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Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley CIO and chief U.S. equity strategist. Today on the podcast I'll be discussing the converging market forces bolstering our bullish outlook for 2026. It's Monday, January 5th at 11:30am in New York, so let's get after it. The new year is usually a time to look forward, but today I want to take a step back and talk about what the market is missing. A series of bullish catalysts are lining up at the same time, and the market is still underestimating their collective impact. There's been a lot of focus on individual positives, solid earnings growth and further Fed easing. But in our view, the real story is how these forces are reinforcing one another. Deregulation, positive operating leverage, accommodative monetary policy, and increasingly supportive fiscal policy are all working in the same direction. And as we head into midterm elections later this year, these policy levers are likely to stay supportive. Importantly, this isn't a market that's already priced for the outcomes I envision. Positioning in cyclical trades remains relatively light, and sentiment in economically sensitive areas is far from exuberant. That combination of improving fundamentals with cautious positioning is exactly what tends to characterize the early stages of a recovery. I continue to believe these tailwinds are most underappreciated in cyclical areas like consumer discretionary goods, financials, industrials and small and mid cap stocks. Many of the indicators we track are only just beginning to turn higher. This doesn't look late cycle to me. It looks early in what I have deemed to be a rolling recovery. One reason investors have been hesitant is the sluggishness of traditional business cycle indicators, particularly the ISM Manufacturing Purchasing Managers Index. There's been a reluctance to press cyclical trades until those gauges clearly reaccelerate, and beneath that hesitation is a lingering anxiety that the US Economy could even slip back into a gross scare. My view is different. I believe a three year rolling recession ended with Liberation Day back in April. If that's true, then the moderate softness we're now witnessing in lagging labor data is constructive for equities because it keeps the Fed leaning dovish for longer and more aggressive a positive for equities. I see the second half of 2025 as the bottoming process for key macro indicators, with 2026 shaping up as a year of re acceleration. Longer cycle analysis supports this. Specifically, the 45 month cycle of the ISM Manufacturing Purchasing Managers Index points to a rebound. That recovery has been delayed but not canceled. Another tailwind that doesn't get nearly enough attention is energy prices. Gasoline prices in particular are sitting near five year lows, which is providing real economic relief for lower and middle income consumers. That cushion matters, especially as other parts of the economy firm this past weekend's events in Venezuela argued for lower oil prices for longer. From a sector standpoint, financials stand out as the key beneficiary of deregulation, and these stocks have been great performers over the past year. In anticipation of these changes, I think there's more to go in 2026. Housing can be another important piece of the recovery. Subdued wage growth and falling rents may pressure home prices while some builders are prioritizing volume over margins. While that may cap profitability for the builders, it could unlock housing velocity and feed into a more dovish inflation backdrop. Of course there are also risks. Liquidity has been our top concern since September and markets have reflected that through weakness in speculative assets. The good news is that the Fed has responded by ending quantitative tightening early and restarting asset purchases through the Reserve Management program. This effectively adds liquidity to a system that was showing signs of stress this past several months. Another risk is a renewed slowdown in AI capex, particularly as markets demand clearer payback from debt funded spending and geopolitically. The US intervention in Venezuela raises new questions. Strategically, it reinforces US influence in the Western Hemisphere and supports our run at Hot Thesis. But the key wildcard remains whether China chooses to react. Net Net we think the balance of risks and rewards still favor leaning into this early cycle recovery and our bullish outlook for US equities in 2026. Thanks for tuning in. I hope you found it informative and useful. 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.