Graystone On The Markets

GLOBAL INVESTMENT COMMITTEE / COMMENTARY SEPTEMBER 2019
On the Markets
MICHAEL WILSON
Chief Investment Officer Back to Nature
Chief US Equity Strategist
Morgan Stanley & Co. It’s been nearly three decades since my first visit to
Yosemite. Since then, I’ve been fortunate to experience
more than 20 of these treasured national parks. Late last
month, my wife and I returned to Yosemite to share the
thrill of climbing Half Dome with our sons, just like we had
done together 28 years ago. A week in the mountains,
disconnected from the internet, can affect your perspective
about a lot of things, including the markets. Without the
daily noise and chatter, I was able to reflect a bit on our
investment thesis, evaluate its accuracy and determine
TABLE OF CONTENTS whether it remains on track.
Don’t Hold Your Breath on The bottom line is that I have more conviction in our view that financial markets
Proactive Fiscal Stimulus remain held back by slowing growth and the limited ability of central banks to stop the
2
Slowing developed economies need it, but deteriorating business cycle in the US and abroad. However, upon my return from the
are not likely to enact it. peace and quiet, it seems the popular narrative remains to blame trade tensions and/or the
Getting Real
Federal Reserve for all the negative price action we have been getting from stocks and
3 US stocks may look strong, but they are
essentially flat since early last year. the strength in bonds for the past year.
What’s Ailing Health Care Stocks In my view, much of the market commentary like this misses the real issue: The
5 These stocks usually lag when political business cycle is coming to an end as corporate margins and profits roll over. It’s the
candidates start debating health care. natural progression that must run its course, just like the glaciers that cut Yosemite’s
The Name Is Bond. Long Bond.
beautiful mountains and valleys. Recessions are the natural way to remove excesses in
6 Long-term yields are so depressed that in
some countries, they are negative.
the real economy. If you don’t let nature run its course, even worse outcomes are likely
How Falling Rates May Affect Bonds to occur as evidenced by the financial crisis experienced 10 years ago. In addition to the
7 Investors should consider high-quality, blame game, there does seem to be growing support for more fiscal rather than monetary
long-term bonds. policy—something we have been advocating for years.
Change for a Dollar? Today, with so much political partisanship, more fiscal legislation looks quite
8 The US could take measures to weaken
unlikely, especially going into an election year—unless we have a recession. In that case,
the greenback.
Short Takes
there will be enough pressure on Congress to enact more policy that will help the average
We look at economic data that could American, like an infrastructure bill or more tax breaks for the middle class. A US
signal an employment downturn, weigh recession also would likely motivate other large countries to enact fiscal policy.
10 behavior of defensive and secular growth Therefore, we shouldn’t fear a recession. Just like thinning out an overgrown forest
stocks during recession scares and find
can prevent damaging wildfires, a recession may be exactly what we need to avoid a real
that despite expectations for a poor crop,
corn prices have declined.
crisis and find the next avenue of sustainable growth. With an economic recession now
Making Sense of Big Data looking more likely, we continue to recommend patience with one’s investments. As a
Big data, artificial intelligence and reminder, we think the markets have already discounted 75% of the recession risk, but
11
machine learning could change and we prefer to wait for the consensus to actually acknowledge it more fully. Let nature take
improve the investment process.
its course before positioning portfolios for the next growth cycle. 
ON THE MARKETS / ECONOMICS
reduce the extra borrowing, and only with

Don’t Hold Your Breath on an absolute majority in parliament. Our
expectation for a larger fiscal boost would
Proactive Fiscal Stimulus probably increase if growth was to slow

more than we forecast. Rather than
proactive and swift, we believe that any
additional stimulus from Germany will
CHETAN AHYA pushing global growth to a postcrisis low. likely be reactive and gradual.
Chief Economist and Global Head of Economics Slower growth has sharpened the focus on HURDLES IN THE US. Similarly, in the
Morgan Stanley & Co. US, the administration faces hurdles. Our
liquidity-trap challenges—which are long-
R ecent reports have indicated that
China, Germany and the US could be
considering new fiscal stimulus measures.
standing in Europe and Japan—and raises
questions about monetary easing’s
US economics team figures that cutting the
payroll tax to 4.0% from 6.2% would
efficacy. Case in point: The G4 policy rate boost disposable income by $250 billion—
China may raise local government bond but a tax cut needs congressional support,
is 0.9%, and the corresponding 10-year
issuance to accelerate infrastructure and the election season makes that a
government bond yield is 0.5%. We’ve
spending, Germany is possibly considering challenge. Hence, bipartisan agreement
been arguing that monetary policy can’t
steps to potentially run a budget deficit for appears unlikely until we see a severe
drive a recovery as long as trade
the first time in years and the US may be growth slowdown.
uncertainty stifles private sector
weighing a payroll tax cut. China, however, could implement
confidence and demand.
TOUGH CHALLENGES. Structural and meaningful easing. Policymakers have
REACTIVE POLICY. In the current
cyclical challenges argue for fiscal policy already delivered a $250 billion stimulus
cyclical downturn, monetary and fiscal
action. It’s clear that monetary easing plan, which includes tax cuts and a
policy have largely been reactive. Further-
alone won’t reverse deteriorating global reduction in the corporate sector’s social
more, political and legal constraints leave
growth. Structurally, weaker demo- security burden. Unfortunately, weak
little room for aggressive fiscal action.
graphics, elevated debt and disinflationary corporate confidence means that most of
While some fiscal stimulus is under way,
pressures are drags (see chart). Declining the benefits will be saved. The government
we see limited further expansion next year.
natural interest rates show that monetary could preemptively announce additional
In Germany, we think policymakers
policy by itself is not enough to stimulate easing via direct public spending, but it
will announce additional stimulus, mostly
demand and lift inflation expectations. may renew financial stability concerns.
in response to recessionary conditions.
During the past 10 years, inflation in FURTHER EASING. We expect China
Germany’s constitution requires a nearly
developed economies has averaged 1.2%, will enact further fiscal easing only if
balanced structural budget through the
well below the central banks’ 2.0% goal. downward pressures persist. Given
cycle. Only in the case of a severe
Cyclical developments have made continuing data deterioration, Robin Xing,
recession is a deficit possible, provided
matters worse. Trade uncertainty is our chief China economist, expects $100
there’s a binding amortization plan to
billion to $125 billion in infrastructure
Little Further Fiscal Expansion Seen for G4 Economies spending. However, with trade uncertainty
2% weighing on external demand and private
G4 Primary Government Budget Balance* investment, and policymakers maintaining
0 a tight grip on property lending, we
-2 estimate overall GDP growth to remain
relatively weak at around 6%.
-4 All told, we expect global growth to
-6 slow further, to 2.8% year over year in the
fourth quarter, and remain below 3% in
-8 US Euro Zone 2020’s first half as the slowdown spreads.
Japan UK Continued trade tensions, combined with
-10
reactive monetary and fiscal policy, mean
-12 that the risk of tighter financial
'01 '03 '05 '07 '09 '11 '13 '15 '17 '19 conditions—and a resultant global
recession—is high and rising. 
*Cyclically adjusted; MS & Co. estimates for 2019 and 2020
Source: Haver Analytics, IMF, Morgan Stanley Research as of Aug. 25, 2019
Please refer to important information, disclosures and qualifications at the end of this material. September 2019 2
ON THE MARKETS / STRATEGY
invert, with the 10-year yield now 49 basis

