Thoughts on the Market

Our Global Commodities Strategist Martijn Rats discusses the geopolitical drivers behind the recent spike in oil prices and outlines four Iran scenarios.
Read more insights from Morgan Stanley.

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Welcome to Thoughts on the Market. I’m Martijn Rats, Morgan Stanley’s Global Commodities Strategist.
Today – what’s fueling the latest oil market rally.
It’s Thursday, February 26th, at 3pm in London.
What happens when oil prices jump, even though there’s no actual shortage of oil? That’s the situation we’re in right now. Tensions between the U.S. and Iran have escalated again. Naturally, markets are paying attention.
Over the past week, Brent crude rose about $3 to around $72 per barrel. WTI climbed into the mid-$60s. Shipping costs surged. And traders have started paying a premium for protection against a sudden oil spike – the levels we haven’t seen since the early days of the Ukrainian invasion.
But here’s the key point: there’s no clear evidence that global oil supply has tightened. Exports are still flowing. Tankers are still moving. And some near-term indicators of physical tightness have actually softened. When oil is truly scarce, buyers scramble for immediate barrels and short-term prices spike relative to future delivery. Instead, those spreads have narrowed, and physical premiums have eased.
This isn’t a supply shock. It’s a risk premium. In simple terms, investors are buying insurance. So what could happen next? We see four broad scenarios.
Before I outline them though, here’s something we do not see as a core case: a prolonged closure of the Strait of Hormuz. Roughly 15 million barrels per day of crude and another 5 million of refined product moves through that corridor. A sustained shutdown would be enormously disruptive. But we think the probability is very low.
Now coming back to our four scenarios. The first is straightforward. A negotiated settlement; conflict is avoided. Iranian exports continue and shipping lanes remain open. In that scenario, what unwinds is the geopolitical risk premium – which we estimate at roughly $7 to $9 per barrel. If that fades, Brent could drift back to the low-to-mid $60s, similar to past episodes where prices spiked on fear and then retraced once supply proves unaffected.
Second, we could see short-lived frictions – shipping delays, higher insurance costs, temporary logistical issues. That might remove a few hundred thousand barrels per day for, say, a few weeks.. Prices could briefly spike into the $75–80 range. But balancing forces would kick in relatively quickly. For example, China has been building inventories at a steady pace. At higher prices, that stockbuilding would likely slow, helping offset temporary disruptions. That points to some further upside in prices – but then normalization.
The third scenario is more serious, but still contained: localized export losses of perhaps 1 to 1.5 million barrels per day for a month or two. Prices would stay elevated longer, but spare capacity and demand adjustments could eventually stabilize the market.
Now our last scenario is the more serious and considers a potential shipping shock. The real risk here isn’t wells shutting down – it’s shipping disruption. Global trade of crude oil depends on efficient tanker movement. If transit times were extended even modestly, effective shipping capacity could fall sharply, creating what amounts to a temporary tightening of about 2 to 3 million barrels per day – or about 6 percent of global seaborne supply. That is a logistics shock, not a production outage – but it would push prices toward early-2022-type levels, at least briefly.
Now let’s zoom out. Beyond geopolitics, the fundamentals look weak. OPEC+ supply is rising, and our forecasts show a sizable surplus building in 2026. Even if some of that oil ends up in China’s stockpiles, a lot would still likely flow into core OECD inventories. Historically, when the market looks like this, prices tend to fall, not rise.
Which brings us back to the central point. Oil isn’t rallying because the world has run out of barrels. It’s rallying because markets are pricing geopolitical risk. And unless that risk turns into actual, sustained disruption, insurance premiums tend to expire.
Thank you 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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Original Release Date: Feb 6, 2026
Our Global Head of Fixed Income Research Andrew Sheets and Global Chief Economist Seth Carpenter unpack the inner workings of the Federal Reserve to illustrate the challenges that Fed chair nominee Kevin Warsh may face.
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.
Seth Carpenter: And I'm Seth Carpenter, Morgan Stanley's Global Chief Economist and Head of Macro Research.
Andrew Sheets: And today on the podcast, a further discussion of a new Fed chair and the challenges they may face.
It's Friday, February 6th at 1 pm in New York.
Seth, it's great to be here talking with you, and I really want to continue a conversation that listeners have been hearing on this podcast over this week about a new nominee to chair the Federal Reserve: Kevin Warsh.
