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Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley's CIO and Chief US Equity Strategist. Today on the podcast I'll be discussing tariffs, recent developments in AI and what it means for stocks. It's Monday, February 3rd at 11:30am in New York, so let's get after it. While 2024 was a strong year for many stocks, it was mostly a second half story, with recession fears peaking last summer and a Fed that remained on hold due to still elevated inflation. Markets were essentially flat year to date in early August. But then everything changed. The Fed surprised markets with a 50 basis point cut to show its commitment to keeping the economy out of recession. This was followed by better labor data and two more 25 basis point cuts from the Fed. Investors took this as a green light to add more equity to portfolios, the riskier the better. It also became clear to markets and many observers that President Trump was likely going to win the election with a rising chance of a Republican sweep in Congress. Given the more pro growth agenda proposed by candidate Trump and his track record during his first term as president, he made investors even more bullish. Finally, given all the concern about a hung election, the fact that we got such definitive results on election night only added fuel to the equation. Hedges were swiftly removed and even reversed to long positions as both asset managers and retail investors chased performance for fear of falling behind or missing out. In October, I suggested The S&P 500 would likely trade to 6,100 on a clean election outcome. After promptly hitting that level in early December, stocks had a very weak month to finish the year with deteriorating breath. The S&P 500 started the year soft before rallying sharply into Inauguration Day, essentially retesting that 6100 level once again. The difference this time is that the retest occurred on much lower breath with high quality resuming its leadership role. Tariffs were always on the agenda, as was immigration enforcement, both of which are growth negative in the short term. In my view, investors simply got complacent about these risks and are now dealing with them in real time. This also fits with our view that the first half of the year was likely to be tougher for stocks as equity negative policies would be implemented immediately before the equity positive policies like deregulation, tax extensions and reduced government spending had time to play out in the form of less crowding out and lower interest rates. At the index level. I expect the S&P 500 to trade in a range between 5,500 and 6,100 for the next three to six months, with our fourth quarter price target of 6,500 remaining intact. Since we have been expecting tariffs to be implemented, this realization only furthers our preference for consumer services over goods. It also supports our preference for financials and other domestically geared businesses that have limited currency or trade exposures. In addition to rising political uncertainty, we also saw the release of Deepseek's latest AI chatbot last week. This added another level of uncertainty for investors that could have lasting implications at both the stock and index level, given the importance of this investment theme. On one hand, it could also accelerate the adoption of AI technologies if it truly lowers the cost, but many portfolios will need to adjust for this shift if that's the case. We think it further supports our ongoing preference for software and media over semiconductors. Thanks for listening. If you enjoy the podcast, leave us a review wherever you listen and share thoughts on the market with a friend or colleague today.