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Welcome to Thoughts on the Market. I'm Andrew Sheats, head of Corporate Credit Research at Morgan Stanley. Today, a look at the forces that could heat up corporate activity in 2026 if the labor market can hold up. It's Monday, September 29th at 2pm in London. Bill Martin, a former chairman of the Federal reserve in the 50s and 60s, famously joked that it was the Fed's job to take away the punchbowl just when the party is getting good. That quote seems relevant because a host of trends are pointing to a pretty lively scene over the next 12 months. First, the US government is spending significantly more than it's taking in. This deficit, running at about 6.5% of the size of the whole economy, is providing stimulus. It's only been larger during the great financial crisis Covid and World War II. It's Punch next to the corporate sector. As you've heard us discuss on this podcast, we here at Morgan Stanley think that AI related spending could amount to one of the largest waves of investment ever recorded, dwarfing the shale boom of the 2010s and the telecommunications spending of the late 1990s. Importantly, we think this spending is ramping up. Right now, Morgan Stanley estimates that investments by large tech companies will increase by 70% this year, and between 2024 and 2027 we think this spending is going to go up by two and a half times. Note that this doesn't even account for the enormous amount of power and electricity infrastructure that's going to need to be built to support all this. Hence more economic punch. Finally, there's a deregulatory push. My bank research colleagues believe that lower capital requirements for US banks could boost their balance sheet capacity by an additional 1 trillion dol in risk weighted terms. And a more supportive regulatory environment for mergers should help activity there continue to grow. Again, more punch, heavy government spending, heavy corporate spending, more bank lending and risk taking capacity. And what's next from the Federal Reserve? Well, they're not exactly taking the punch away. We think that the Fed is set to cut rates five more times to a midpoint of two and seven eighths. The Fed's supportive efforts are based on a real fear that labor markets are already starting to slow, despite the other supportive factors mentioned previously. And a broad weakening of the economy would absolutely warrant such support from the Fed. But if growth doesn't slow, large deficits, booming capital expenditure, a looser regulatory environment, and now Fed rate cuts would all support even more corporate risk taking, possibly in a way that we haven't seen since the 1990s for credit. That boom would be preferable to a sharp slowing in the economy, but it comes with its own risks. Expect talk of this scenario next year to grow if economic data does hold up. Thanks, as always, for listening. If you find thoughts of the market useful, let us know by leaving a review wherever you listen and also tell a friend or colleague about us today.