And you are the perfect person to talk about this, not just because you lead our economic research and our macro research, but you've also worked at the Fed. You've seen the inner workings of this organization and what a new Fed chair is going to have to deal with.
So, maybe just for some broad framing, when you saw this announcement come out, what were some of the first things to go through your mind?
Seth Carpenter: I will say first and foremost, Kevin Warsh's name was one of the names that had regularly come up when the White House was providing names of people they were considering in lots of news cycles. So, I think the first thing that's critically important from my perspective, is – not a shock, right? Sort of a known quantity.
Second, when we think about these really important positions, there's a whole range of possible outcomes. And I would've said that of the four names that were in the final set of four that we kept hearing about in the news a lot. You know, some differences here and there across them, but none of them was substantially outside of what I would think of as mainstream sort of thinking. Nothing excessively unorthodox at all like that. So, in that regard as well, I think it should keep anybody from jumping to any big conclusions that there's a huge change that's imminent.
I think the other thing that's really important is the monetary policy of the Federal Reserve really is made by a committee. The Federal Open Market Committee and committee matters in these cases. The Fed has been under lots of scrutiny, under lots of pressure, depending on how you want to put it. And so, as a result, there's a lot of discussion within the institution about their independence, making sure they stick very scrupulously to their congressionally given mandate of stable prices, full employment.
And so, what does that mean in practice? That means in practice, to get a substantially different outcome from what the committee would've done otherwise… So, the market is pricing; what's the market pricing for the funds rate at the end of this year? About 3.2 percent.
Andrew Sheets: Something like that. Yeah.
Seth Carpenter: Yeah. So that's a reasonable forecast. It's not too far away from our house view. For us to end up with a policy rate that's substantially away from that – call it 1 percentage, 2 percentage points away from that. I just don't see that as likely to happen. Because the committee can be led, can be swayed by the chair, but not to the tune of 1 or 2 percentage points.
And so, I think for all those reasons, there wasn't that much surprise and there wasn't, for me, a big reason to fully reevaluate where we think the Fed's going.
Andrew Sheets: So let me actually dig into that a little bit more because I know our listeners tune in every day to hear a lot about government meetings. But this is a case where that really matters because I think there can sometimes be a misperception around the power of this position. And it's both one of the most public important positions in the world of finance. And yet, as you mentioned, it is overseeing a committee where the majority matters. And so, can you take us just a little bit inside those discussions? I mean, how does the Fed Chair interact with their colleagues? How do they try to convince them and persuade them to take a particular course of action?
Seth Carpenter: Great question. And you're right, I sort of spent a bunch of time there at the Fed. I started when Greenspan was chair. I worked under the Bernanke Fed. And of course, for the end of that, Janet Yellen was the vice chair. So, I've worked with her. Jay Powell was on the committee the whole time. So, the cast of characters quite familiar and the process is important.
So, I would say a few things. The chair convenes the meetings; the chair creates the agenda for the meeting. The chair directs the staff on what the policy documents are that the committee is going to get. So, there's a huge amount of influence, let's say, there. But in order to actually get a specific outcome, there really is a vote. And we only have to look back a couple weeks to the last FOMC meeting when there were two dissents against the policy decision.
So, dissents are not super common. They don't happen at every single meeting, but they're not unheard of by any stretch of the imagination either. And if we go back over the past few years, lots going on with inflation and how the economy was going was uncertain. Chair Powell took some dissents. If we go back to the financial crisis Chair Bernanke took a bunch of dissents. If we go back even further through time, Paul Volcker, when he was there trying to staunch the flow of the high inflation of the 1970s, faced a lot of resistance within his committee. And reportedly threatened to quit if he couldn't get his way. And had to be very aggressive in trying to bring the committee along. So, the chair has to find a way to bring the committee along with the plan that the chair wants to execute. Lots of tools at their disposal, but not endless power or influence. Does that make sense?
Andrew Sheets: That makes complete sense. So, maybe my final question, Seth, is this is a tough job. This is a tough job in…
Seth Carpenter: You mean your job and my job, or…
Andrew Sheets: [Laughs] Not at all. The chair of the Fed. And it seems especially tricky now. You know, inflation is above the Fed's target. Interest rates are still elevated. You know, certainly mortgage rates are still higher than a lot of Americans are used to over the last several years. And asset prices are high. You know, the valuation of the equity market is high. The level of credit spreads is tight.
So, you could say, well, financial conditions are already quite easy, which can create some complications. I am sure Kevin Warsh is receiving lots of advice from lots of different angles. But, you know, if you think about what you've seen from the Fed over the years, what would be your advice to a new Fed chair – and to navigate some of these challenges?
