Signals Align for a Growth Cycle

Summary

Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley, highlights an unusual alignment of cyclical leading indicators—copper, industrial commodities, Korean equities, small caps, and US/European financials—that all point to a stronger global economic backdrop. He reiterates Morgan Stanley Research's core view for higher equities and modestly lower bond yields in the year ahead, with US equities supported by better fundamental activity and potentially stronger earnings growth. He cautions that the data will ultimately matter and that continued strength could raise questions about further central bank rate cuts.

• Andrew Sheets of Morgan Stanley discusses aligned cyclical leading indicators.
• Copper is up about 40% over the past year, signaling economic sensitivity.
• An index of non-traded industrial commodities is up 10% and less influenced by investor activity.
• Korean equities, small caps, and US/European financials have outperformed, supporting cyclical optimism.
• Morgan Stanley Research still expects higher equities and modestly lower bond yields.
• The US equity case is linked to better fundamentals and stronger-than-appreciated earnings growth.
• Continued indicator strength could challenge expectations for further rate cuts.
• Sheets says the market cycle can still burn hotter before it burns out.