Thoughts on the Market

A prolonged oil disruption is pushing gas prices higher. Arunima Sinha from our U.S. and Global Economics team joins Head of U.S. Policy Strategy Ariana Salvatore to discuss what that means for consumer spending, inflation expectations and the U.S. midterm elections.
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Arunima Sinha: Welcome to Thoughts on the Market. I'm Arunima Sinha from Morgan Stanley's U.S. and Global Economics Teams.
Ariana Salvatore: And I'm Ariana Salvatore, Head of U.S. Policy Strategy.
Arunima Sinha: Today – what are the implications of the ongoing oil disruption for the U.S. consumer?
It's Wednesday, March 18th at 10am in New York.
Ariana, let's start with where we are in week three of this particular oil disruption and what you are thinking about in terms of what the paths to resolution could look like.
Ariana Salvatore: Yeah. Great place to start. So, I would say before we get into what the resolution could look like, we need to think about how long could this conflict possibly last? And that's the most relevant question for investors as well. And there I would say there's very little conviction just because of the uncertainty associated with this conflict. But I'm keeping my eye on three different things.
The first is a clearer prioritization of the objectives tied to the conflict. The Trump administration has laid out a number of different goals for this conflict, some of which are shorter in nature than others. The second thing I think we're looking at – that's really important – is traffic at the Strait of Hormuz. And there, the Trump administration has spoken about insurance, you know, naval escorts – all of these things that we think will take some time to really come to fruition. And at the time that we're recording this, it seems that we're still getting about low single digit number of tankers through the strait on a daily basis. So that's the second thing.
The third point I would make is any type of escalation is really critical here. So, whether it's vertical – meaning different types of weapons used, different types of targets being hit. Or horizontal escalation, broadening out into different proxies and, and more so throughout the region. Those are really important indicators, and right now all of these things are pointing to a slightly longer-term conflict than I think most people expected at the start.
Now, in terms of what that means for markets, for domestic gasoline prices, all these are really important questions that I'm sure we're going to get into. But what we should note is that the president has spoken about a number of policy offsets to mitigate those price increases, ranging from the Treasury actually loosening up some of the sanctions on Russia to sell some oil. You know, we've heard some talk of invoking the Jones Act waiver. That's a temporary fix.
On net, we think that these policy offsets are not going to really be enough to mitigate that supply loss that we're getting. That's a 20 million barrel per day loss. Some of these efforts mainly will, kind of, target about 7 or 8 million barrels per day. You're still in a deficit of about 10 to 13 [million]. And that's really meaningful for markets, for consumption as you well know, and everything else in between.
Arunima Sinha: That's really helpful perspective, Ariana. And it's also a useful segue to think about the note that we jointly put out a few days ago. And just thinking about what this means for the U.S. consumer. And there, I think there's the first point to start with is that the consumer is now going to be living through the third supply shock in about five years. So, after COVID, after tariffs, here comes the next. And I think this particular oil shock is going to be somewhat different from tariffs in the sense that this is going to hit consumers at the front end and directly. This is not something that is going to have to pass through business costs. And some of them could be absorbed by businesses and not fully passed on to the consumer. So, I think that's an important point.
The second point here is that in terms of the share of spending of gasoline out of total spend, we are at pretty low numbers. We're somewhere in the 2 to 3 percent range. So, it could give a little bit of a cushion. So, the longer-term average can be somewhere about 4 percent. So, there could be some cushion. But we know that consumers have already been stretched by, sort of, several years of high prices.
And so, the way that we thought about what some of the channels could be for how higher oil prices, which translate into higher gas prices, could matter for the consumer. I think there are, sort of, three to identify.
The first one is that it is really just a hit to your real purchasing power because this is a type of good that is actually really hard to substitute away from. And you could look through some of it, at the start. So maybe in the first month you don't react very much. You pull down on some savings; you take out a little bit of short-term credit.
But the longer it lasts, the bigger the consumption response is going to be. And the second channel then to identify is – you start to build up some precautionary savings motives because there's this uncertainty that's also lasting for some time. And what do you pull back on? You'll typically pull back on discretionary types of spending.
And so, we sized out this impact to say that if oil prices were to be about 50 percent higher and they last for two to three quarters, it could hit real personal spending growth by about 40 [basis points] after 12 months. And most of that is really just coming from the impact on good spending, specifically through durable goods.
