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Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley CIO and chief U.S. equity strategist. Today I'll discuss our outlook for 2026 that we published earlier this week. It's Wednesday, November 19th at 6:30am in New York, so let's get after it. 2026 is a continuation of the story we've been telling for the past year. Looking back to a year ago, our US Equity outlook was for a challenging first half, followed by a strong second half. At the time of publication, this was an out of consensus stance. Many expected a strong first half as President Trump took office for his second term, and then a more challenging second half due to the return of inflation. We based our differentiated view on the notion that policy sequencing in the new Trump administration would intentionally be growth negative. To start, we likened the strategy to a new CEO choosing to kitchen sink the results in an effort to clear the decks for a new growth positive strategy. We thought that transition would come around mid year. The US Economy had much less slack when President Trump took office the second time compared to the first time he came into office, and this was the main reason we thought it was likely to be sequenced differently. Earnings revisions, breadth and other cyclical indicators were also in a phase of deceleration at the end of 2024. In contrast at the beginning of 2017 when we were out of consensus, bullish earnings revision breadth and many cyclical gauges were starting to re accelerate after the manufact manufacturing and commodity downturn of 2015 and 16. Looking back on this year, this cadence of policy sequencing did broadly play out. It just happened faster and more dramatically than we expected. Our views on the policy front still appear to be out of consensus. Many industry watchers are questioning whether policies enacted this year will ultimately lead to better growth going forward, especially for the average stock. From our perspective, the policy choices being made are growth positive for 2026 and are largely in line with our run it thesis. There's another factor embedded in our more constructive take. April marked the end of a rolling recession that began three years prior. The final stages were a recession in government thanks to Doge, a rate of change trough and expectations around AI Capex growth and trade policy and a recession in consumer services that is still ongoing. In short, we believe a new bull market and rolling recovery began in April, which means it's still early days and and not obvious, especially for many lagging parts of the economy and market. That is the opportunity, the missing ingredient for the typical broadening in stock performance that happens in a new business cycle is rate cuts. Normally the Fed would have cut rates more in this type of weakening labor market, but due to the imbalances and distortions of the COVID cycle, we think the Fed is later than normal in easing policy and that has held back the full rotation toward early cycle winners. Ironically, the government shutdown has weakened the economy further but has also delayed Fed action due to the lack of labor data releases. This is a near term risk to our bullish 12 month forecast should delays in the data continue or lagging. Labor releases do not corroborate the recent weakness in non government related jobs data. In our view, this type of labor market weakness coupled with the administration's desire to run it hot means that ultimately the Fed is likely to deliver more dovish policy than the market currently expects. It's really just a question of timing, but that is a near term risk for equity markets and why many stocks have been weaker recently. In short, we believe a new bull market began in April with the end of the rolling recession and bear market. Remember, the S and p was down 20% and the average S and P stock was down more than 30% into April. This narrative remains underappreciated and we think there's significant upside in earnings over the next year as the recovery broadens and operating leverage returns with better volumes and pricing in many parts of the economy. Our forecast reflect this upside to earnings, which is another reason why many stocks are not as expensive as they appear, despite our acknowledgment that some areas of the market may appear somewhat frothy. For the S&P 500, our 12 month target is now 7,800, which assumes 17% earnings growth next year and a very modest contraction in valuation from today's levels. Our favorite sectors include financials, industrials and healthcare. We're also upgrading consumer discretionary to overweight and prefer goods over services for the first time since 2021. Another relative trade we like is software over semiconductors, given the extreme relative underperformance of that pair and positioning at this point. Finally, we like small caps over large for the first time since March of 2021 as the early cycle broadening in earnings combined with a more accommodative Fed provides the backdrop we have been patiently waiting for. We hope you enjoy our detailed report published earlier this week and find it helpful as you navigate a changing marketplace on many levels. Thanks for tuning in. Let us know what you think by leaving us a review and if you find thoughts on the market worthwhile, tell a friend or colleague to try it out.