Getting points below the three-month yield. The
rate plunge also inverted the two-year/10-
Real year yield curve, a part of the curve that

heretofore has resisted the pressure of
negative news on global growth. Perhaps
equally provocative is the level of rates,
LISA SHALETT double-digit surge, the S&P 500 is only with the benchmark 10-year yield nearly
Chief Investment Officer about 2% higher than where it was in breaching 1.5%, the second-lowest level of
Head of Wealth Management Investment this cycle, and the 30-year yield cracking
Resources January 2018. This means stocks have
Morgan Stanley Wealth Management made little progress in this 18-month an all-time low below 2%. Why the
apparent panic and flight to safety? In
S ometimes the most important thing for
investors to have is an intermediate-
period. On the other hand, interest rates
have been more than halved since short, the three pillars of the bullish
narrative appear to have cracked.
term perspective, of say six to 12 months. November 2018 (see chart). Total return
By that lens, it may be easier to for the Bloomberg Barclays US Aggregate Global growth continues to worsen.
contextualize the larger narrative of where Bond Index since January 2018 is more Specifically, GDP forecasts, purchasing
markets are and what they are telling us. than 7%—a significant outperformance of managers indexes and OECD leading
The Global Investment Committee has bonds relative to stocks. That is why, indicators have continued to decline, with
maintained a conservative stance toward perhaps in a contrarian way, we see the recent news out of Germany and China
this year’s stock market rally, maintaining developments of the past month as particularly concerning. Oil prices, a broad
a year-end target price of 2,750 for the constructive in shifting the market balance measure of the health of global demand
S&P 500; we also added long-term bonds toward stocks in the intermediate term. have continued to weaken as have the
in April. Thus, the recent market pullback YIELD CURVE DYNAMICS. What are we prices of other commodities.
does not make us cautious. looking at? Start with the yield curve. The inversion of the yield curve signals
To the contrary, the messages we read Plummeting long-term US Treasury that investors believe the Federal Reserve
in the market’s actions are somewhat interest rates sent the Merrill Lynch has made a policy mistake—essentially,
constructive for equity investors. Here’s Option Volatility Estimate Index (MOVE) “behind the curve” (see chart, page 4). The
why: Despite December 2018’s bear to a 2.5-year high and caused the three- 25-basis-point rate cut on July 31 has been
market decline of roughly 20% and 2019’s month/10-year yield curve to further viewed as disappointing, given
expectations for more proactive easing as
Since Early 2018, the S&P 500 Shows No Gain “insurance” against economic decline.
While the 10-Year US Treasury Yield Has Plummeted This “mistake” has kept financial
conditions tight, the US dollar strong and,
3,100 3.4 % in turn, put pressure on emerging market
3,000 3.2 countries with dollar-denominated debt.
3.0 Lastly, there is now growing skepticism
2,900 that the trade conflict with China will be
2.8 settled anytime soon—a scenario that sets
2,800 2.6 up risks of more currency volatility and
deflation, which also puts downward
2,700 2.4
pressure on interest rates.
2,600 2.2 RECESSION ODDS GROWING. Granted,
S&P 500 Index (left axis) 2.0 we do think recession odds are growing.
2,500 An inverted yield curve reduces what
10-Year US Treasury 1.8
banks can earn by making loans, slowing
2,400 Yield (right axis) 1.6 both credit growth and economic activity.
2,300 1.4 While this credit dynamic often works
Jan '18 Jul '18 Jan '19 Jul '19 with lags, it is why the yield curve has a
good track record of calling recessions
Source: Bloomberg as of Aug. 30, 2019
and why equity investors are finally Inverted Yield Curves Raise Odds of
paying attention. Indeed, now many Recession in the Next Year
investors and market pundits have come to
recognize rising recession risks and are
US Treasury 10-Yr. Yield Minus Three-Mo. Yield
recommending defensive positioning. US Treasury 10-Yr. Yield Minus Two-Yr. Yield
While we continue to believe that any 400
recession over the next 12 to 24 months
would be modest and likely mirror the 300
1990-1991 experience, we see equity
investors’ increasing caution as a good 200
thing; it adjusts stock prices for the current
risks—factors that were shrugged off in 100
June and July as the market placed high
hopes on both the Fed and the Trump 0
administration’s ability to navigate trade
conflicts. -100
There are two important implications of
1985 1989 1993 1997 2001 2005 2009 2013 2017
the recession wake-up call. The first is that
it will help recalibrate 2020 consensus Source: Bloomberg as of Aug. 30, 2019
earnings estimates, which now call for a positive for equities. Combine that with a Going forward, we will watch for a
11% gain. In our opinion, that is steepening of the yield curve, and we steepening of the yield curve in which Fed
unachievable. Already, as we wrap up the would be buyers of stocks. cuts on the front end are matched by rising
second quarter earnings season, we see VALUATION SUPPORT. A final factor is rates on the long end, which would be a
that year-over-year profits appear to be that the decline in stock prices establishes sign of improving economic prospects.
down 0.75%—the second consecutive valuation support, something that we feel Until then, consider maintaining barbell
down quarter and enough to constitute an has been lacking this year. With flat-to- bond portfolios through overweights to
earnings recession, especially given that in falling earnings growth, all of the gains ultrashort and long-term bonds. A
the second quarter of 2018 profits grew have come up from expansion of the bottoming in long rates and steepening of
26%. Forward earnings guidance has been price/earnings multiple. With the the curve will ultimately be a buying
resetting. The most recent negative-to- benchmark 10-year Treasury now at opportunity for stocks. 
positive guidance ratio is 3.0, which is 1.50%, the equity risk premium is a much
above average, and earnings revision more comfortable 470 basis points, well
breadth is still negative. Corporate above the 40-year average of 275 basis
managers are finally acknowledging the points and this cycle’s average of 350
weakening economic outlook, and that’s a basis points.
ON THE MARKETS / EQUITIES
and Tufts School of Medicine. Given the