So, there could be some meaningful impact to real consumer spending in the U.S., if this shock were to go on longer. And the last point I would just say is, you know, how do inflation expectations move? Because that's an important point for the Fed and it's an important point for just people who are thinking about their spending decisions over the next year or so.
And one interesting thing I think came out in the University of Michigan survey that came out this Friday; and this was a preliminary survey. About half of it was conducted before the conflict started, and half of it was after the conflict started. And what we saw was that inflation expectations in the year ahead, so the 12-month-ahead expectations that had been trending down, paused.
So, they are no longer trending down. And, in its release, the University of Michigan noted that for the responses that were collected after the conflict started, inflation expectations did tick up. And interestingly, the strains were the most for the bottom income cohort. So, they saw a bigger uptick in inflation expectations. They actually also saw a bigger uptick in their unemployment expectations over the next year.
Ariana Salvatore: So, Arunima, if I can ask, we've been talking a lot about the K-shape economy this year, right? So, consumption really being led by the upper; let's call it the upper income cohort. When we think about this translation to consumption, like you said, more of the stresses on the lower income side, how do you square that with the economic impact that you guys are expecting?
Arunima Sinha: The way that I would square it is the longer it lasts and the greater the, sort of, uncertainty in asset markets – that might actually begin to weigh on the upper income consumer as well. So that might make some of those wealth effects less supportive, than what we have seen, over most of 2025. Just given where consumption has been running in terms of its pace.
So not only might we see a bigger strain on the lower-income cohorts as we see this shock lasting longer, we might actually see some pressures not through the direct spending channel on gas, but really just, you know, how it's impacting their balance sheets.
Ariana Salvatore: And that's a really important point because it also, to me, resonates with the concept of affordability, which has been a really key political topic for the past few months, I would say.
And the way we're thinking about this is, like I mentioned, there are limited policy offsets that can be used to mitigate the potential increase in domestic gasoline prices. And that matters a lot for the midterm elections. Typically voters don't really rank foreign policy as a top issue when it comes to their choice for candidates – in midterm elections and elections in general.
But once you see that feed through to, you know, inflation, cost of living, job expectations, that's when it starts to really matter for people. And what we've been saying, it's not a perfect rule of thumb, but looking back at the past few elections. If gasoline prices here in the U.S. are something like $3 a gallon, that tends to be pretty good for the incumbent party. [$]4 [a gallon], let's say it's a little bit more politically challenging. And [$]5 [a gallon], you know, is when you kind of get into that even more challenging territory for the administration and for Republicans in Congress.
So again, not a perfect benchmark, but something that we'll be keeping an eye on too as this conflict evolves.
Arunima Sinha: Ok! So, we'll be keeping an eye on how that oil disruption plays out and matters for the U.S. consumer.
Ariana Salvatore: 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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Morgan Stanley MUFG ’s Japan Equity Strategist Sho Nakazawa talks about the sectors that are leading the current rebound of Japanese stocks and why these gains may be more than a cyclical shift.
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Welcome to Thoughts on the Market. I’m Sho Nakazawa, Japan Equity Strategist at Morgan Stanley MUFG Securities.
Today: How Japan’s Takaichi administration could define Japan’s stock market for years to come.
It’s Tuesday, March 17th, at 3 PM in Tokyo.
Sanae Takaichi became Japan's first female prime minister on October 21, 2025. She leads a conservative administration that emphasizes defense spending and economic resilience. When Takaichi took office in February, this signaled the start of a structural pivot in Japan’s economy. And markets have responded quickly. Over the past several months, stocks with high exposure to the administration’s 17 strategic domains have outperformed TOPIX by 15 percentage points. That kind of divergence suggests something bigger than a cyclical rebound. Capital is positioned to a structural shift.
First, there’s the Japanese government’s increased emphasis on economic security and supply chain resilience. This reflects a philosophical shift. For years efficiency ruled: just-in-time supply chains and global optimization. The pandemic and the reorientation towards a multipolar world changed that workflow. Now the emphasis is on redundancy and autonomy – and this has implications for Defense & Space, Advanced Materials & Critical Minerals, Shipbuilding, and Cybersecurity.
The second pillar of Japan’s structural market shift is AI and the compute revolution. Yes, some investors worry about overinvestment in AI, but we believe in [the] possibility of nonlinear returns as AI breakthroughs occur. And, keep in mind, AI isn’t just software. It requires data-center cooling, communications networks, expanded power grids, and critical minerals. This is a full industrial stack upgrade. Looking further out, the global humanoid robotics market could reach US$7.5 trillion annually by 2050 according to our global robotics team estimates. That’s roughly three times the combined 2024 revenue of the world’s top 20 automakers at about US$2.5 trillion.