Seth Carpenter: I think first and foremost, you are absolutely right. This is a tough job in the best of times, and we are in some of the most difficult and difficult to understand macroeconomic times right now. So, you noted interest rates being high, mortgage rates being high. There's very much an eye of the beholder phenomenon going on here. Now you're younger than I am. The first mortgage I had. It was eight and a half percent.
Andrew Sheets: Hmm.
Seth Carpenter: I bought a house in 2000 or something like that. So, by those standards, mortgage rates are actually quite low. So, it really comes down to a little bit of what you're used to. And I think that fact translates into lots of other places. So, inflation is now much higher than the committee's target. Call it 3 percent inflation instead core inflation on PCE, rather than 2 percent inflation target.
Now, on the one hand that's clearly missing their target and the Fed has been missing their target for years. And we know that tariffs are pushing up inflation, at least for consumer goods. And Chair Powell and this committee have said they get that. They think that inflation will be temporary, and so they're going to look through that inflation. So again, there's a lot of judgment going on here.
The labor market is quite weak.
Andrew Sheets: Hmm.
Seth Carpenter: We don't have the latest months worth of job market data because of the government shutdown; that'll be delayed by a few days. But we know that at the end of last year, non-farm payrolls were running well below 50,000. Under most circumstances, you would say that is a clear indication of a super weak economy.
But! But if we look at aggregate spending data, GDP, private-domestic final purchases, consumer spending, CapEx spending. It's actually pretty solid right now. And so again, that sense of judgment; what's the signal you're going to look for?
That's very, very difficult right now, and that's part of what the chair is going to have to do to try to bring the committee together, in order to come to a decision.
So, one intellectually coherent argument is – the main way you could get strong aggregate demand, strong spending numbers, strong GDP numbers, but with pretty tepid labor force growth is if productivity is running higher and if productivity is going higher because of AI, for example, over time you could easily expect that to be disinflationary. And if it's disinflationary, then you can cut it. Interest rates now. Not worry as much as you would normally about high inflation. And so, the result could be a lower path for policy rates. So that's one version of the argument that I suspect you're going to hear.
On the other hand, inflation is high and it's been high for years. So what does that mean? Well. History suggests that if inflation stays too high for too long, inflation psychology starts to change the way businesses start to set.
Andrew Sheets: Mm-hmm.
Seth Carpenter: Their own prices can get a little bit loosey-goosey. They might not have to worry as much about consumers being as picky because everybody's got used to these price changes. Consumers might be become less picky because, well, they're kind of sick of shopping around. They might be more willing to accept those higher prices, and that's how things snowball. So, I do think that the new chair is going to face a particularly difficult situation in leading a committee in particularly challenging times.
But I've gone on for a long, long time there. And one of the things that I love about getting to talk to you, Andrew, is the fact that you also talked to lots of investors all around the world. You're based in London. And so when the topic of the new Fed chair comes up, what are the questions that you're getting from clients?
Andrew Sheets: So, I think that there are a few questions that stand out. I mean, I think a dominant question among investors was around the stability of the U.S. dollar.
And so, you could say a good development on the back of Kevin Warsh's nomination is that the market response to that has been the price action you would associate with more stability. You've seen the dollar rise; you've seen precious metals prices fall. You've seen equity markets and credit spreads be very stable. So, I think so far everything in the market reaction is to your; to the point that you raised, you know, consistent with this still being orthodox policy. Every Fed chair is different, but still more similar than different now.
I think where it gets more divergent in client opinions is just – what are we going to see from the Fed? Are we going to see a real big change in policy? And I think that this is where there are very different views of Kevin Warsh from investors. Some who say, ‘Well, he's in the past talked about fighting inflation more aggressively, which would imply tighter policy.’ And he's also talked more recently about the productivity gains from AI and how that might support lower interest rates.
So, I think that there's going to be a lot of interest when he starts to speak publicly, when we see testimony in front of the Senate. I think the other, the final piece, which I think again, people do not have as fully formed an opinion on yet is – how does he lead the Fed if the data is unexpected? And you know, you mentioned inflation and, you know, Morgan Stanley has this forecast that: Well, owner's equivalent rent, a really key part of inflation, might be a little bit higher than expected, which might be a distortion coming off of the government shutdown and impacts on data. But there's some real uncertainty about the inflation path over the near term.
