Thoughts on the Market

Kevin Warsh, President Trump’s nominee for the next Fed Chair, testified in front of the Senate earlier this week. Our Global Head of Fixed Income Research Andrew Sheets presents key takeaways from the two-and-half-hour testimony.
Read more insights from Morgan Stanley.

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Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley.
Today on the program, a first look at potentially the next Fed chair.
It's Friday, April 24th at 9am in New York.
Financial markets can often struggle to keep track of more than one story at a time – and at present, we're really pushing the limit. At one end, the Iran conflict continues to create a historic disruption in global energy markets. At the other, signs of corporate animal spirits and activity hint at the potential for an even larger boom if this disruption ends.
Merger activity, capital spending, loan growth and earnings growth are all strong and accelerating. And so, into this mix enters a third story, the Federal Reserve. Indeed, both Iran and the investment boom introduce real questions as to how a central bank should react to these factors.
For example, if oil prices spike further, should the central bank raise interest rates to counter the inflation that would follow? Or should it lower them because that increase in oil prices could potentially hit growth? And what about corporate aggression? As that aggression increases, should the Fed look to raise interest rates and take away the punch bowl, so to speak, to avoid an even larger overheating in the economy? Or maybe all of this investment will create abundance – actually lower prices and warrant interest rate cuts.
These questions will weigh on the Fed and, in particular, Kevin Warsh, who has been nominated by President Trump to be the next chair of the Federal Reserve. This week saw Warsh testify in front of the Senate as part of that process, giving us the most detailed insight into his current thinking that we've had so far.
Two things really stood out. First, Warsh believes that this historic boom in AI and technology investment really is likely to boost productivity. A productivity boost, all else equal, should mean a greater supply of goods and services into the economy from the same number of workers; and thanks to that greater supply, relatively lower prices and less inflation. This belief in investment driven productivity underpins why he thinks interest rates can be lower even if current inflation is elevated.
Second, Warsh was critical of the Fed, stating that it had “lost its way,” from expanding its balance sheet too much to being too slow to reign in inflation following COVID. He outlined a sweeping agenda for change, including how the Fed could forecast inflation, manage its assets, and communicate its policy.
But another challenge that's going to be facing the next Fed chair will be personal as much as it's economic. Fed decisions are made by a majority vote. And while Warsh may feel strongly that the historic investment cycle that we're seeing in technology will bring down inflation, can he convince others of this as well – especially at a time when current inflation readings are somewhat elevated? And will his criticism of how the Fed has conducted action over the last several years make it harder to gain the support of colleagues, some of whom were there for those measures? Or will it be welcomed as a breath of fresh air and a chance for the Fed to have a new start?
The uncertain timing of the handover and the fact that policy is still up to committee means that we think markets will likely stay focused on other factors in the near term and expect relatively modest shifts in Fed policy for now. But it's still worth watching.
Since 1979, only five individuals have occupied this important seat leading the U.S. Central Bank. We may be about to get the sixth.
Thank you as always for your time. If you find Thoughts of the Market useful, let us know by leaving a review wherever you listen. And also tell a friend or colleague about us today.

Our Global Chief Economist and Head of Macro Research Seth Carpenter asks Mayank Phadke, a member of his team, to give up an update on tariffs and their real cost to the U.S. economy.
Read more insights from Morgan Stanley.

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Seth Carpenter: Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist and Head of Macro Research. And I'm joined by Mayank Phadke, a member of my global economics team. And today we're going to talk about tariffs. I bet that was a surprise.
It is Thursday, April 23rd at 10am in New York.
I have to say, for the past couple of months, the focus on energy markets, energy supply, energy prices – that has dominated everything that we've been talking to clients about around the world. And so, everyone would be forgiven if they had forgotten that we were talking about tariffs much the same way, nonstop last year.
Now, tariffs kind of seem like an afterthought. But part of the stated motivation for tariffs when they were imposed was to boost reshoring. That is to have more production of goods in the United States that had been imported. So, tariffs still matter. They matter for CapEx, in that regard, they matter for domestic production. And because of all of that, presumably they matter for markets and for the Federal Reserve.
But for the narrow question of reshoring, the data so far, I would argue, suggests that there's been very little net effect. There will be more tariff news arriving in coming months. So Mayank, I am going to pull you into this conversation because you have been one of the key people on the team, doing of analysis on the data work on tariffs, trade and reshoring. So, could you tell us a little bit about what’s been happening to the effective tariff rate for the United States recently? And where we think that’s likely to go?
