Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief

U.S. Equity Strategist for Morgan Stanley. Along with my colleagues bringing you a variety

perspectives, I'll be talking about the latest trends in the financial

marketplace it's Monday December 2nd at 9 a.m. Eastern so let's get after it.

2019 has been a year during which the fundamentals have steadily deteriorated, yet equity prices have

rallied sharply. More than 100% of the returns in equity markets this year have come from higher

valuations, while earnings growth has been negative. While atypical, such an outcome isn't as unusual as one might think.

Stocks are forward-looking which means they tend to discount what's going to happen

rather than what's happening today. As someone who's followed equity markets for more than 30

years, I appreciate that concept very well. In fact, it's one of the reasons we were very

well positioned over the past year for the significant correction in equity markets in 2018 and the very defensive rotation under the surface.

However, in the past two months, many equity markets have surged well past levels we expected to see during 2019

and left us out of position to fully capture what has been a

very strong couple of months or returns accompanied by very low volatility.

So what's going on? Our stock price is simply looking forward and telling us earnings growth is going to rebound sharply next year?

Maybe, but if that were the case we should be seeing other asset prices rebound more than they are.

More specifically, 10-year interest rates, commodity prices, inflation break-even

and technical stocks relative to defensive ones have actually rolled over recently and in some cases sharply.

Instead of stocks telling us growth is going to rebound sharply next year,

we think they are simply responding to something else, a massive surge in

Central Bank balance sheet expansion.

To be specific, about two months ago, the Fed, European Central Bank and Bank of Japan

...