And so, in short, I think investors are going to give the benefit of the doubt. For now, I think they're going to lean more into this idea that it will be generally consistent with the Fed easing policy over time, for now. Generally consistent with a steeper curve for now. But I think there's a lot we're going to find out over the next couple of weeks and months.
Seth Carpenter: Yeah. No, I agree with you. Andrew, I have to say, I'm glad you're here in New York. It's always great to sit down and talk to you. Let's do it again before too long.
Andrew Sheets: Absolutely, Seth. Thanks for taking the time to talk. And to our audience, thank you as always for your time. If you find Thoughts the Market useful, let us know by leaving a review wherever you listen. And also tell a friend or colleague about us today.

Our CIO and Chief U.S. Equity Strategist Mike Wilson explains why he still believes in a growth cycle for equity markets, even as investors show growing concerns around AI.
Read more insights from Morgan Stanley.

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Mike Wilson: 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 be discussing recent concerns around AI disruption.
It's Tuesday, February 24th at 1pm in New York.
So, let's get after it.
Last week you could feel it, that anxious undercurrent in the market. The headlines were noisy, volatility ticked higher, and AI disruption, once again, dominated investor conversations. But beneath the surface level unease something important happened. The S&P 500 Equal Weight Index pushed to a new relative high, keeping our broadening thesis alive and well.
On one hand, investors are worried about AI driven disruption, CapEx intensity, and potential labor force reductions. On the other hand, capital is still flowing into formerly lagging areas of the market, just as the median stock is seeing its strongest earnings growth in four years.
Let's unpack this. First, there's concern AI will lead to job losses. But even if that's the case, there's typically a phase-in period. Companies don't just eliminate labor overnight. Importantly, before these productivity gains are fully realized, we need broad enterprise adoption. That means building out the agentic application layer, integrating AI into workflows, retraining systems and processes. That takes time, and it is still early days in that regard.
Second, what we're seeing now is typical of a major investment cycle. Volatility increases as markets challenge the pace of unbridled spending. Dispersion increases as investors debate winners and losers. Leadership rotates, sometimes sharply. There's also something different this time compared to the internet bubble of the late 1990s. Today we're in an early cycle earnings backdrop. We've just emerged from what was effectively a rolling recession between 2022 and 2025. So, as capital rotates out of the perceived structural losers, it's not just chasing long-term AI beneficiaries, it's also finding classic cyclical winners.
On the losing side is long duration services-oriented sectors, particularly software. These areas are more sensitive to uncertainty around longer term cash flows. This area also has a large overhang of private capital deployed over the last 10 to 15 years.
There are other forces at play too. Small cap growth, arguably the longest duration segment of the market, began breaking down in late January around the time Kevin Warsh was nominated as Fed chair. While major indices barely reacted, more speculative areas may be responding to expectations of tighter liquidity given Warsh’s, reputation as a balance sheet hawk. Finally, equity markets are typically more volatile when new Fed chairs assume office.
Bottom line, our broader thesis of an early cycle rolling recovery remains intact. Market internals are supportive even if index level action feels choppy. That said, near term volatility is likely to persist as we enter a weaker seasonal window for retail demand, while liquidity remains ample, but far from abundant.
With this backdrop, a quality cyclical barbell with healthcare makes sense. In small caps, the higher quality S&P 600 looks more attractive than the Russell 2000. And any short-term volatility could present opportunities to add exposure in preferred cyclical areas like Consumer Discretionary Goods, Industrials, and Financials.
Of course, risks remain. AI adoption could accelerate faster than expected, pressuring labor markets more abruptly. Pricing power could erode as efficiency spread, and policy makers could react in ways that slow the CapEx cycle while crowded momentum positioning remains vulnerable.
Nevertheless, the signal from the internals is clear. Beneath the volatility this looks less like a market rolling over, and more like one that is confirming an early cycle economic expansion.
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.

The Supreme Court's latest ruling on tariffs has thrown existing trade agreements into uncertainty. Our Head of Public Policy Research Ariana Salvatore and Arunima Sinha, from the U.S and Global Economics teams break down the fallout.
Read more insights from Morgan Stanley.

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Ariana Salvatore: Welcome to Thoughts on the Market. I'm Ariana Salvatore, Head of Public Policy Research.
Arunima Sinha: And I am Arunima Sinha on the U.S. and Global Economics teams.
Ariana Salvatore: Today we'll be talking about the recent Supreme Court decision on tariffs, what it means for existing trade deals, and where trade policy is headed from here.