Mayank Phadke: Tariff levels have declined steadily in recent months, falling to 8.5 percent as of February, with the decline having accelerated after the Supreme Court ruling. The decision on IEEPA forced a shift in underlying tariff authorities with country level IEEPA tariffs temporarily reconstituted under Section 122.
We have long argued, even before the 2025 tariffs that the legal basis for durable tariffs would need to be anchored in section 232 and section 301 based authorities rather than in IEEPA. The current Section 122 tariffs are due to expire on the 24th of July. And after that, we expect more durable authorities to kick in. The shifts that we will see as IEEPA tariffs are replaced by new section 301 and 232 tariffs means that there will be some differences. But from a macro perspective, we expect the level to be roughly similar to where it stood at the end of 2025. An aggregate effective rate of around 10 percent.
Two sets of Section 301 investigations were announced by the administration in March, covering virtually all major trading partners. These investigations are likely to run on a faster timeline than prior efforts. Those took around nine months.
The comments were requested by the 15th of April, with hearings scheduled for early May. We're inclined to expect completed section 301 investigations over the summer while section 232 tariffs will likely arrive in waves as sector-based investigations proceed.
Seth Carpenter: Got it. Okay. So, I'm going to summarize that to say tariffs are not going away. Tariffs are here. In the aggregate for macro economists like us, probably about the same level it's been. But that escapes the question about the individual industries, and it brings us right back to this question of reshoring. Is that what's going to happen?
And so, when I think about it, we do have all these negotiations. But the reshoring question forces you to wonder about manufacturing, manufacturing growth and with it CapEx. And like I said at the top, it's non-AI CapEx that's really on the soft side of things.
So, you've spent a lot of time looking at the data. I would say one industry that tends to stand out in all these conversations is steel. So, if we look at what's happened with the steel industry, with tariffs, with changes in imports and that sort of things, what's happened? Do we see clear evidence that there's this big reshoring push?
Mayank Phadke: The case of steel is certainly very interesting. It helps frame why tariff uncertainty matters. And the supply chain for steel is relatively compact, which makes it easier to observe how the sector responds to tariffs.
Domestic production has risen as imports have fallen consistent with the idea of reshoring. But when we look at the total supply of steel to the domestic economy, it hasn't risen. More importantly, U.S. steel prices have materially diverged from global peers. And the risk of more aggressive sector tariffs across the economy, in our view is higher prices. An outcome which is consistent with our expectations from a year ago – and with economic theory.
Seth Carpenter: As an economist, I'm always happy when the reality matches what I was expecting in theory. So, that's super helpful. Now, that is one specific industry, and I know that you have spent a bunch of time looking at the data across industries.
The point that you made though, about the higher prices, the higher domestic prices for steel means, to me as an economist, that we have to try to maybe separate out the effects of the nominal versus the real. Which is to say, if we're measuring how much output there is, how much that increase is coming from just prices going up versus how much is coming from, total quantity.
So, if I asked you, when you look across industries, when you look at the data, what evidence do you see in terms of lots of reshoring. That is to say a diversion of trade, a reduction of imports, and with it an increase in domestic production. Is that there broadly in the data?
Mayank Phadke: When we look at production and imports across industries and goods and identify the industries both with and without reduced imports, we see that the increase in domestic production has come largely in nominal terms. Which means that the price has risen, but very little of that increase is actually higher output. The evidence for meaningful reassuring here is quite limited.
Seth Carpenter: Alright. So that's super helpful to me because when I think about the implications of tariffs, the economist in me says it reduces the overall productive capacity of the economy. It raises cost for the economy. The counter argument has been we're going to make more in the United States and that's going to boost the U.S. economy.
As far as I can tell, when we look at the data themselves, there's not a lot of evidence for the upside. But there is clear evidence that we're raising costs for the U.S. economy.
Alright, well Mayank, thank you so much for joining me. And thank you to the listeners. If you enjoy this show, please leave us a review; and share Thoughts on the Market with a friend or a colleague today.

Although the conflict in Iran keeps dominating the news cycle, investors have an eye on the upcoming U.S. midterm elections. Our Deputy Global Head of Research Michael Zezas and Head of Public Policy Research Ariana Salvatore consider policy implications – from healthcare and consumer to AI.
Read more insights from Morgan Stanley.

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Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Deputy Global Head of Research for Morgan Stanley.
Ariana Salvatore: And I'm Ariana Salvatore, Head of Public Policy Research.
