Podcast Summary: Thoughts on the Market

Episode: Capital Markets Pick Up as U.S. Policy Settles
Date: September 24, 2025
Host: Michael Zezas, Global Head of Fixed Income Research and Public Policy Strategy

Overview

In this episode, Michael Zezas explores how shifts in U.S. policy under President Trump’s new administration are impacting capital markets and investor behavior in 2025. With volatility receding and a new policy consensus forming in Washington, the episode investigates why IPO and M&A activity is surging and how market structures—from yield curves to the strength of the dollar—are responding.

Key Discussion Points & Insights

1. Declining Policy Uncertainty

[00:55]

• At the start of the year, policy uncertainty soared, but it has since moderated as the administration's direction becomes clearer.
• “Policy uncertainty…has come down from the peaks we saw earlier this year.” (Michael Zezas, 00:55)
• Practical evidence includes recent deals with major trading partners and a “pause” in tariff escalation.

2. The Rise of Industrial Policy

[01:35]

• A notable shift: Both parties in Washington now embrace a more interventionist, industrial policy, moving away from a previous consensus that favored free trade and minimal government interference.
• “Industrial policy, where the government takes a more active role in shaping industries, is now a key part of US strategy.” (Michael Zezas, 01:52)
• Trade tools (e.g., tariffs) implemented under Trump and sustained under Biden now enjoy broader political acceptance. Even critics focus on tariff methods—not their existence.

3. Sector-Specific Examples

[02:09]

• Healthcare, energy, and especially technology sectors exemplify this new consensus.
• Semiconductors: The CHIPS Act under Biden focused on supply chains, while Trump’s return includes export licensing fees targeting China and discussions of direct government stakes in key companies.

4. Drivers of Capital Markets Activity

[02:40]

• Increasing market activity is directly tied to the stabilizing policy outlook.
• IPOs have surged 68% year over year; M&A is up 35%. “Those numbers are coming off low levels, so the pace may slow, but we expect growth to continue for a while.” (Michael Zezas, 03:16)
• Corporate balance sheets are strong, and private capital is actively seeking investments—especially in technology, where AI and digital upgrades demand capital.

5. Impact on Broader Market Trends

[03:32]

• Yield curves are steepening, and the dollar is weakening.
• Drivers: Continued restrictive trade policy, “locked in” fiscal policy, and a Federal Reserve more willing to accept inflation to support growth.
• “The dollar could keep falling and longer maturity bond yields could be sticky even as shorter maturity yields decline to reflect the more dovish Fed.” (Michael Zezas, 03:49)

Notable Quotes & Moments

• “With President Trump back in office, U.S. policy would shift in big ways. But there was less agreement about what those changes would mean for the economy and markets.” (Michael Zezas, 00:13)
• “Even current critics focus more on how tariffs are applied than whether they should exist at all.” (Michael Zezas, 01:58)
• “Our corporate clients have told us that having a smaller range of possible policy outcomes helped them move forward with strategic plans.” (Michael Zezas, 03:01)

Important Timestamps

• 00:00 – 00:55: Introduction; recap of policy environment and investor uncertainty
• 00:56 – 02:08: Decline in policy uncertainty and emergence of durable policy signals
• 02:09 – 02:39: Industrial policy and sectoral examples (esp. semiconductors)
• 02:40 – 03:31: Capital markets activity: drivers, statistics, investor sentiment
• 03:32 – 04:06: Broader market trends: yield curves, dollar, fiscal/monetary convergence, outlook

Conclusion

With greater consensus and clarity on U.S. economic policy, capital markets are seeing rejuvenated activity. The episode underscores that industrial policy now drives bipartisan strategy—fundamentally altering corporate strategy and investment flows. As firms and investors adapt to this “new normal,” the Morgan Stanley team continues to monitor the balance between policy risks, market structure, and economic outlook for the coming year.