Health Care Diagnosis: huge up-front research and development
investments, biopharma companies have
Policy Uncertainty every incentive to ensure that clinical trials

are conducted properly and
expeditiously—and that’s where CROs
come into play. Drug companies often
KEVIN DEMERS, CFA performing sector for the year to date. It’s outsource the design and execution of
Equity Strategist up 6% versus 17% for the S&P 500, as clinical trials to CROs, which then
Morgan Stanley Wealth Management leverage data to improve patient selection
multiple compression offset relatively
I nvestors often note the demographic
demand drivers for the health care
sector as a reason to be a long-term bull.
strong earnings growth. In the first half,
health care companies’ earnings climbed
and trial design. We believe that their
intermediary position in the health care
value chain should shield CROs from
9.3%, well above the S&P 500’s 0.6%.
However, the sector also faces an often- increased regulatory scrutiny.
This divergence between solid
overlooked cyclicality—the political cycle. Clinical labs. For the past several
fundamentals and relatively weak returns
As politicians debate health care policy, it years, the Protecting Access to Medicare
highlights investors’ aversion to
injects uncertainty into the outlook. This Act of 2014 disrupted the clinical lab
uncertainty.
has certainly played out this year as we industry by standardizing and reducing
That’s understandable. However, the
started the 2020 election cycle. “Medicare Medicare payments for lab tests. While
health care sector tends to recover from
for All,” Medicare Part B reform and drug this was an immediate negative, it may
“policy-inflicted sickness,” but it may take
price regulation are in the news. actually benefit the large national
time. For now, consider subsectors where
Searching “Medicare for All” in Google laboratories, which already conduct tests at
regulatory risks appear more limited:
Trends as a proxy for broad health care lower costs. As smaller, independent labs
contract research organizations (CROs),
policy uncertainty, these concerns spiked and hospitals face margin pressure, we
clinical labs and medical technology.
in late January; coincidentally that aligned expect to see consolidation. Furthermore,
Contract research organizations. On
with 2020 presidential hopefuls starting to the recent rise of “preferred lab networks,”
average, it costs $1.5 billion to develop a
announce their candidacies. That’s when whereby managed care companies direct
new drug and only 12% of drugs actually
health care multiples contracted, reflecting patient testing to in-network labs, should
make it from Phase 1 trials to approval,
the increased “cyclical” scrutiny (see further accelerate this shift toward the
according to a 2014 report by the Tufts
chart). Now at a 12% discount to the larger players. With the regulatory impact
Center for the Study of Drug Development
market, health care is the second worst- behind them and the new operating
As Health Care Policy Has Gained Public Attention, environment favoring the bigger
companies, we see opportunities in clinical
The Sector’s Relative Valuation Has Declined
labs.
Google Search "Medicare for All," Interest Over Time* (left axis) Medical technology. Drugmakers have
30 Health Care Sector Premium/Discount to S&P 500 (right axis) 20% benefitted from hugely inflationary
Historical Average (dotted line, right axis) 15 pricing, but medtech companies have
25 faced price deflation for their products.
10
This leaves the industry less exposed to
20 5
incremental regulation focused on capping
0 price increases and improving
15
-5 transparency. The medtech industry is
10 -10 quite diverse across products and markets,
with growth generally supported through
-15
5 increased utilization trends, aging
-20 demographics, and innovation. With an
0 -25 attractive growth backdrop and less
regulatory/pricing risk, medtech appears
well positioned within the health care
*Numbers represent search interest relative to the highest point on the chart for a given region landscape. 
and time. A value of 100 is the peak popularity; 50 means the term is half as popular.
Source: Google Trends, Bloomberg as Aug. 30, 2019
ON THE MARKETS / FIXED INCOME
bonds offer quite attractive positive yields

The Name Is Bond. when combined with currency swaps or
currency forwards. This is why liquid
Long Bond. government bonds around the world trade

with such positive correlations.
Yet we can’t ignore negative-yielding
bonds, either. They have had an
MATTHEW HORNBACH November 2018 and slightly below our undeniable impact on other markets such
Global Head of Interest Rate Strategy 2019 year-end forecast of 1.60%. Also in as gold, which may find demand from
Morgan Stanley & Co. investors looking to avoid negative yields
mid-August, the US Treasury Department
T he yield on each longest-maturity
government bond in more than 20
announced it had begun outreach on the
idea of selling ultralong bonds—
elsewhere. The rate situation is one of the
factors behind the run-up in gold prices. At
developed markets—including the US, the about $1,520 an ounce, gold is up some
specifically, 50-year and 100-year
UK, Canada, Germany and France—hit an 18% for the year to date. Of course,
maturities. The reception to the idea was
all-time low in August. While a “sell the investors have other options to stash away
lukewarm given the market’s belief that
fact” trade in bond markets around the money, like short-term Treasuries.
regular, predictable Treasury issuance
central bank meetings in mid-September The yield on the two-year note has
leads to lower overall borrowing costs.
may cause rates to tick up, there is no fallen into the 1.38% to 1.52% range,
Global rates plunged, too, and global
question that long-term bonds are in given that the bond market now prices four
sovereign bonds with a par value of $15
unchartered territory. to five more 25-basis-point rates cuts. We
trillion now trade with negative yields.
NEW LOW YIELDS. Driven by expect the yield to remain in that range at
Essentially, investors get back less than
deteriorating economic data that raises least until the next meeting of the Federal
they paid for the bond. Most of the
concerns about a global recession, the Open Market Committee on Sept. 17 and
negative yields are in Japan and Europe—
plunge in long-term interest rates has been Sept. 18.
in particular Germany, France,
extraordinary (see chart). By the end of Of course, given the rate plunge,
Switzerland and the Netherlands (see
August, the 30-year US Treasury bond investors are asking if US Treasury bond
chart).
yield had fallen below 2.00%, making an yields could follow Japan and Germany
POSITIVE PAYOUTS. At the same time,
all-time low at 1.94%. The benchmark 10- into negative territory. In our view, the
what looks to one person like a negative
year US Treasury touched 1.47%, within chance of that happening in the next five
yield to another may offer a positive
spitting distance of the all-time low of years is very low. 
payout—and an attractive one at that.
1.32%. It settled in at 1.50% by end of the
German Bunds and Japanese government
month, a little less than half the yield in
Long-Term Interest Rates Have Plunged Globally—and Some Are Even Negative
US Treasury Yield 2.0 %
3.5 % 1.50% 10-Year Government Bond Yield
30-Year 10-Year 1.5
3.2 1.0
0.48%
2.9 0.5
2.6 0.0
-0.5 -0.28% -0.41%
2.3 -0.56%
-1.0 -0.70%
2.0 -1.09%
-1.5
1.7
1.4
Aug '18 Oct '18 Dec '18 Feb '19 Apr '19 Jun '19
ON THE MARKETS / FIXED INCOME
liquidity. The table below highlights how

