Morgan Stanley's chief strategist Michael Wilson noted that the U.S. stock market has reverted to a "bad news is good news" dynamic, where strong labor market data—while positive for the economy—could reduce the likelihood of Federal Reserve rate cuts in 2026.
According to Wilson, a modestly weak U.S. jobs report this week may increase the probability of further Fed easing, which would benefit equities. Following three consecutive rate cuts by the Fed, investors are scrutinizing economic data to determine whether the central bank will pause its easing cycle or take more aggressive action.
"We are firmly back in a 'bad news is good news' regime," Wilson wrote in a report. He explained that robust employment figures, though economically favorable, diminish expectations for rate reductions next year.
**Global Stocks at Record Highs** This week’s U.S. economic releases will help fill a data void caused by the recent government shutdown. Delayed monthly employment figures, due Tuesday, are forecast to show 50,000 new jobs and a 4.5% unemployment rate—consistent with a cooling but not collapsing labor market. Consumer inflation data follows on Thursday.
The MSCI All Country World Index, a broad gauge of global equities, hit a record high after the Fed’s December 10 rate cut. Both the S&P 500 and Nasdaq 100 have rallied in 2025, buoyed by AI-driven optimism and expectations of accommodative monetary policy.
Fed Chair Jerome Powell struck an upbeat tone last week, suggesting the U.S. economy would strengthen as tariff-related inflationary pressures fade. While policymakers projected just one 2026 rate cut, traders continue pricing in two.
The Fed now expects 2.3% GDP growth next year, up from 1.8%, with inflation slowing to 2.4%.
Meanwhile, Citigroup strategists led by Scott Chronert forecast double-digit gains for U.S. stocks in 2026, citing robust corporate earnings and loose monetary policy. They project the S&P 500 could rise 12% to 7,700 by year-end.
"A supportive Fed remains a key pillar of our investment thesis," Chronert’s team wrote.
*Risk Disclosure: Investing carries risks. This analysis does not constitute personal advice and may not account for individual financial circumstances. Investors should assess suitability independently.*
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