Welcome to Thoughts on the Market.
I'm Andrew Sheets, head of Corporate Credit Research at Morgan Stanley.
Today on the podcast,
I'll be discussing how much comfort or concern equity and credit markets should be taking from each other's moves.
It's Friday, March 14th at 2 p.m. in London.
Credit has weakened as markets have gyrated in the face of rising uncertainty around U.S. economic policy.
But it has been a clear outperformer.
The credit market has taken longer to react to recent headlines and seen a far more modest response to them.
While the U.S. stock market, measured as the S&P 500, is down about 10%,
the U.S. High-Yield Bond Index, comprised of lower-rated corporate bonds, is down about just 1%.
How much comfort should stock markets take from credit's resilience?
And what could cause credit to now catch down to that larger weakness and equities?
A good place to start with these questions is what we think are really three distinct stories behind the volatility and weakness that we're seeing in markets.
First, the nature of U.S. policy towards tariffs, with plenty of on-again, off-again drama,
has weakened business confidence and deal-making,
and that's cut off a key source of corporate animal spirits and potential upside in the market.
Second, and somewhat relatedly,
that reduced upside has lowered enthusiasm for many of the stocks that had previously been doing the best.
Many of these stocks were widely held,
and that's created vulnerability and force-selling as previously popular positions were cut.