How Falling Rates May bond indexes and the S&P 500 Index have
fared in the past 25 years in months when
Affect Bond Investors the 10-year US Treasury yield moved

down by at least 0.10% and 0.25%,
respectively. The data suggests that:
Longer-maturity bonds tend to
SUSAN K. MCDOWELL liquidity while protecting their assets from outperform. Benchmarks across a variety
Fixed Income Investment Officer the uncertainty of rate hikes. As the Fed of maturity ranges show that longer-dated
Morgan Stanley Wealth Management fixed income provides a positive hedge
JUSTIN EPSTEIN, CAIA
raised short rates and the yield curve
continued to flatten, short-term invest- and stronger returns than equities and
Fixed Income Analyst
Morgan Stanley Wealth Management ments remained attractive. Meanwhile, the fixed income that have shorter maturities.
Lower-quality credit underperforms.
T he potential for an economic slow-
down has led to falling rates along the
US Treasury yield curve. In addition, the
S&P 500 Index has averaged a 14.70%
yearly return during this period. As a
result, investor portfolios have significant
Regardless of maturity, certain bonds may
deteriorate when the Fed is lowering rates,
Federal Reserve voted in late July to allocations to both equity and short-term as this normally occurs when the economy
reduce the federal funds rate by 0.25% to a fixed income. In the current falling rate is slowing, which may affect the ability of
range of 2.00% to 2.25%, which may be environment, investors may consider companies to repay their loans. Debt with
the onset of a new rate-cutting cycle. realigning their fixed income holdings to higher credit risk and less liquidity will
This is particularly relevant as some $1 diversify certain risks. generally offer more yield but may
trillion moved into money market and Generally, the price of bonds tends to produce a negative total return when
short-term bond funds during the past 10 move inversely with falling interest rates, interest rates fall. In the table, the Credit
years. Investors began allocating to short- resulting in gains. However, the perform- Suisse Leveraged Loan Index, which
term fixed income strategies following the ance of debt is heavily influenced by mainly comprises of below investment
financial crisis, seeking safety and maturity and credit risk, which also affects grade securities, represents riskier bonds.
The depth of the interest rate
Higher-Quality, Longer-Maturity Fixed Income Has decrease magnifies these effects. The
Outperformed When Interest Rates Declined performance of both equity and fixed
Months of
Average income generally accelerates, both
Index/Interest Rate Decline Positive
Performance (%) positively and negatively, as the size of the
Returns* (%)
S&P 500 interest rate drop increases. In the table, it
Less than or equal to 0.10% 57 -0.29 can be seen that the average total return for
Less than or equal to 0.25% 38 -1.17
Credit Suisse Leveraged Loan the S&P 500 was -0.29% during months in
Less than or equal to 0.10% 75 0.05 which the 10-year Treasury yield fell at
Less than or equal to 0.25% 64 -0.31 least 0.10% while the Bloomberg Barclays
Ryan Labs 2-Year US Treasury
Less than or equal to 0.10% 98 0.69 7-10 Year Aggregate Index had an average
Less than or equal to 0.25% 98 0.87 1.74% return. The S&P 500’s negative
Ryan Labs 10-Year US Treasury return increased substantially to -1.17%
Less than or equal to 0.10% 100 2.56
and the Bloomberg Barclays 7-10 Year
Bloomberg Barclays 1-3 Year Aggregate Aggregate Index produced an even greater
Less than or equal to 0.10% 98 0.64 return of 2.18% in months that the 10-year
Less than or equal to 0.25% 96 0.76 Treasury yield fell by 0.25% or more.
Bloomberg Barclays 7-10 Year Aggregate
Less than or equal to 0.10% 100 1.74 For many investors, certain types of
Less than or equal to 0.25% 100 2.18 bonds can provide ballast in a portfolio. If
Bloomberg Barclays US Municipal 3-Year the Fed continues to lower the fed funds
Less than or equal to 0.25% 98 0.74 rate, or if market forces further push down
Bloomberg Barclays US Municipal 10-Year Treasury yields, investors should consider
Less than or equal to 0.10% 97 1.33 the diversification and liquidity provided
by higher-quality and longer-maturity
*300 months from July 1994 through June 2019
Source: Morgan Stanley Wealth Management Portfolio Analytics
bonds. 
ON THE MARKETS / CURRENCIES
beyond this can be obtained, but this

Change for requires the assent of the Federal Reserve
System, Congress and/or foreign partners.
A Dollar? The ESF is fairly unconstrained in the

