pressure, with high expectations for companies like Nvidia and Broadcom to meet market demands [27][28]

M Morgan Stanley Research: Key Forecasts January 26, 2026 07:59 PM GMT Next 12-Months Outlook: Our High-Conviction Calls | | | | | | MS Top Down EPS YoY% | | | --- | --- | --- | --- | --- | --- | --- | | Index (Local Ccy) | 01/23/2026 | MS Dec 2026 Price Target Current P/E | | MS Dec 2026 P/E Target | 2025e | 2026e | | S&P 500 | 6,916 | 7,800 | 22.0x | 22.0x | 272 | 317 | | | | | | | +12% | +17% | | MSCI Europe | 2,417 | 2,600 | 15.5x | 17 | 137 | 143 | | | | | | | -1.6% | 3.8% | | Topix | 3,630 | 3,600 | 1 ...

Core Insights - The U.S. business investment boom is intensifying, with non-defense capital goods shipments up 9.9% at an annual rate over the past three months, nearly double the twelve-month rate [2] - New orders for non-defense capital goods have increased by 8.5% over the past three months, compared to a 5.5% increase over the past year [2] - The surge in capital expenditures (capex) is attributed to tax policies implemented by the Trump administration, which allow for immediate expensing of investments [3] - GDP growth has been robust, with annual rates of 3.8% in Q2, 4.4% in Q3, and potentially 5% in Q4, indicating a strong economic environment [4] - Business-to-business spending is a significant driver of economic growth, as it supports job creation and wage payments [5] Investment and Productivity - Increased business investment is contributing to a productivity boom, with corporate profits and margins at record levels, enabling businesses to hire more and pay higher wages [6] - Rising take-home pay, approximately 4%, is outpacing core inflation measures, providing an economic benefit of about $2,000 for an average family [7] Economic Policy and Outlook - The current economic environment is characterized by low taxes, deregulation, and rising productivity, which are fostering a manufacturing boom and lowering prices [9] - The new Federal Reserve chair should align with the principles of Trumponomics, which emphasize that economic growth does not inherently lead to inflation [9] - Concerns are raised about potential candidates for the Federal Reserve who may not align with these economic principles, suggesting a preference for candidates who understand supply-side economics [10][11]

Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the global economic outlook for 2026, focusing on various regions including the US, Euro area, Japan, and China, as well as implications for monetary policy and inflation trends. Core Insights and Arguments United States - Economic growth is expected to be influenced by central bank discussions on the "neutral" rate, with the Fed likely to cut rates in June and September 2026 due to inflation pressures from a lower unemployment rate [11][12][17] - Consumer spending remains strong, with a 3.5% quarter-over-quarter growth in Q3 2025, but job growth has slowed significantly, indicating a mixed labor market [36] - Inflation is projected to soften mid-year, with core inflation expected to decline as tariff impacts are fully realized [12][36] Euro Area - Growth in the Euro area is steady but below potential, with a forecast of 1.0% growth for 2025 and 2026 [38] - Core inflation has decreased to 2.3%, and further disinflation is anticipated, leading to expectations of ECB rate cuts in June and September 2026 [13][38] - The Euro area composite PMI fell, indicating a slowdown in both manufacturing and services, which aligns with the forecast of modest growth [38][24] Japan - The Bank of Japan (BoJ) raised rates to 0.75% in December 2025, but further increases are not expected in 2026 due to anticipated declines in core CPI [14][36] - Political uncertainty is rising with potential snap elections, which could impact economic stability [14] China - China's growth in Q4 2025 was below expectations, but manufacturing PMI showed improvement, suggesting modest fiscal support in 2026 [15][19] - The global export market share for China is projected to increase to 16.5% by 2030, driven by advancements in manufacturing and sectors like EVs and robotics [19] - Fiscal policy is expected to remain flat compared to 2025, with a focus on front-loaded investments [15] Other Important Insights - The global economic outlook for 2026 presents a wide range of potential outcomes, with scenarios for both stronger spending and rising productivity, as well as mild downturns [16] - The impact of tariffs is becoming more pronounced, with firms beginning to pass costs onto consumers, which may lead to inflation but also reduce recession risks [64][65] - The overall sentiment indicates a cautious approach to monetary policy across various regions, with central banks remaining data-dependent and responsive to economic indicators [18][36][72] This summary encapsulates the key points discussed in the conference call, highlighting the economic outlook and monetary policy expectations across major global economies.

Core Viewpoint - The prediction markets indicate that Kevin Hasset has a 53% chance of being appointed as the new Fed Chair, while Kevin Worsh's odds have dropped to 34%, highlighting a competitive selection process for the position [1]. Economic Growth and Monetary Policy - Anticipated GDP growth is expected to accelerate due to $400 billion in fiscal policy and the Fed's rate cuts, leading to significant fiscal and monetary policy actions by 2026 [3]. - Historically, economic growth tends to accelerate from the first year of a president to the midterm year, which typically results in rising bond yields and a defensive stock market [4]. Candidates' Perspectives - Both candidates, Hasset and Worsh, believe in a productivity boom that could allow for lower Fed funds rates, with recent employment data suggesting a need for a lower neutral rate [6]. - The differences between the two candidates may be more pronounced in their approaches to the Fed's balance sheet rather than in their rate policies [8]. Balance Sheet and Financial Regulation - Worsh has been described as hawkish regarding the Fed's balance sheet, arguing it should not be at its current level, which is linked to financial regulation issues [9][10]. - The Fed is currently expanding its balance sheet to address a shortage of bank reserves, a situation expected to change with financial deregulation anticipated in 2026 [10][11].