The third force reshaping Japan’s market is infrastructure. The 2026 budget slated towards national resilience initiatives exceeds ¥5 trillion. With aging infrastructure and intensifying natural disasters, resilience spending relates directly to economic security. Ports, logistics, and communications systems are increasingly becoming strategic assets. Our work suggests the long-term construction cycle is entering an expansion phase as bubble-era buildings from the late 1980s reach replacement timing. That points to durable demand rather than a temporary spike.
With all of this said, what’s also important is how stock market leadership spreads. It tends to move from upstream to downstream – from materials and power infrastructure, to AI, to defense and communications, and eventually to applications like drug discovery, quantum technologies, cybersecurity, and content. Right now, the strongest three-month returns are in Advanced Materials and Critical Minerals, and in Next-Gen Power and Grid Infrastructure. Meanwhile, areas like Cybersecurity and Content have lagged but remain tightly connected in the network. If leadership broadens, those linkages matter.
The real constraint isn’t political opposition. It’s [the] market itself. If investors decide this is a temporary stimulus rather than sustainable earnings growth, valuations might adjust. But we do believe that Japan’s equity market isn’t simply rallying. It is reorganizing around economic security, AI infrastructure, and national resilience.
Thanks for listening. If you enjoy Thoughts on the Market, please leave us a review wherever you listen and share the podcast with a friend and colleague today.

With volatility and oil prices up while Fed policy is easing, our CIO and Chief U.S. Equity Strategist Mike Wilson breaks down why today’s selloff is giving flashbacks to March 2025—and why he believes his bull case still holds.
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Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist.
Today on the podcast I’ll discuss how the equity market has been processing recent headlines for months.
It's Monday, March 16th at 1 pm in New York.
So, let’s get after it.
Last week on the podcast, I noted it was clear to me that the current equity market correction began last fall when liquidity first started to tighten. As soon as funding markets started to show stress from that tightening, the Fed responded by announcing it would end its balance sheet reduction program earlier than expected. It then followed that up by restarting asset purchases in December. This pivot subsequently led to better equity performance in January.
It also happened alongside a sharp decline in the U.S. dollar and concentrated returns in emerging markets and commodity-oriented sectors like gold and silver, industrial metals, oil and memory stocks. More recently, the dollar has rallied and these same areas have noticeably cooled off. The key point is that before the attacks in Iran two weeks ago, the correction in equities was already very well advanced in both time and price. In fact, 50 percent of all stocks in the Russell 3000 are now down 20 percent from their 52-week highs.
In many ways, we find ourselves in a similar position to last year. Recall that the major indices started to accelerate lower in February and early March. The concern at that time was centered around tariffs. But like today equity markets had been trading poorly for months under the surface on additional concerns that had nothing to do with tariffs. More specifically, equity markets had been worried about risks related to DeepSeek, immigration controls, and DOGE. Tariffs then provided the final blow. This time around, markets have been worried about AI disruption on labor markets, private credit defaults and liquidity tightness well before the Iran conflict escalated.
Now it’s interesting to note – but not surprising – that crude and volatility began to rise in January, signaling the market was ahead of this risk, too. Corrections typically don’t end though until the best stocks and highest quality indices get hit, and that usually takes a capitulatory shock. Last year, this was Liberation Day. This time around, that event is the Iran conflict and concern about a sustained rise in crude prices above $100 a barrel. This final corrective phase has begun, in our view, with the S&P 500 having its worst two-week stretch since last April.
To be clear, I don’t expect this capitulation or drawdown to be as bad as last year for several reasons.
First, last year’s events came at the end of what we were calling a rolling recession at the time and effectively marked the end of that downturn. That means equities were pricing in a recession at the lows in April 2025 and that’s why the S&P 500 was down 20 percent from its highs.
Second, the current backdrop for earnings and economic growth is much better than a year ago. Third, fiscal support is much greater today, too. Specifically, personal income tax cuts are flowing through right now with tax refunds running 17 percent higher year-over-year. Tax incentives in the [One] Big Beautiful Bill [act] should drive higher capital spending. Lastly, the Fed is much more accommodative with asset purchases versus balance sheet contraction in 2025.
Bottom line, equity markets have been digesting many of the concerns for months that are now hitting the headlines. We think this means that we are closer to the end of this correction rather than the beginning and investors should be getting ready to buy any final capitulation that may occur on the next bad headline.