Michael Zezas: Today we're discussing the midterm elections and their implications for U.S. markets.
It's Wednesday, April 22nd at 10am in New York.
All right, so Ariana, midterm elections are coming up. And I feel like every cycle we hear the same question. How much do elections actually matter for markets?
Ariana Salvatore: Yeah, I would say, you know, we're still six months out and obviously a lot of the market's focus has been on the U.S.-Iran conflict. But it does keep coming up in our conversations with investors.
And to your question, our view is these elections probably matter a little bit less than people think, at least from a macro perspective.
Michael Zezas: Okay, so that seems a bit counterintuitive, right? Because policy has felt like a huge driver of markets recently. Tariffs. Geopolitics. Really all the above.
Ariana Salvatore: Exactly. But there's some nuance here. So, policy does matter, but the big takeaway is that the direction of policy doesn't really change based on the midterms. That's because some of the key policy variables that you mentioned – trade, geopolitics, also deregulation – those are all likely to keep going regardless of who wins.
At the same time, it's worth noting upfront that the race itself is still pretty fluid. A lot of the indicators that investors are watching – polling prediction markets, the president's approval rating, even things like domestic gasoline prices and consumer sentiment – they're somewhat giving mixed signals right now. There's a growing narrative around a potential democratic sweep. But when you actually look in more detail at the Senate map, we think the path there is still pretty challenging.
So, I think it's important to emphasize there's much more uncertainty in the outcome than the headlines right now might suggest.
Michael Zezas: So, if those indicators end up being right and we do in fact see a divided government, what do you think investors should be paying attention to?
Ariana Salvatore: There are some incremental shifts that will be worth watching. In particular as they pertain to fiscal policy. So, for example, things like SNAP and Medicaid, those are the real swing factors depending on the election outcome.
If you recall last year, the One Big Beautiful Bill Act legislated some changes to those programs that are meant to start taking effect in 2027 and 2028. Things like shifting more of the cost burden onto states and tightening eligibility requirements to offset some of the deficit impact from tax cuts.
And where elections come in is around whether or not those changes actually get implemented or delayed or softened. In our view, the most likely way you can get meaningful adjustments is in some form of divided government where there actually might be an incentive to negotiate around those fiscal cliffs.
But crucially, we think that can only happen if you have what we call a robust rather than a fragile majority.
Michael Zezas: Okay. Can you explain the difference between those two things?
Ariana Salvatore: Yeah. So, the question is not just who controls Congress, it's how unified they are. If you get a robust majority, that means the party can agree internally on what their core policy objectives are. And then use their leverage in a cohesive way to extract political concessions from the opposing party.
So, to put it in simpler terms. If Democrats have a large enough majority or are able to coalesce around some of the key policy asks – for example, delaying some of these cuts – we think they can tie those two, some must pass bills. Think appropriations bills or debt ceiling extensions, for example, that they will need to be consulted on in a split government scenario.
Now conversely, if it's a fragile majority, you probably see more internal disagreement, less coordination, and a lot more political noise with less actual policy getting done.
Michael Zezas: Okay, so a lot of good insights there. Can you boil it down to a few key takeaways for investors?
Ariana Salvatore: Yeah, so one I would say is that fiscal policy is really where the midterm elections might matter the most. But even there, we think the impact is more micro than macro. Another is that divided government doesn't necessarily mean less policy activity. It just changes the form that it takes. And then of course there's AI, which is a topic that we've been getting a lot of questions about.
Michael Zezas: Yeah, so let's dig in a bit more there because there's obviously a lot of interest in the intersection between public policy and the development of artificial intelligence.
Ariana Salvatore: Yeah. This was the key focus of our policy symposium that we hosted in New York last week. AI is increasingly viewed as a strategic priority across both parties. So, unlike some of these fiscal debates, we think that AI policy is likely to take shape regardless of the election outcome. What could change is the approach.
So, think about things like how quickly infrastructure gets built, how permitting is handled, how energy constraints are addressed. We're seeing growing recognition across the aisle that the bottleneck for AI isn't just on the innovation front, it's the physical infrastructure – power, data centers and supply chains.
Now at the same time, there's also emerging pushback from communities and from policy makers around things like energy usage and cost of living. We've done a lot of research on this front, and it's actually a really critical factor in some of these off-cycle elections that we've seen even back to last year.
So, you end up with this dynamic where AI investment probably continues both in a more constrained and increasingly regulated environment in the split government scenarios.