currencies in which it could intervene.
Would an intervention successfully
weaken the dollar? Not necessarily. We
DAVID S. ADAMS, CFA headway; any increased perception of judge the effectiveness of an intervention
Strategist competitive devaluations abroad; whether as driven by three criteria: the operational
Morgan Stanley & Co. parameters of the intervention; the
the Federal Reserve is thought to be
T hat the US may intervene to weaken
the US dollar has become an oft-
discussed market topic. After all, the dollar
insufficiently dovish; or if realized data
and the economic outlook both soften.
perceived credibility and effectiveness of
future US policy action; and the response
of foreign partners. A dollar-weakening
However, the market may be
has been appreciating on a multiyear basis, intervention is likely to be more successful
underestimating the ease with which the
particularly against emerging markets, and if it is coordinated with the Fed and/or
US can intervene unilaterally. The
we estimate that it is currently about 10% with foreign partners, signaled and
secretary of the treasury, with the approval
overvalued (see chart). Moreover, the US “unsterilized,” which means the Fed's
of the president, can intervene in the
administration has expressed concerns balance sheet is allowed to increase.
currency market through its Exchange
over the issues of trade imbalances and However, for an intervention to weaken
Stabilization Fund (ESF) without prior
foreign currency manipulation (see chart, the dollar sustainably, investors would
congressional authorization. While US
page 9). Despite investors’ increased focus need to view additional policy actions by
dollar policy since 1995 has been passive,
on this topic, we think that the market the US as both more probable and
with the three subsequent interventions
lacks a comprehensive understanding of effective, and price this in accordingly. If
taking place since then (1998, 2000, 2011)
how intervention works, as well as a the intervention is viewed as a “one and
being done at the behest of foreign
framework for judging its probability and done,” price action would likely be
partners and in token amounts, this “strong
analyzing its impact. limited.
dollar” policy can be changed unilaterally.
In assessing the likelihood of an The Fed’s response here is critical, and
We estimate that the ESF has $67.8
intervention, we would look to several we argue there are good reasons to think
billion in assets that can be sold to weaken
factors: whether the administration views the Fed would be reticent to cooperate
the dollar entirely unilaterally. Funding
trade negotiations as making insufficient with the Treasury in such an intervention,
The US Dollar Looks Overvalued by About 10% given the potential risks to its credibility in
the eyes of the market as an independent
50 %
US Dollar Difference From Implied Fair Value* body and given that the dollar is not a
40 formal part of its mandated objectives—
maximum employment, stable prices and
30 moderate long-term interest rates. To this
end, any impact on the Fed’s balance sheet
20
would likely be sterilized. Rhetoric from
10 Congress in response to intervention
should also be watched.
0 Beyond the future course of domestic
-10 policy, foreign policy responses are
critical. The range of outcomes between
-20 active resistance and counterintervention
to active support are considerable, and the
-30 ability of foreign partners to either
-40 completely counter an intervention or
'71 '74 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10 '13 '16 '19 or significantly amplify its dollar-
weakening effect is high. If markets view
*Based on Purchasing Power Parity, weighted to the US Dollar Index
Source: Macrobond, Morgan Stanley Research as of Aug. 18, 2019 intervention as escalating already present
trade tensions, which is likely in the The US Dollar’s Strength Has Helped to
current environment, they may view the
probability of cooperation as fairly low.
Widen the Goods Trade Deficit
What scenarios are most likely and 1% 0
US Goods Trade Balance, Percent of GDP (left axis)
what are the implications? The number of Trade Weighted US Dollar Index (inverted, right axis)
possible combinations of intervention 0 20
scenarios is nearly infinite. To guide our
analysis, we see three possible courses: -1
40
Verbal intervention. In this action, the
-2
US administration formally announces its 60
intent to intervene but stops short of doing -3
so. Dollar weakness would depend on the 80
specificity of the conditions provided and -4
the assumed probability of their occurring,
100
but would likely be modest. The response -5
of domestic and foreign policymakers is a
-6 120
critical variable. The cross-asset market
response is likely fairly limited, albeit
-7 140
modestly risk-off and dollar negative.
'75 '78 '81 '84 '87 '90 '93 '96 '99 '02 '05 '08 '11 '14 '17
Unilateral policy action. Here, the US
administration intervenes and announces a Source: Macrobond, Morgan Stanley Research as of Aug. 18, 2019
formal change in US foreign exchange A new “Plaza Accord.” This approach, followed by formal intervention at a later
policy. The dollar would likely initially named for the 1985 agreement among the date, and these actions do not necessarily
fall 2% to 3% on the news, but could fall US and major trading partners to preclude future multilateral discussions
as much as 10% depending on the depreciate the dollar, has a longer time among global policymakers.
credibility of future policy actions and the horizon but is both more dollar negative All told, the course of dollar, financial
foreign response. This sort of action would and risk-positive. Here, the US works with assets and the economic outlook are
likely be more risk-negative as it would be its foreign partners to weaken the dollar in altered considerably by the course of US
seen as escalating current trade tensions. a coordinated manner through a monetary policy, US fiscal policy and the
Plus, the market may perceive that the combination of intervention and monetary outlook for the current trade tensions. A
additional policies being countenanced to and fiscal policy changes. This leads to dovish pivot by the Fed would likely
further weaken the dollar may have “good” dollar weakness and supports risk amplify or soften the dollar-negative
unintended negative consequences for US assets. impact of an intervention but also support
assets. A weaker dollar, normally viewed These courses are neither mutually risk. A resolution to trade tension would
as risk positive, would be insufficient to exclusive nor collectively exhaustive. For do this as well. 
keep risk assets supported while flight-to- example, an initial verbal intervention
quality flows push US yields lower. signaling future intervention may be
ON THE MARKETS / SHORT TAKES
Weekly Hours Worked Could Be an Early Sign of a Weakening Job Market

The average hours per week worked in the US has declined
recently as companies position for slower global growth and 34.7 US Average Weekly Hours, Private Industries Total
softer demand. In July, the Bureau of Labor Statistics reported 34.6
the average weekly hours worked declined to 34.3 from 34.4 in 34.5
the month prior. The reading, although well above the financial
34.4
crisis low of 33.7, underscores some fragility within an
otherwise strong job market. Concerns about slowing global 34.3
growth and US-China trade tensions have only recently started 34.2
to show up in consumer and business confidence surveys. 34.1
Although the July jobs report shows a still-robust labor market,
34.0
the recent slide in average weekly hours may mark the
beginning of a trend. Should average weekly hours decline 33.9
further, it may foreshadow slower hiring ahead, as companies 33.8
tend to curtail staff members’ hours before reducing 33.7
headcount.—Christopher Baxter '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
When Recession Is Feared, Defensives Have Beaten Secular Growth
The prevailing view among investors is that the risk of a US recession
2.4 Performance of US Secular Growth has risen considerably in recent months, as supported by movements
Stocks Relative to US Defensive Stocks in key indicators such as the New York Federal Reserve’s Probability
of Recession model and the inversion of the yield curve. In the equity
2.2
market, wary investors have already anticipated a slowdown by
seeking out defensive stocks, leading to double-digit outperformance;
2.0 the utilities, real estate and consumer staples sectors have racked up
double-digit gains relative to the broader market in the past 12
1.8 months. Given the run-up in defensive stocks, where should equity
investors go if they are only now seeking cover from a recession?
1.6 Despite extended valuations, defensive stocks may continue to be the
best choice. When compared with secular growth stocks, which are
1.4 often favored when the economy slows, defensive stocks have
Heightened Growth/ proven far more resilient during this cycle’s previous growth scares
Recession Fears (see chart).—Spencer J. Cavallo
1.2
2012 2013 2014 2015 2016 2017 2018
Despite Expectations for a Poor Crop, Corn Prices Have Declined
In June, near the end of corn-planting season, the US wrapped $ 5.00
up its wettest 12 months on record. Newscasts featured Corn, Spot Price per Bushel
flooded fields and forecasts of a poor harvest for corn, the
4.50
nation’s most prolific crop. Even factoring in trade disputes, US
corn prices, along with wheat and soybeans, looked poised to
follow through on gains made in the spring. Today, however, 4.00
spot prices for corn are 17% below early July levels, leaving
holders of agricultural funds and exchange-traded funds 3.50
frustrated (see chart). What’s going on? Beyond reduced
demand from China, two factors stand out. Foremost are hotly 3.00
debated USDA surveys indicating that more acres were
planted than expected. Detractors say estimates based on the
2.50
surveys fail to appreciate low-quality yields from late planting
and other weather effects. Anticipated supply from Brazil and
Argentina is also a factor, as Latin America continues to benefit 2.00
from agribusiness innovations, intensifying competition with US Aug '18 Oct '18 Dec '18 Feb '19 Apr '19 Jun '19 Aug '19
farmers amid dollar strength.—John Duggan Source: Bloomberg as of Aug. 30, 2019
ON THE MARKETS / INVESTING
“actionable.” With unstructured data