One scenario that might create that final downdraft is a combination of a more hawkish Fed this week on backward looking inflation concerns combined with Triple Witching options expiration. Or maybe the upcoming trade meeting between the United States and China is delayed or cancelled. Whatever it might be, market lows happen faster than tops. So be ready to add risk in anticipation of the bull market resuming.
Thanks for tuning in; I hope you found it informative and useful. Let us know what you think by leaving us a review. And if you find Thoughts on the Market worthwhile, tell a friend or colleague to try it out!

Our Head of Asia Technology Research Shawn Kim explains what disruptions to shipping in the Strait of Hormuz could mean for the global semiconductor supply chain and the immediate future of AI infrastructure.
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Welcome to Thoughts on the Market. I’m Shawn Kim, Head of Morgan Stanley’s Asia Technology Team.
Today: why the Strait of Hormuz closure may matter to the global technology industry.
It’s Friday, March 13th, at 8 pm in Taipei.
AI and advanced chips may represent the cutting edge of technology, but they depend on something far more basic: that’s energy. And a large share of that energy flows through one narrow shipping lane in the Middle East – the Strait of Hormuz. When energy supply chains are disrupted, the effects can quickly ripple into semiconductor manufacturing.
Advanced semiconductor fabrication is, in fact, one of the most energy‑intensive industrial processes in the world. Take Taiwan, for example – home of the world’s largest share of leading-edge chip production. Just one major manufacturer alone accounts for roughly 9–10 percent of the country's total electricity consumption. That scale of energy use means the stability of power supply is critical.
Taiwan relies heavily on imported LNG to generate electricity. But storage levels are limited. It maintains roughly one and half weeks worth of LNG inventory, with several additional weeks supplied by vessels currently at sea. If shipping through the Strait of Hormuz were significantly disrupted, that supply chain could come under pressure. The immediate impact might not necessarily be an outright shortage – but rising energy costs could still affect semiconductor production economics. And that's important because advanced chips are foundational to everything from cloud computing to artificial intelligence systems.
Energy isn't the only potential bottleneck. Another lesser-known input in the semiconductor ecosystem is sulfur. More than 90 percent of the world's sulfur supply is produced as a by‑product of oil refining. That sulfur is then used to produce sulfuric acid, a key chemical that supports semiconductor materials, metal processing, and battery components.
Disruptions in oil refining tied to shipping constraints or energy market shocks could also affect sulfur supply. In other words, a disruption in energy markets could trigger second‑order effects across multiple layers of the technological supply chain. And those effects extend beyond chips themselves. The downstream impact touches industries tied to electrification, data centers, and advanced electronics manufacturing.
History also offers some lessons learned about how technology markets react when energy prices spike. During periods of major oil price surges – such as in 2008 and again in 2021 through 2022 – semiconductor equities experienced significant drawdowns. In both cases, semiconductor stocks declined by roughly 30 percent before reaching an inflection point. The mechanism is fairly intuitive. Higher oil prices raise costs across the economy and can weaken consumer spending. At the same time, companies building energy‑intensive infrastructure – like large‑scale AI data centers – may face higher operating costs and low revenues.
So when energy markets move sharply, technology markets often move with them. A disruption in the Strait of Hormuz wouldn’t automatically halt chip production, but it could ripple through power costs, materials supply, and the economics of building AI infrastructure. And that highlights an important reality for investors: the future of technology isn’t just written in code. It’s powered by energy, by infrastructure, and the fragile global networks behind the digital economy.
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.

Our co-heads of Securitized Products Research Jay Bacow and James Egan discuss the impact of upcoming regulatory changes on U.S. mortgage rates and home sales.
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Jay Bacow: It is March and there's some madness going on. I'm Jay Bacow, here with Jim Egan, noted Wahoo Wa fan.
James Egan: Hey, it looks like Virginia's going to be back in the tournament this year, hoping for a three seed, looking like a four seed. It's the first year that my son is really excited about it. So, hoping we can win a few games.
Jay Bacow: Let's hope they don't lose the first game and make him cry like you did a few years ago. But …
Welcome to Thoughts on the Market. I'm Jay Bacow, co-head of Securitized Products Research at Morgan Stanley.
James Egan: And I'm Jim Egan, the other co-head of Securitized Products Research at Morgan Stanley.
Jay Bacow: Today, with everything going on in the world, we thought it'd be prudent to discuss the U.S. mortgage and housing market.
