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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 new headwinds for growth and what that means for equities. It's Monday, February 24th at 11:30am in New York, so let's get after it until this past Friday Sharp Sell off in Stocks the correlation between bond yields and stocks have been in negative territory since December. This inverse correlation strengthened further into year end as the 10 year US treasury yield definitively breached 4.5% on the upside for the first time since April of 2024. In November, we had identified this as an important yield threshold for stock valuations. This view is based on prior rate sensitivity. Equities showed in April of 2024 and the fall of 2023 as the 10 year yield pushed above the same level. In our view, the equity market has been signaling that yields above this price point have a higher likelihood of weighing on growth. Supporting our view, interest rate sensitive companies like homebuilders have underperformed materially. This is why we've consistently recommended the quality factor and industries that are less vulnerable to these headwinds. In our Year ahead outlook, we suggested the first half of 2025 would be choppier for stocks than what we experienced last fall. We cited several reasons, including the upside in yields and a stronger US dollar. Since rates broke above 4.5% in mid December, the S&P 500 has made no progress. Specifically, the 6100 resistance level that we identified in the fall has proven to be formidable for the time being. In addition to higher rates, softer growth prospects alongside a less dovish Fed are also holding back many stocks. As we've also discussed, falling rates won't help if it's accompanied by falling growth expectations, as Friday's sharp sell off in the face of lower rates illustrated beyond rates and a stronger US Dollar, there are several other reasons why growth expectations are coming down. First, the immediate policy changes from the new administration, led by immigration enforcement and tariffs, are likely to weigh on growth while providing little relief on inflation in the short term. Second, the Department of Government Efficiency, or doge, is off to an aggressive start, and this is another headwind to growth initially. Third, there appears to have been a modest pull forward of goods demand at the end of last year ahead of the tariffs, and that impulse may now be fading. Fourth, consumers are still feeling the affordability pinch of higher rates and elevated price levels which weighed on last month's retail sales data. Finally, difficult comparisons broader awareness of Deepseek and the debate around AI caps deceleration are weighing on the earnings revisions of some of the largest companies in the major indices. All of these items are causing some investors to consider cheaper foreign stocks for the first time in quite a while, with China and Europe doing the best. In the case of China, it's mostly related to news around Deepseak and perhaps stimulus for the consumer finally arriving this year. The European rally is predicated on hopes for peace in Ukraine and the German election results that may lead to a loosening of fiscal constraints. Of the two, China appears to have more legs to this story, in my opinion. Our equity strategy in the US Remains the same. We see limited upside at the index level in the first half of the year, but plenty of opportunity at the stock sector and factor levels. We continue to favor financials, software over semiconductors, media and entertainment, and consumer services over goods. We also maintain an overriding penchant for quality across all size cohorts. 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.