Making Sense of Big Data, ballooning in volume and scope, data
vendors now offer structured versions of
Artificial Intelligence and previously unstructured data in order to

facilitate decision-making insights. Given
real-world constraints, we have focused
Machine Learning our analysis thus far on structured data.
As with other scientific endeavors, data
science involves gathering evidence,
testing hypotheses and classifying
STEVE EDWARDS, CFA Without some means of processing it, knowledge. After determining some
Senior Investment Strategist big data would remain a complex, high-
Morgan Stanley Wealth Management
pattern or relationship, we may construct a
ZI YE, CFA
volume web of unrelated trivia. In framework to track and interpret the data
Quantitative Strategist
response, academic and professional systematically, which may lead to
Morgan Stanley Wealth Management research has given birth to the emerging investable signals. Once operational, these
STEPHANIE WANG field of analytics, also known as data frameworks support our efforts to discern
Quantitative Strategist science. Using programming skills and
Morgan Stanley Wealth Management between signals and noise and to build an
visualization techniques, analytics unbiased picture (see chart, page 12). To
B ig data, artificial intelligence and
machine learning have attracted much
professionals wrangle big data into
digestible pieces, looking for insights that
date, these frameworks have primarily
incorporated “directed learning,” where
public attention, but perhaps not much
foster understanding and facilitate we have programmed our systems in order
understanding as to what they are and how
decision-making. to track intuitive, predefined variables.
they work. As we observe from our own
Big data carries common features That approach helps to address human
digital lives, data volume and complexity
across academic and professional limitations and offer the prospect of both
are growing. Beyond the buzzwords, how
disciplines: volume, variety, velocity and cumulative learning and transparency.
can we leverage the power of data to
veracity. With any potential data source, These frameworks include Dynamic
increase our clients’ probabilities of
we must wrestle with these elements to Allocation and Tactical Equity for
achieving their goals? What tangible steps
extract value, which involves substantial allocation; scoring tools for manager
can we take to create actionable insights to
effort. As with other projects, we often selection, such as Adverse Active Alpha
support our investment process?
must work backward from our intended 2.0, the Risk Score, and the Value Score;
We are pleased to share an overview of
outcomes to determine whether a given and portfolio analytics tools. We intend to
our ongoing investigation into these topics.
data source warrants the investment of broaden and deepen existing frameworks
While we have developed a host of
time and resources. and build other frameworks, with a
investment frameworks to harness data’s
This data falls into two broad particular concern for tax awareness. We
potential, we look forward to pressing
categories: structured and unstructured are also excited to consider applying some
deeper in the coming months.
data. Structured data falls neatly into machine learning techniques to our
organized formats, such as a spreadsheet, existing allocation-focused frameworks.
Big Data’s Promise and features “hard” values like numbers
Whether professionally or personally, and dates. Financial data providers,
gaining knowledge helps us improve our
Putting Machine Learning
including Bloomberg and FactSet, clean
outcomes, making us better prepared for and store thousands of structured data in Context
life’s dynamic challenges. While they may series, some of which you may find Artificial intelligence, machine learning
boost our trivia prowess, facts alone hold displayed in these pages. Using database and deep learning are often mentioned
less currency than applied knowledge or tools, companies can efficiently store and when discussing big data. Among the
wisdom. Big data is a set of such facts so retrieve structured data. Yet, only 20% of three, artificial intelligence has the
large it can only be analyzed today’s enterprise data falls into this broadest scope and describes the fact that
electronically, with the goal of finding category. Unstructured data, such as call machines are able to carry out tasks in a
trends, patterns and associations that transcripts, media files or email, may defy way considered “smart” or “intelligent.”
empower us to go beyond the “what?” to efficient storage and likely requires This intelligence is often acquired by
the “so what?” additional processing to become mimicking human behavior under various
Decision-Making Challenges Point to the Value of Investment Frameworks
Behavioral Biases
?
2
• Overreactions
• Decision fatigue
1 Flood of Data • Tendency to seek confirmation
• Processing and keeping up
• Discerning the “signal”
from the “noise”
• Handling freedom of
decision-making
Investment
Frameworks
Source: Morgan Stanley Wealth Management