Michael Zezas: So, direction's the same, but the pace and the friction points may vary. And that has implications in particular for a few key sectors like power and data center REITs, while consumer and healthcare sectors are more exposed to those SNAP and Medicaid changes we mentioned earlier. Obviously the more unified Democrats are, the more they're able to extend or push off those shifts. Meaning the downside impact on the consumer could be limited versus current expectations.
But aside from these policies we're watching. You'll probably see noise around debt ceiling fights, government shutdowns. And those things don't usually derail growth. But they can create volatility and short-term uncertainty, especially around funding deadlines.
Ariana Salvatore: Right. And that's important for the macro-outlook. So, in short, our economists think that the growth outcomes are only going to vary modestly across the scenarios while the broader business cycle should stay intact.
Now, following from that, our rate strategists see episodic risk, to your point around funding fights, which could drive risk off rallies in notes and bonds. And then you have to weigh that against cooling expectations for growth and inflation in both the divided government scenarios. Similarly, our FX strategists see opposing forces between yields, fiscal policy and the broader policy uncertainty variable driving dispersion across currencies more than a clear dollar direction.
Michael Zezas: Got it. So, a lot to pay attention to ahead of the midterms and we'll obviously keep people updated here about what we're seeing.
Ariana Salvatore: Sounds good.
Michael Zezas: Ariana, thanks for taking the time to talk.
Ariana Salvatore: Great speaking with you, Mike.
Michael Zezas: And as a reminder, if you enjoy Thoughts on the Market please take a moment to rate and review us wherever you listen. And share Thoughts on the Market with a friend or colleague today.

Back from the IMF Spring Meetings in Washington, Simon Waever and Seth Carpenter unpack what policy makers and investors could be underpricing: the growth hit from higher energy costs, the risk of too much tightening by central banks and why emerging markets still look resilient.
Read more insights from Morgan Stanley.

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Simon Waever: Welcome to Thoughts on the Market. I'm Simon Waever, Morgan Stanley's Global Head of Emerging Markets Sovereign Credit and LatAm Fixed Income Strategy.
Seth Carpenter: And I'm Seth Carpenter, Global Chief Economist and Head of Macro Research.
Simon Waever: Today: The key takeaways for investors from the International Monetary Fund spring meetings in Washington, D.C.
It’s Tuesday, April 21st at 10am in New York.
Every six months, the IMF meetings in D.C. bring policy makers and investors together to take stock of the global economy. And we were both there as part of our IMF policy pulse conference.
This time, continuing a pattern of recent years, the backdrop was a bit more complicated. Investors are weighing the economic fallout from the Iran conflict, potentially more persistent inflation pressures, and, as always, rising concerns around global debt and fiscal sustainability. So, the key question coming out of Washington is how do these risks reshape the outlook, and what should investors be paying attention to now.
Let's start with the growth outlook, Seth. When you think about the Iran conflict, what's the single biggest channel through which it could hit global growth? And is that risk underpriced by markets today?
Seth Carpenter: I think it really is underpriced, and not just by markets. I would say I had conversations with investors, but also with policy makers down in Washington. And I would say relative to my views on things, both markets and policy makers are under appreciating how much of a hit to growth this could be. Where is it going to happen? What's the channel?
Well, that actually – that differs depending on which economy that you're looking at. I would say here in the U.S., it's primarily the middle- and lower-end of the income distribution. Higher energy prices, gasoline prices going up, taking away at discretionary income, especially in what we've been calling this K-shaped economy where the bottom half is already struggling. So, a bit of a hit primarily to consumption spending.
I'd say in other parts of the world, it's broader. Asia – we are already starting to see rationing being imposed for production, for public transportation in lots of ways that really are going to crimp spending both by households and businesses. And then of course Europe. Well, they're still in some ways reeling and adapting from the energy price shock. When Russia invaded Ukraine, natural gas prices went up a lot more then. But I think there's still an adjustment process going on.
So, I think the potential hit to growth is real. I think it has spread across economies around the world, but each different economy, each different country has its own sort of nuance and flavor to it.
Simon Waever: And what about the central banks? I know you met with quite a few of them as well. Are they at risk of being behind the curve on inflation or is actually the bigger mistake now look like over-tightening?
Seth Carpenter: Yeah, I really think the over-tightening is the bigger risk here. It's funny, being behind the curve. That's a phrase that I did hear a lot, especially among some of the European policy makers. And people are feeling scarred, I guess you could say, from the surge in inflation that we got coming out of COVID. But history suggests that these sorts of surges in energy prices tend to be: one, more focused in headline inflation rather than core; and second, they do tend to revert on time and go away, over time.
