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Core Viewpoint - Bitcoin's price has decreased nearly 5% this week, dropping below $91,000, as geopolitical tensions and the "Sell America" trade emerge, leading analysts to predict a potential decline to $75,000 or lower [1][2]. Group 1: Market Dynamics - The overall cryptocurrency market, valued at $3.2 trillion, has seen a 2.2% drop, indicating a broader market selloff [1]. - The US dollar weakened, with the euro gaining 0.4% against it, suggesting a shift in investor sentiment towards cryptocurrencies as part of the "Sell America" trade [3]. - Gold reached a new high of $4,725 per ounce, reinforcing its status as a safe haven asset amid rising geopolitical tensions [3]. Group 2: Geopolitical Risks - Rising tensions between the US and Europe, particularly regarding Greenland, could lead to increased market volatility, which is not currently reflected in spot prices [2]. - European leaders have condemned the US administration's actions, warning that tariffs could damage transatlantic relations and provoke retaliation [4]. Group 3: Trader Sentiment and Predictions - Derivatives data indicates traders expect Bitcoin's price to drop 17% to $75,000 by June, with a mildly bearish outlook prevailing [5]. - Despite the bearish sentiment, some analysts suggest that improving macroeconomic conditions could positively influence the cryptocurrency market [6]. - Bitcoin is viewed as a "safe-haven" asset due to its decentralized nature, acting as a hedge against market volatility [7].

Core Viewpoint - The current market sentiment is influenced by tensions between President Trump and Fed Chair Jerome Powell, leading to speculation about a shift from US stocks to safe-haven assets like gold due to anticipated declines in corporate earnings growth and rising capital costs [1][2]. Group 1: Corporate Earnings and Economic Outlook - Corporate earnings growth is expected to decline significantly this year as the conflict over Fed independence raises capital costs for companies, particularly with soaring bond yields [1]. - Despite concerns, there are still positive indicators in the US economy, with earnings rising across various sectors, including small and large caps, and expectations for another quarter of double-digit year-on-year earnings growth as earnings season approaches [3]. Group 2: Federal Reserve and Political Tensions - The Justice Department has issued grand jury subpoenas to the Federal Reserve, raising questions about Powell's testimony regarding the renovation of the Fed's headquarters and potential misleading statements to Congress [3][4]. - Powell has characterized the investigation as "unprecedented" and has emphasized that he performs his duties without political influence, amidst ongoing public attacks from President Trump [4]. Group 3: Market Reactions - Following the issuance of subpoenas, the S&P 500 and Dow Jones Industrial Average reached record closing highs, indicating that investors may be dismissing the political tensions as a temporary threat [5]. - Stock futures showed little change, suggesting that market participants believe the situation will stabilize [6].

Core Viewpoint - The strength of the American economy and enthusiasm for artificial intelligence (AI) are expected to support productivity and profits, making it unwise to bet against US stocks this month [1]. Economic Indicators - An increase in consumer spending and investments in AI is anticipated to bolster productivity, allowing firms to deliver necessary profits to drive stock prices higher [1]. - Despite recent volatility, companies are projected to grow profits by 12.5% over the next 12 months, indicating strong fundamentals [6]. Market Volatility - The S&P 500 Index experienced a decline of up to 5.1% from its October record before recovering, highlighting the risks associated with shorting a volatile market [2]. - US equity short sellers faced $80 billion in mark-to-market losses, erasing most of the nearly $95 billion in profits made earlier in the month [4]. Hedge Fund Activity - Hedge funds have significantly covered their positions on US equity indexes and exchange-traded funds, marking the largest such activity in five months [5]. Consumer Behavior - Consumer confidence has shown signs of weakening; however, spending on Black Friday increased by 4.1% year-over-year, suggesting resilience among US consumers despite economic concerns [6]. Federal Reserve Outlook - The Federal Reserve is expected to cut interest rates in the upcoming policy meeting, which could stimulate economic activity [7].

