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, January 11th at 11.30 a.m. in New York.

So let's get after it.

Last week I discussed the growing potential for a sweep by the Democrats in the Georgia runoff elections.

Prior to the election, this was a surprise outcome and therefore not priced.

Our take was that it would lead to higher long-term interest rates and further support

our preferred sectors and styles.

More specifically, pro-cyclical sectors levered to high economic growth, inflation and interest rates.

These include materials, financials, consumer discretionary and services,

cyclical technology stocks like semiconductors and

industrials. Fast forward to today and that's basically what happened.

Ten-year Treasury yields moved sharply higher last week as pro-cyclical sectors soared.

Meanwhile, stocks most vulnerable to higher

interest rates like high dividend paying defensive sectors and secular growth

underperformed. While this new market leadership was already well established

last year, we're now at the beginning of a new calendar year,

and this means year-to-date performance is back to zero and asset managers can no longer ignore it.

As I've been discussing for weeks, the turning of the calendar can often lead to more aggressive portfolio shifts as these For

discussing for weeks, the turning of the calendar can often lead to more aggressive portfolio shifts as these performance spreads widen.

For example, while the S&P 500 had a very good start to 2021,

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