And I would say the bigger the hit to growth, the more likely it is that the inflationary impulse will start to fade on its own. And so, I do think there's too much reliance maybe on the inflation side of things, maybe not quite enough on the growth. And so, when I weigh the pros and cons, I would say the risk is probably too much tightening rather than not enough.
But you know, Simon, I tend to spend more of my time in Washington talking to policymakers and investors who are focused on the developed market economy. So, I talked to people about the Fed, talked to people about the ECB.
Morgan Stanley's real strong suit, when we do these conferences of the meeting though, is our EM focus. And I know you and the rest of the team have really over the years ramped up our engagement. So, when you think about the conversations that you had with investors and with officials, what do you think has, sort of, shifted most in recent months? And maybe what's shifted over the past week because the news flow has been going back and forth. What's going on in emerging markets that investors need to know about?
Simon Waever: Right. I would say the first, and by far the biggest focus throughout the week was the disconnect between the very positive market sentiment versus actual developments in the Iran conflict. I think many participants believe the mood would be much worse and that the decision coming out of the meetings would be whether to buy into a challenging backdrop or just stay away.
But instead, I think they came away thinking that the mood was actually fairly upbeat. But also that markets are pricing in a substantial probability of a resolution already. And that brings me to my second takeaways, and that's around EM resilience. EM has faced multiple macro shocks in recent years. And I think it's fair to say that EM policymakers, including central banks, have built up their credibility when it comes to responding to such events and the volatility they bring.
Several of the EM central banks we met were positively surprised by the resilience of FX markets but also noted that they would still err on the side of caution. EM fundamentals also help in this aspect, which has seen contained external imbalances versus the past and mechanisms to deal with the energy price shock.
Of course, with everything else impacted by the war, duration matters – especially as fiscal buffers are not equal across EM. But I would say in general it reaffirms our view that EM is in a good place to absorb and deal with the uncertainty. And that would actually be my third and final point. That the year as a whole should be good for EM assets, assuming that trajectory remains one of de-escalation. And I think that does extend to FX as well, where the market may quickly return to trading U.S. dollar weakness, particularly if the market's priced more of the Fed cuts that you expect.
Seth Carpenter: Got it. So, you did say, assuming we return to a theme of de-escalation, and I guess we have that built into our forecast. The last four or five, six days has seen lots of back and forth. But if we do assume we end up de-escalating the current crisis in the Middle East, looking across EM [be]cause it really is a differentiated, subtly nuanced, broad part of the world. If I had to push you a little bit and say, where do you see the clearest winners? What would you point at?
Simon Waever: Sure. I mean, to me, LatAm remains a key winner. We've had this call since the start of the year, but if anything, the Iran conflict and my discussions at the IMF only reinforce this. The region is obviously physically removed from the Middle East, but there are also many large commodity exporters. And a lot of the discussions were around the political realignment with the U.S. and there are several examples.
Just to give a few: Argentina as usual, was a key part of the discussions. And compared to the meeting six months ago, they were much more positive given what's been accomplished since, both in terms of the structural reforms and the FX purchases here to date. And I have to mention Venezuela given it was during the meetings last week that the IMF resumed dealing with them, which had been a key positive catalyst that we've been looking for. Brazil is obviously the biggest economy, and I would say sentiment was pretty positive. But also there's an acknowledgement that the elections in October are just too close to call. And that is likely to bring some uncertainty closer to the time.
Seth Carpenter: Yeah, those are all super compelling examples [be]cause they mix the economics, the markets with the politics. Obviously you mentioned the elections coming up in Brazil; and then for Argentina it was this real huge landslide shift in what was going on because of an election there a couple years ago. And we're seeing how that's coming out. Alright, so let's go in the opposite direction. And not everything can be rosy, and even if as a class we're pretty optimistic and pretty constructive on EM… Do you think there are some key vulnerabilities across the space that you cover that maybe could surprise us to the downside? Or maybe that markets really aren't appreciating now and might have to rethink?
Simon Waever: Yeah, I think to start with, we move outside of LatAm and in all those discussions it was much more about the extent of vulnerability to the conflict and in particular the energy exposure. And I would say in general, an oil price of eighties is a sweet spot for EM, sovereign dollar bonds. But differentiation should pick up a lot. I would say the obvious view would be that energy exporters should outperform importers. But what I would highlight is actually more around the differentiation within all the importers [be]cause that's where policy space can differ significantly.
