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

U.S. Equity Strategies for Morgan Stanley.

Along with my colleagues bringing a variety of perspectives, I'll be talking about the

latest trends in the

financial marketplace. It's Monday, November 25th at 9 a.m. Eastern, so let's get

after. Last week we published our global economic and market outlooks for

2020.

To summarize, our outlook assumes a modest recovery in the global economy next year, led by emerging

market economies after what has been a rather meaningful and broad slowdown.

We assume US GDP growth stabilizes near third

quarter levels or 1.8 percent. With just modest GDP growth in the US I assume

profit margins will remain under pressure for the average U.S. company, given the limited

slack in the labor market.

Operating leverage is now decidedly negative across a wide swath of companies and sectors

based on the latest earnings results.

GDP growth of 1.8% combined with lower margin results in little, if any,

EPS growth in the next year for the S&P 500.

Smaller capitalization companies could see a second full year of negative earnings growth.

With the Fed on hold, our interest rate strategy team expects a relatively stable outlook for U.S. Treasury

yields next year of 1.75 to 2%.

This should translate into a more stable environment for valuation

multiples next year, which is in sharp contrast to what we experienced in 2018, a sharp D rating, or 2019, which was a sharp re-rating.

...