Welcome to the 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, July 22nd at 9 a.m. Eastern, so let's get after it.

Over the past year, we think financial markets have traded quite efficiently, properly discounting the rapidly

decelerating growth in both the economy and earnings, offset by an aggressive

pivot by the Fed and other central banks to provide more monetary stimulus. In short, global equity markets are essentially flat,

while long-term interest rates have fallen significantly.

Furthermore, the stocks that have really worked over the past year

are generally defensive or high quality in nature, sectors like utilities, consumer

staples, software and REITs.

The S&P 500 is also done better than other leading indices, which are down as much as 5 to 10 percent over the past 12 months.

This is likely due to the fact that the S&P 500 may be the highest quality defensive index in the world.

It's also interesting to note that Treasury bonds, which are even more defensive than the S&P 500, have outperformed over the past year.

Therefore, just looking at the S&P 500 as a measure of economic and corporate health,

may not be a great idea.

Instead, the defensive leadership displayed under the surface is the primary message.

In short, growth continues to slow.

Meanwhile, the Fed and other Central Banks seem to agree, which explains why they have so aggressively pivoted their policy stance this year.

As of today, the futures market is now pricing in a hundred percent certainty that the Fed will be cutting interest rates at its next meeting on July 31st.

The only debate I hear from market participants is whether they will cut 25 or 50 basis points.

There are also rising expectations that the European Central Bank will cut interest rates soon and again start their quantitative easing program in the fall.

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