It's Monday, February 23rd at 9am in New York.
On Friday, the Supreme Court ruled that the president could not use the International Emergency Economic Powers Act, or IEEPA, to impose broad-based tariffs.
The ruling didn't give a clear signal on what it could mean for potential refunds, but the Trump administration said it plans to replace the existing tariffs, which is something that we'd long expected – first leveraging Section 122 to impose 15 percent tariffs for 150 days.
The president is simultaneously going to launch a few new Section 301 investigations to eventually replace those Section 122 tariffs, since they're only allowed to be in place temporarily. So Arunima, let's start by breaking down some of this tariff math. What does this mean for the headline and effective rate given where we are now versus before?
Arunima Sinha: Before the decision, Ariana, we were at a headline tariff rate of about 13 percent. What this decision does is that with the move, especially to 15 percent, for other countries, we think that it takes about a percentage point off of the headline tariff rate. So, we would go to about 12 percent, and then we have another percentage point coming off just because of the shifts in trade patterns. And so instead of a headline tariff rate of about 13 percent, we think that we're going to be at a headline tariff of just about 11 percent.
But that's really just related to the Section 122s. And as you noted, this is only going to apply for the next 150 days. So how should we be thinking about trade policy going forward?
Ariana Salvatore: I think we should view the 15 percent as probably a likely ceiling for these rates in the medium term; in particular because this 150-day period expires some time around the summer, so even closer to the midterm elections. And as we've been saying politically speaking, it's unpopular to impose high levels of tariffs.
We've also been saying that the president will continue to lean on trade policy as his real, only way to address the affordability issue for voters, which is something that we've actually seen on the policy side for the past few months with the imposition of exemptions, more trade framework agreements, et cetera.
So really, I think this is just another way for him to continue leaning on this policy avenue. But in that vein, let's talk about specific pockets of relief. What are we thinking about some of their findings on a sector level?
Arunima Sinha: So, let's tie this into the affordability aspect that you mentioned, Ariana, and specifically using the consumer goods sector. What we think is that with, just in the near-term period, with the Section 122s applying, for different consumer goods categories, we could see tariff rate differentials go down.
So, they could be anywhere between 1 to 4 percentage points lower across different categories. But what we also think could happen is that once we get beyond the 150-day period, and there are no additional sector tariffs that go on. So, the 232s or the 301s, particularly for this particular sector, we could see some of the largest tariff relief that we're expecting to see.
So, for example, apparel and accessories could see something like a 16 to 17 percentage point tariff drop. So that particular part I think is important. Just the upside risks to consumer goods.
But that of course brings us to the question of bilateral trade deals and how they come into play. What do you think about that, Ariana?
Ariana Salvatore: Yeah. So, I think when it comes to the bilateral deals, as we mentioned, there's some opportunities for relief depending on the sectors and the type of tariff exposure by country. As you mentioned, the consumer goods are a good example of this. So, in general, I think that trading partners will have little incentive to abandon the existing deals or framework agreements, just given that the president and the administration have messaged this idea of continuity. So, replacing the IEEPA tariffs with a more durable, legitimate, legal authority.
But what's notable is that many of our trading partners are actually now facing potentially even lower levels than they were before. Even with the increase to 15 percent on the 122s from 10 percent over the weekend. In particular, many countries in Southeast Asia are actually now facing lower tariff levels since there were somewhere in the range of 20 or maybe even 25 percent before. But as I mentioned, the export composition of these countries matters a lot. So, Vietnam, for example, most exports are subject to the 20 percent tariff because of the IEEPA exposure.
This ruling is more meaningful than somewhere like South Korea, where the exports are more exposed to the Section 232 tariffs. Based on the export composition – and that's a level, remember, that's not changing as a result of this ruling. So that's how we're trying to disaggregate the impact here.
Now, my last question to you, Arunima, what does this all mean for the macro-outlook? As we mentioned, refunds weren't addressed in this ruling. We've sketched out a few different scenarios, most of which leaned toward a long lead time to eventually paying back the money – if and when the administration is actually, in fact, mandated to do that. But safe to say in the near term that we aren't going to see much action on that front. That probably means status quo.
But why don't you put a finer point on what this means for the macroeconomic outlook?
Arunima Sinha: That's absolutely right, Ariana, for the very near term and the second quarter, we don't think we're going to be very different from what our baseline expectation is. In the third quarter and in the last part of this year, there could be some upside risks, especially once the timeline on the 122s run out, they're not extended. And the different sector and country investigations take longer to implement.