And even just within Central America and Caribbean, I would call out countries like Costa Rica and Guatemala as having more policy space than say, El Salvador or Dominican Republic. And within Africa, it really comes down to the energy balance and whether you have alternative financing sources.
Seth Carpenter: Got it. Got it. That's really helpful. I will say every day, every week, every month we get new headlines about what's going on. I think you and I are both going to have to be glued to our screens to, sort of, follow what's going on and see how it affects markets. But I guess for here maybe we will call it quits. I really learned a lot from my time down in Washington. It sounds like you had some really good engagement too.
Simon Waever: Yep. I agree. Thanks for taking the time to talk.
Seth Carpenter: It's always good to talk to you, Simon.
Simon Waever: As a reminder, if you enjoy Thoughts on the Market, please take a moment to rate and review us and share the podcast with a friend or colleague today.

Our Global Head of Thematic and Sustainability Research Stephen Byrd unpacks how major investment themes for 2026 are increasingly interconnected, generating gains for investors.
Read more insights from Morgan Stanley.

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Welcome to Thoughts on the Market. I’m Stephen Byrd, Morgan Stanley’s Global Head of Thematic and Sustainability Research.
Today – how our 10 big thematic predictions are playing out and driving global markets.
It’s Monday, April 20th at 11:30am in New York.
Back in January, we laid out four key themes – AI & Tech Diffusion, the Future of Energy, a Multipolar World, and Societal Shifts. And we laid out 10 specific thematic predictions about forces shaping 2026. It is really striking to me how quickly the landscape has shifted and how significant these trends have become in just a short period of time.
Even more striking is how these mega secular themes are converging. AI is driving unprecedented demand for compute and energy. Energy is becoming a strategic priority for nations. And geopolitics is shaping access to both.
So, let’s start with the most important development: the acceleration of AI. Now we expected strong progress in terms of large language model development, but what we’re seeing is really a step-change upward in capability. And this is driving an extraordinary surge in demand for compute. Global AI usage has jumped sharply with weekly usage; and we measure weekly usage in terms of how many tokens are used. Tokens are really a measure of small units of text. It's a fairly standard measure of demand for compute. That token usage has risen by about 250 percent just since early January, from 6.4 trillion tokens a week to 22.7 trillion; pushing us into a world where compute demand exceeds supply. This is one of the defining investment stories of 2026, and I see a lot of alpha generation, around this opportunity.
Now, at the same time, AI is reshaping the labor market. We estimate that automation or augmentation will impact 90 percent of occupations; so almost every job will be affected. But the effect is not binary.
So we recently assessed the impacts to employment in five sectors where we believe the impact of AI adoption could be the biggest. And on net we see a 4 percent job loss, driven by 11 percent of outright elimination of jobs. 12 percent of jobs that were not backfilled, partially offset by 18 percent of new hires. So the real story is transformation. AI is changing how work gets done, reshaping roles rather than simply replacing them.
But AI does not operate in a vacuum. It runs on energy. And that’s the second major shift since January. We now estimate global data center power demand could increase by nearly 130 gigawatts by 2028, with the U.S. potentially facing a 10–20 percent shortfall in power availability needed to support that growth.
That’s why the Future of Energy is such a central theme. AI growth is directly tied to energy availability, cost, and infrastructure, and increasingly, to national policy.
And that brings us to the third major development: geopolitics. We certainly did not anticipate the Iran conflict, but it has had a significant impact on energy markets, including supply disruptions that have rippled across global energy systems. And more broadly, we’re seeing a global push towards national self-sufficiency; this is a big driver for many years to come – in energy, critical minerals, and technology. And this clearly aligns with our Multipolar World theme, where countries are prioritizing control over key economic inputs. This shift is likely to be a major driver of markets not just this year, but well beyond.
These big structural forces are already showing up in performance. The thematic categories that we developed that are aligned with our key themes were up 38 percent on average in 2025, outperforming the S&P 500 by 27 percentage points. And year-to-date in 2026, they're still ahead by 12 points. The strongest areas reflect exactly these dynamics: AI infrastructure, energy security, defense, healthcare, and emerging areas like humanoid robotics.
So what’s the takeaway from revisiting our predictions? The biggest changes in 2026 are not happening in isolation, but at the intersections of our key themes. AI, energy, and geopolitics are no longer separate stories. They are now deeply interconnected forces shaping the global economy. And understanding those intersections may be the key to understanding markets and generating alpha for years to come.
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.