It's Thursday, March 12th at 10:30am in New York.
James Egan: Jay, as you mentioned, there is a lot going on in markets right now, but hey, people need to live somewhere. And those somewheres remain pretty unaffordable. But this administration has been very focused on affordability, and we also have some updates on what is clearly the most exciting part of the housing and mortgage markets – regulation. What's going on there?
Jay Bacow: Look, nothing gets me more excited than thinking about the regulatory outlook for the mortgage market. We've been focusing a lot on what's happening in D.C. with possible changes that could be helping out affordability, changes to the investor program, changes to the policy rate.
But Michelle Bowman, who is the Vice Chair of Supervision, has been recently on the tape saying that we could get an update and a proposal for the Basel Endgame by the end of this month; and that proposal for the Basel Endgame is likely to make it easier for banks to hold loans on their balance sheet.
It's going to give banks excess capital and the combination of these, along with some other changes that are going to be coming from the Fed, the FDIC and the OCC around: For instance, the GSIB surcharge that our banking analysts led by Manan Gosalia have spoken about – it's really going to help out the mortgage market in our view.
James Egan: Alright, so freeing up capital, helping the mortgage market. When we think about the implications to affordability specifically, what do you think it means for mortgage rates?
Jay Bacow: Right. So, it's important that [when] we think about the mortgage rate, we realize where it's coming from. The mortgage rate starts off with the level of Treasury rates, and then you add upon that a spread. And the spread is dependent among a number of different factors. But one of the biggest ones is just the demand. And one of the reasons why mortgage rates have been so high over the previous four years was (a) Treasury rates were high, but also the spread was wide.
And we think one of the biggest reasons why the spread was wide is that the domestic banks, who are the largest asset type investor in mortgages – they own $3 trillion of mortgages – basically weren't buying them over the past four years. And one of the reasons they weren't buying was they didn't have the regulatory clarity.
And so, if the banks come back, that will cause that spread to tighten, which will likely cause the mortgage rate to come down. That is presumably, Jim, good about affordability, right?
James Egan: Yes. And I want to clarify, or at least emphasize, that affordability itself has been improving. Over the course of the past four to five months at this point, we've been close to, if not at the lowest mortgage rate we've seen in three years. And when we think about what that has practically done to the monthly principal and interest payment on homes purchased today.
Like that monthly payment on the median priced home is down $150 over the past year. That's about a 7 percent decrease. When we lay in incomes – or when we layer in incomes to get into that actual affordability equation, we're at our most affordable place since the second quarter of 2022.
So yes, big picture, this is still a challenge to affordability environment. But it's not as challenged as it's been over the past three years.
Jay Bacow: All right, so affordability improving. It's still challenged though. What does that mean for home prices then?
James Egan: So, when we think about the home price implication of mortgage rates coming down; of mortgage rates coming down in an environment where incomes are going up – we're thinking about demand for shelter, purchase volumes and supply of that shelter. And demand really has not reacted to the improved affordability environment.
That's not unusual. Normally takes about 12 months for affordability improvement to pull through in terms of increased transaction volumes. But we do think that the lock-in effect that we've talked about in detail on this podcast in the past, that is going to play a role here.
Mortgage rates end of February finally hit a five handle, really, for the first time in three years. They're back above that now with the volatility in the interest rate markets. But from 4 percent to 6 percent, mortgage rates is effectively an air pocket. We don't think you're going to get a lot of unlocking at these levels.
So we think that transaction volumes will pick up. We're calling for 3 to 4 percent growth in purchase volumes this year. But they've been largely flat for two to three years at this point. And more importantly, any improvement in affordability that comes from a decrease in mortgage rates is going to lead to commensurately more supply alongside that growth in demand – which is going to keep home prices, specifically, very range bound here.
The pace of growth is slowed to about 1.3 to 1.5 percent right now. We've been here for four or five months. We think we're pretty much going to stay here. We we're calling for 2 percent growth, so a little bit acceleration. But we think you're in a very range bound home price market.
Jay Bacow: All right, so home prices range bound, affordability improved. But still has a little bit of room to go. Some possible tailwinds from the deregulatory path that will make homes being a little bit more affordable. Fair amount going on.
Jim, always a pleasure speaking to you
James Egan: And always great speaking to you too, Jay. And to all of our regular listeners, thank you for adding us to your playlist. Let us know what you think wherever you get this podcast. And share Thoughts on the Market with a friend or colleague today.
Jay Bacow: Go smash that subscribe button!