circumstances—although it’s quite decision-making; thus, the technique is that leverages machine learning to
common for machines to eventually often called “neural networks.” A neural optimize client engagement based on
perform specific tasks better than humans. network consists of many layers of nodes behaviors and preferences. The online
For example, computer board games that are connected to other nodes, and the investing platform, “Morgan Stanley
leverage AI to find the best move and connections can be weighted to determine Access Investing,” applies artificial
compete with humans. Natural language if data received from input nodes should intelligence to automate investment
processing, another branch of AI, helps be processed and passed to output nodes recommendation, portfolio management
computers to read, decipher and with weighted results. The network learns and risk monitoring, helping clients
understand natural human languages. from data in an iterative manner and can achieve their goals in a simplified and
Machine learning can be thought of as be trained to deal with abstractions and seamless way. The introduction of
giving machines access to data and letting poorly designed problems, such as image “Chatbot” applies natural language
them teach themselves. As new data is recognition and computer vision. For processing to empower more rapid and
added, the machine learning model ensures example, self-driving cars rely on multiple efficient client servicing at a much higher
that the optimal solution is constantly deep learning algorithms. volume and a much lower error rate than
updated or “learned,” given the context of human agents.
changing facts. As a subset of artificial Applications in Wealth Going forward, we expect big data,
intelligence, machine learning aims to artificial intelligence, machine learning
Management
increase the accuracy of its predictions by and deep learning to continue improving
Today, these advanced technologies and
interactively learning from data rather than our wealth management offering to clients.
analytics provide Morgan Stanley Wealth
through explicit programming. It is widely These tools may facilitate more thorough
Management with a competitive edge. The
used in applications such as weather and efficient client due diligence, to
integration of big data on our Aladdin-
forecasting, medical diagnosis, fraud deliver holistic solutions and to empower
powered Portfolio Risk Platform enables
detection and algorithmic trading. more personalized client relationships.
automatic monitoring of more than 3,000
Deep learning, a subset of machine From an investment and research
risk-related factors every day and allows
learning, can be considered the next step in perspective, they likely will offer broader
on-demand testing of portfolio
its evolution. Deep learning algorithms are insights and greater potential to improve
performance under different economic
inspired by the patterns of human brains’ investment performance and risk
conditions. The firm’s proprietary “Next
processing of information that leads to management. 
Best Action” is a predictive analytics tool
Global Investment Committee
Tactical Asset Allocation
The Global Investment Committee provides guidance on asset allocation decisions through its various
models. The five models below are recommended for investors with up to $25 million in investable assets.
They are based on an increasing scale of risk (expected volatility) and expected return.
Wealth Conservation Income
Balanced Growth Market Growth
Opportunistic Growth Key
Ultrashort-Term Fixed Income
Fixed Income & Preferreds
Equities
Alternatives
Source: Morgan Stanley Wealth Management GIC as of Aug. 30, 2019
The Global Investment Committee provides guidance on asset allocation decisions through its various
models. The five models below are recommended for investors with over $25 million in investable assets.
They are based on an increasing scale of risk (expected volatility) and expected return.
Wealth Conservation Income
Balanced Growth Market Growth
Opportunistic Growth Key
Ultrashort-Term Fixed Income
Fixed Income & Preferreds
Equities
Alternatives
Tactical Asset Allocation Reasoning
Relative Weight
Global Equities Within Equities
While the benchmark S&P 500 has recently made an all-time high, higher risk indexes like the small-cap Russell
2000 Index are well below the high made last year. Meanwhile, sector leadership has come from defensive and
US Underweight high-quality sectors, which is indicative of a market that is not as bullish as it may appear. We think this is due to
both economic and earnings growth, which have slowed materially this year and are apt to weigh on US stocks in
the third quarter. Our year-end base case S&P 500 price target remains 2,750.
We maintain a positive bias for Japanese and European equity markets. The populist movements around the
International Equities
Overweight world are likely to drive more fiscal policy action in both regions, especially in Europe, which will allow the central
(Developed Markets)
banks to exit their extraordinary monetary policies and help valuations to rise.
After a difficult first 10 months of 2018, emerging market (EM) equities have performed relatively well, a positive
sign for future leadership. With our view for the US dollar to make a secular top this year, global nominal GDP
Emerging Markets Overweight
growth should accelerate faster than the US GDP, particularly as China’s fiscal stimulus takes hold. This should
disproportionately benefit international equities, led by EM equities.
Relative Weight
Global Fixed Within Fixed
Income
Income
We have recommended shorter-duration* (maturities) since March 2013 given the extremely low yields and
potential capital losses associated with rising interest rates from such low levels. We are also increasingly
US Investment Grade Underweight
concerned that credit spreads do not reflect the current earnings recession in the US nor the significant leverage
now present on corporate balance sheet. Therefore, we are underweight US investment grade.
Yields are even lower outside the US, leaving very little value in international fixed income, particularly as the
International
Underweight global economy begins to recover more broadly. While interest rates are likely to stay low, the offsetting
Investment Grade
diversification benefits do not warrant much, if any, position, in our view.
With the recent collapse in real yields from the Fed’s pivot, these securities offer little relative value in the context
Inflation-Protected
Overweight of our expectations for global growth to eventually accelerate, oil prices to trough and the US dollar to top. In
Securities
short, inflation risk is underpriced.
High yield bonds have rebounded with equity markets this year as the Fed pivoted to a more dovish policy. Since
February, high yield has underperformed investment grade as it starts to reflect earnings recession risk in the US.
High Yield Underweight
With a zero weighting in high yield since January 2018, we will revisit our allocation to high yield bonds during
2019 if spreads widen appropriately.
Relative Weight
Alternative Within
Investments Alternative
Investments
Real estate investment trusts (REITs) have performed very well as global growth slowed and interest rates fell.
REITs Underweight However, REITs remain expensive and are vulnerable to credit risks. We will revisit our position as nominal GDP
troughs and/or valuations become more attractive.
Master limited partnerships (MLPs) rebounded this year. With oil prices recovering and a more favorable
Master Limited
regulatory environment, MLPs should provide a reliable and attractive yield relative to high yield. Global supply
Partnerships/Energy Overweight
shortages from Iranian sanctions should also be supportive for fracking activity and pipeline construction, both of
Infrastructure*
which should lead to an acceleration in dividend growth.
Hedged Strategies This asset category can provide uncorrelated exposure to traditional risk-asset markets. It tends to outperform
(Hedge Funds and Equal Weight when traditional asset categories are challenged by growth scares and/or interest rate volatility spikes. With the
Managed Futures) recent surge in volatility, these strategies could perform better on a relative basis.