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Core Viewpoint - Despite the recent "Liberation Day" tariffs announced by President Trump, foreign investors have maintained a strong allocation to US equities, with over 30% of their US financial assets in stocks, significantly above the long-term average of 19% [2][3]. Group 1: Investor Behavior - From the start of the year to the end of June, foreign investors allocated more than 30% of their US financial assets to equities, nearing record highs [2]. - The absence of a major shift in allocation is attributed to the market's rebound from April lows, where tariff news has not significantly impacted stocks [3]. - International equities have outperformed US stocks by as much as 17%, although this gap has narrowed to about 10% [6]. Group 2: Economic Context - The US effective tariff rate is now closer to 9%, which is roughly half of the theoretical rate of 18%, indicating that various factors have mitigated the impact of higher tariffs [3]. - Falling interest rates and renewed optimism about US growth have contributed to stabilizing investor confidence [4]. - The expectations for the US market were extremely high at the beginning of the year, while international markets had low expectations, making them more sensitive to news [5]. Group 3: Market Dynamics - Stocks sold off in April following the announcement of higher-than-expected tariffs, leading to a simultaneous decline in Treasurys and the dollar, which are typically seen as safe havens [6]. - The initial panic from the tariff news faded as companies managed the impact better than anticipated [3]. - The recent rhetoric from President Trump against the Federal Reserve has raised concerns about the Fed's independence, adding to the uncertainty surrounding the US economy [5].

Summary of Key Points from Morgan Stanley Research Cross-Asset Playbook - September 2025 Industry Overview - **Macro Environment**: The Federal Reserve is expected to cut rates due to a weakening labor market, despite tariff-induced inflation. In Europe, fiscal impulses are reducing downside risks, but growth and inflation remain weak. China's economic rebalancing is progressing slowly, insufficient to lift the economy from deflation soon [2][31]. Core Insights - **Market Sentiment**: Current market fundamentals are strong, supporting valuations, but September seasonality poses challenges. The debate continues regarding the risk premiums associated with US assets [3][11]. - **Investment Strategy**: The recommendation is to own US stocks and high-grade fixed income, focusing on quality. The preference for US assets does not extend to the USD, with a long position in EUR and JPY suggested [4][17]. - **Asset Allocation Changes**: - Equities allocation increased by 1% overall, with a notable 4% increase in US equities. - Core fixed income allocation increased by 7%, while other fixed income decreased by 3%. - Commodities allocation decreased by 3%, with a cautious outlook on Brent but a preference for copper and gold [5][19]. Economic Forecasts - **US Economic Outlook**: Slightly stronger growth is anticipated, with a lower peak unemployment rate and firmer inflation expected in 2026. The Fed is projected to cut rates by 25 basis points in September and 50 basis points by year-end [21][22]. - **Euro Area Growth**: Growth forecast for the euro area has been lifted to 1.2% for 2025, reflecting improved fiscal conditions and corporate sentiment [24]. - **Tariff Impact**: The effective tariff rate is currently around 16%, with expectations of further sector-specific tariffs. The impact of tariffs is expected to act as a tax on consumption, contributing to slower growth [39][49]. Additional Insights - **USD Outlook**: The USD is expected to remain under pressure due to diminishing growth and yield differentials compared to other G10 economies. Increased FX-hedging ratios by foreign investors are also anticipated [13][10]. - **Labor Market Trends**: Payroll growth is expected to slow, with average monthly gains projected at 113,000 for 2025, leading to a higher unemployment rate by 2026 [37][38]. - **Fiscal Policy Implications**: The One Big Beautiful Bill Act (OBBBA) is expected to provide a modest fiscal impulse, contributing 0.4 percentage points to GDP growth in 2026, but not sufficient to offset the negative impacts of tariffs and immigration policies [49][55]. Conclusion - The overall investment strategy emphasizes quality US assets amidst a backdrop of slowing growth and inflationary pressures. The macroeconomic environment is characterized by cautious optimism, with significant attention to labor market dynamics and fiscal policy developments.