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 of perspectives, I'll be talking about

the latest trends in the financial marketplace.

It's Monday, March 1st at 1.30 p.m. in New York, so let's get after it.

Last week I discussed higher interest rates as a risk to equity valuations.

While not a new topic, last week felt like a tipping point for bond investors that they

could no longer ignore the strong economic data.

There's also an increasing likelihood of another fiscal stimulus bill getting passed,

despite the plunge in COVID cases and hospitalizations.

With the next round of fiscal stimulus checks likely to go up by the end of the month, and

the economy likely to reopen shortly thereafter, the markets are starting to contemplate what

that means for the demand of real goods and services.

It's not hard to see how inflation could really spike in the spring, and bond markets

are starting to take notice.

For the record, we've been on this train for a while recommending clients focus on investments

that can benefit from these rising prices and interest rates.

Fortunately, the market has been on the same page, with cyclical, small caps and other

inflationary beneficiaries like commodities outperforming the most.

But now interest rates are finally catching up and that is pushing down valuations, fashion

and earnings revisions are moving up.

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