So, there could be some upside risks to demand. Consumer goods, for example. If there were to be some sort of an incremental tailwind to corporate margins that might lead to better labor demand from these companies. There could be additional goods disinflation; that would support just purchasing power. So, both of those things could be some incremental uplift to demand, relative to our baseline outlook.
But then the last thing I think just to emphasize from our perspective, is that we do think that there is some sort of a near-term ceiling about how high effective tariff rates can go. We don't think that we're going to be going back to Liberation Day tariff rates in the near-term or even in the latter half of this year. Because if history is any guide, many of these investigations are going to take time and that full implementation may not actually occur before early 2027.
Ariana Salvatore: Makes sense. Arunima, thanks for joining.
Arunima Sinha: Thanks so much for having me.
Ariana Salvatore: And thank you for listening. 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.

Our Head of European Sustainability Research Rachel Fletcher talks about how AI’s is quickly reshaping employment and productivity across key industries and regions.
Read more insights from Morgan Stanley.

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Rachel Fletcher: Welcome to Thoughts on the Market. I am Rachel Fletcher, Head of European Sustainability Research at Morgan Stanley.
Today, how AI is shaking up the global job market.
It's Friday, February 20th at 2pm in London.
You've probably asked yourself when all the excitement around AI is going to move beyond demos and headlines, and start showing up in ways that matter to your job, your investments, and even your day-to-day life. Our latest global AlphaWise AI survey suggests that the turning point may already be unfolding – especially in the labor market where AI is beginning to influence hiring, productivity, and workplace skills.
Our survey covered the U.S., UK, Germany, Japan, and Australia, across five sectors where we see a significant AI adoption benefit. Consumer staples, distribution in retail, real estate, transportation, healthcare, equipment and services, and autos.
We found that AI contributed to 11 percent of jobs being eliminated over the past 12 months, with another 12 percent not backfilled. These job cuts were partially offset by 18 percent new hires, which results in a net 4 percent global job loss. It's important to note that the survey focused on companies that had already been adopting AI for at least a year. In fact, most of the companies in our survey had been adopting AI for more than two years. So, this is likely the most significant downside case in terms of the impact of AI on jobs, but it is still an early signal of potential job disruption.
In Europe, the picture is nuanced. The UK saw the highest net job loss at 8 percent. This was primarily driven by a lower level of new hires in the UK compared to other countries that we surveyed, as well as a high level of positions not backfilled. This compares to Germany, which posted a 4 percent net job loss in line with the all-country average. There could be some other factors amplifying the impact in the UK. For example, broader labor market weakness driven by higher labor costs and higher levels of unemployment amongst younger workers. Ultimately, disentangling AI from macro forces remains challenging.
Moving to sector impacts in Europe, autos experience the largest net job loss at 13 percent, and this compares to a 10 percent global average for the sector. It's possible these numbers reflect persistent sales weakness, and AI driven cost cutting.
Transportation was least affected at 3 percent, whilst other sectors clustered around 6 to 7 percent. If we look at the top quintile of European companies reducing headcount, they've outperformed other companies that are more actively hiring. This suggests that investors are rewarding efficiency. On the downside, staffing firms face potential growth risks from AI displacement. On productivity, European firms report 10 to 11 percent gains from AI, close to the 11.5 percent global average, and the U.S. at 10.8 percent. It's worth noting that whilst Europe lags the U.S. in exposure to AI enablers, adopters and adopter enablers make up more than two-thirds of the MSCI Europe Index. However, European AI adopters have traded at a material discount versus their equivalent U.S. AI adoption peers. So, turning AI adoption into real ROI and defending pricing power is crucial for European companies.
If we shift our focus to the U.S., there's a contrast. Whilst the global net job change was a 4 percent loss, the U.S. actually saw a 2 percent net gain, driven by AI related hiring. Our U.S. strategists have lifted expectations for S&P 500 margin expansion by 40 basis points in 2026 and 60 basis points in 2027.
In our survey, the most frequently cited goals of AI deployment in the U.S. are boosting productivity, personalizing customer interactions, and accelerating data insights. Other common use cases include search, content generation, dashboards, and virtual agents.
What's becoming clear is AI is no longer theoretical. Our survey data suggests that it is reshaping hiring, productivity and margins. The investor question is not whether AI matters, but who captures the value.
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.