Economic Outlook - U.S. Treasury Secretary Scott Bessent forecasts a "bountiful" economy in 2026, with expectations of real affordability relief for families and meaningful progress on prices, wages, and housing [1][2] - Bessent emphasizes that 2025 is a preparatory year, while 2026 is expected to yield significant economic benefits, contingent on the government remaining operational [2] Tax Refunds and Income Growth - Substantial tax refunds for working American households are anticipated in the first quarter, which will lead to increased real incomes and improved job growth [3][6] - Estimated tax refunds of $1,000 to $2,000 are expected to contribute to a productivity boom in 2026, provided political challenges do not hinder progress [6] Inflation and Affordability - Bessent predicts a significant drop in inflation within the first six months of the next year, attributing this to falling rents and lower energy prices [6] - The administration's policies, particularly regarding immigration, are argued to have previously inflated rents, but recent enforcement measures are leading to a decrease in rental costs [6] Economic Growth and Market Performance - The economy is diversifying beyond Big Tech, with positive performance observed in other sectors of the stock market [7] - Bessent asserts that growth does not inherently create inflation; rather, inflation arises from demand exceeding supply, and deregulation policies are enhancing supply across various sectors [8] Future Economic Conditions - The expectation is set for a return to a non-inflationary growth environment where both lower-income households and working Americans benefit, suggesting a favorable year ahead for both Main Street and Wall Street [9]

Group 1: Inflation and Economic Policy - U.S. inflation is currently around 3%, aligning with historical norms, despite fears stemming from President Trump's tariff policies [2][4] - The Trump Administration's tariff policies have raised concerns about potential delayed inflationary effects, although the immediate "3 wave" of inflation has not materialized [2][4] - Former U.S. Treasury Secretary Larry Summers expressed concerns that Trump's economic plans could lead to a more inflationary environment compared to the Biden administration [1] Group 2: AI and Robotics Growth - The Trump Administration is focused on driving AI-driven productivity growth to maintain competitiveness in the global AI race [6] - A significant shift in investment focus is anticipated from large language models (LLMs) to robotics, which is seen as the next wave of AI growth [7][10] - Key stocks to monitor in the robotics sector include Tesla, Honeywell International, Teradyne, UiPath, Ondas Holdings, Serve Robotics, iRobot, and the VanEck Robotics ETF [9]

Core Insights - The tech economy is experiencing a significant transformational phase, with companies like Nvidia adding nearly $200 billion in revenue over the past three years, contributing 100 basis points to GDP this year [2][9] - Volatility in the market is seen as a natural part of early phase shifts, with historical parallels drawn to the early internet super cycle [10][11] - Current valuations for major tech companies, including Nvidia and others in the MAG 7, are not indicative of a bubble, with Nvidia trading at 23-24 times fully taxed earnings for next year [3][4] Company Performance - Nvidia's revenue has surged from approximately $30 billion to over $200 billion annually, with expectations of a run rate of $100 billion by the end of next year [14][15] - Google has made significant strides in the AI space, with its new Gemini model being competitive against ChatGPT, indicating a healthy competitive dynamic in the tech sector [5][6] - The partnership between Broadcom and Google to develop TPU7 is expected to enhance Nvidia's performance, showcasing the interconnected nature of these tech giants [15] Market Dynamics - The current environment is characterized by a "wall of worry," which helps prevent market bubbles, as companies navigate through volatility and competition [2][3] - There are over a thousand companies in Silicon Valley valued at over a billion dollars, indicating a competitive landscape where not all will succeed, reflecting the process of creative destruction [12] - The tech sector is poised for a productivity boom, with companies able to achieve more with less, driven by advancements in AI and technology [9] Investment Strategy - The recommendation is to diversify investments across leading tech companies, including Nvidia, OpenAI, Google, and Microsoft, to capitalize on the ongoing super cycle [5][15] - Limited leverage is advised in investment strategies, particularly concerning volatile assets like Bitcoin, which is viewed as a speculative investment [16][18] - The potential for Bitcoin to gain utility in the financial system is acknowledged, but it is emphasized that it should be treated as a risk asset in investment portfolios [20][22]

Economic Outlook - The Federal Reserve is facing deep divisions regarding monetary policy, influenced by differing aversions to inflation and employment issues [2][3] - There is a decoupling of GDP and employment, complicating the economic landscape [3] - The Fed lacks a strategic view on whether the economy is on the verge of a productivity boom, which affects its monetary policy decisions [3] Market Sentiment - The narrative in the marketplace has shifted from expecting rate cuts despite a solid economy to uncertainty about cuts in light of a weakening labor market [4] - Concerns are raised about the effectiveness of the wealth effect on high-end spending, suggesting it may not be as impactful as previously thought [5][6] Policy Recommendations - There is a call for the Fed to cut rates, with the belief that a major productivity boom is on the horizon, which would allow for looser monetary policy [8] - The importance of focusing on sectors that would benefit from rate cuts in the current K-shaped economy is emphasized [8] Inflation Concerns - A significant portion of the Consumer Price Index (CPI) components are above 3%, raising concerns among hawkish Fed officials [11] - Despite a target inflation rate of 2%, there is a belief that the economy is stabilizing around a 2.5% to 3% inflation rate, which could impact productivity and growth outlook [12]