Welcome to Thoughts on the Market.

I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity

strategist for Morgan Stanley.

All of my colleagues bringing you a variety of perspectives,

I'll be talking about the latest trends in the financial marketplace.

It's Monday, December 23rd at 9 a.m. Eastern.

So let's get after.

2019 will go down in the books as one of the best years in history for financial asset returns.

In a mere image of 2018, almost every major asset class had significantly positive returns

above the rate of inflation.

In some ways, it looked like 2017 except that the

risk adjusted returns were significantly lower for stocks at least relative to

bonds and this is an important consideration when thinking about asset allocation.

The reason why stocks rallied so much in 2019 had more to do with falling interest rates

than it had to do with improving growth and fundamentals.

That's all well and good because valuation is part of the game when investing.

However, it's good to understand what's driving asset prices because it informs us where to take our equity risk.

This past year, U.S. corporate margins have been under significant downward pressure all year due to rising costs from an overheating economy in 2018, particularly from labor.

Historically when such pressures arise companies either raise prices or reduce head count.

This year U.S. corporations have decided to eat those higher costs either because they can't pass them on through higher pricing

or they don't want to risk losing market share. While higher wages... through higher

wages, full employment and lower prices are great for the consumer and the economy,

...