*For more about the risks to Master Limited Partnerships (MLPs) and Duration, please see the Risk Considerations section beginning on
page 16 of this report.
ON THE MARKETS
The Global Investment Committee (GIC) is a group of seasoned investment professionals from Morgan Stanley & Co. and Morgan Stanley Wealth
Management who meet regularly to discuss the global economy and markets. The committee determines the investment outlook that guides our
advice to clients. They continually monitor developing economic and market conditions, review tactical outlooks and recommend asset allocation
model weightings, as well as produce a suite of strategy, analysis, commentary, portfolio positioning suggestions and other reports and broadcasts.
David S. Adams, Chetan Ahya, Christopher Baxter, Spencer J. Cavallo, John Duggan Steve Edwards, Justin Epstein, Kevin Demers,
Matthew Hornbach, Susan K. McDowell, Stephanie Wang and Zi Ye are not members of the Global Investment Committee and any
implementation strategies suggested have not been reviewed or approved by the Global Investment Committee.
Index Definitions
For index, indicator and survey definitions referenced in this report please visit the following:
https://www.morganstanley.com/wealth-investmentsolutions/wmir-definitions
Risk Considerations
Alternative Investments
The sole purpose of this material is to inform, and it in no way is intended to be an offer or solicitation to purchase or sell any security, other
investment or service, or to attract any funds or deposits. Investments mentioned may not be suitable for all clients. Any product discussed herein
may be purchased only after a client has carefully reviewed the offering memorandum and executed the subscription documents. Morgan Stanley
Wealth Management has not considered the actual or desired investment objectives, goals, strategies, guidelines, or factual circumstances of any
investor in any fund(s). Before making any investment, each investor should carefully consider the risks associated with the investment, as discussed
in the applicable offering memorandum, and make a determination based upon their own particular circumstances, that the investment is consistent
with their investment objectives and risk tolerance.
Alternative investments often are speculative and include a high degree of risk. Investors could lose all or a substantial amount of their investment.
Alternative investments are suitable only for eligible, long-term investors who are willing to forgo liquidity and put capital at risk for an indefinite period
of time. They may be highly illiquid and can engage in leverage and other speculative practices that may increase the volatility and risk of loss.
Alternative Investments typically have higher fees than traditional investments. Investors should carefully review and consider potential risks before
investing.
Certain information contained herein may constitute forward-looking statements. Due to various risks and uncertainties, actual events, results or the
performance of a fund may differ materially from those reflected or contemplated in such forward-looking statements. Clients should carefully
consider the investment objectives, risks, charges, and expenses of a fund before investing.
Alternative investments involve complex tax structures, tax inefficient investing, and delays in distributing important tax information. Individual funds
have specific risks related to their investment programs that will vary from fund to fund. Clients should consult their own tax and legal advisors as
Morgan Stanley Wealth Management does not provide tax or legal advice.
Interests in alternative investment products are offered pursuant to the terms of the applicable offering memorandum, are distributed by Morgan
Stanley Smith Barney LLC and certain of its affiliates, and (1) are not FDIC-insured, (2) are not deposits or other obligations of Morgan Stanley or any
of its affiliates, (3) are not guaranteed by Morgan Stanley and its affiliates, and (4) involve investment risks, including possible loss of principal.
Morgan Stanley Smith Barney LLC is a registered broker-dealer, not a bank.
Hypothetical Performance
General: Hypothetical performance should not be considered a guarantee of future performance or a guarantee of achieving overall financial
objectives. Asset allocation and diversification do not assure a profit or protect against loss in declining financial markets.
Hypothetical performance results have inherent limitations. The performance shown here is simulated performance based on benchmark indices, not
investment results from an actual portfolio or actual trading. There can be large differences between hypothetical and actual performance results
achieved by a particular asset allocation.
Despite the limitations of hypothetical performance, these hypothetical performance results may allow clients and Financial Advisors to obtain a
sense of the risk / return trade-off of different asset allocation constructs.
Investing in the market entails the risk of market volatility. The value of all types of securities may increase or decrease over varying time periods.
This analysis does not purport to recommend or implement an investment strategy. Financial forecasts, rates of return, risk, inflation, and other
assumptions may be used as the basis for illustrations in this analysis. They should not be considered a guarantee of future performance or a
guarantee of achieving overall financial objectives. No analysis has the ability to accurately predict the future, eliminate risk or guarantee investment
results. As investment returns, inflation, taxes, and other economic conditions vary from the assumptions used in this analysis, your actual results will
vary (perhaps significantly) from those presented in this analysis.
ON THE MARKETS
The assumed return rates in this analysis are not reflective of any specific investment and do not include any fees or expenses that may be incurred
by investing in specific products. The actual returns of a specific investment may be more or less than the returns used in this analysis. The return
assumptions are based on hypothetical rates of return of securities indices, which serve as proxies for the asset classes. Moreover, different
forecasts may choose different indices as a proxy for the same asset class, thus influencing the return of the asset class.
An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by
investing in the fund.
ETF Investing
An investment in an exchange-traded fund involves risks similar to those of investing in a broadly based portfolio of equity securities traded on an
exchange in the relevant securities market, such as market fluctuations caused by such factors as economic and political developments, changes in
interest rates and perceived trends in stock and bond prices. Investing in an international ETF also involves certain risks and considerations not
typically associated with investing in an ETF that invests in the securities of U.S. issues, such as political, currency, economic and market risks.
These risks are magnified in countries with emerging markets, since these countries may have relatively unstable governments and less established
markets and economics. ETFs investing in physical commodities and commodity or currency futures have special tax considerations. Physical
commodities may be treated as collectibles subject to a maximum 28% long-term capital gains rates, while futures are marked-to-market and may be
subject to a blended 60% long- and 40% short-term capital gains tax rate. Rolling futures positions may create taxable events. For specifics and a
greater explanation of possible risks with ETFs¸ along with the ETF’s investment objectives, charges and expenses, please consult a copy of the
ETF’s prospectus. Investing in sectors may be more volatile than diversifying across many industries. The investment return and principal value of
ETF investments will fluctuate, so an investor’s ETF shares (Creation Units), if or when sold, may be worth more or less than the original cost. ETFs
are redeemable only in Creation Unit size through an Authorized Participant and are not individually redeemable from an ETF.
Investors should carefully consider the investment objectives and risks as well as charges and expenses of an exchange-traded fund or
mutual fund before investing. The prospectus contains this and other important information about the mutual fund. To obtain a
prospectus, contact your Financial Advisor or visit the mutual fund company’s website. Please read the prospectus carefully before
investing.
MLPs
Master Limited Partnerships (MLPs) are limited partnerships or limited liability companies that are taxed as partnerships and whose interests (limited
partnership units or limited liability company units) are traded on securities exchanges like shares of common stock. Currently, most MLPs operate in
the energy, natural resources or real estate sectors. Investments in MLP interests are subject to the risks generally applicable to companies in the
energy and natural resources sectors, including commodity pricing risk, supply and demand risk, depletion risk and exploration risk.
Individual MLPs are publicly traded partnerships that have unique risks related to their structure. These include, but are not limited to, their reliance
on the capital markets to fund growth, adverse ruling on the current tax treatment of distributions (typically mostly tax deferred), and commodity
volume risk.
The potential tax benefits from investing in MLPs depend on their being treated as partnerships for federal income tax purposes and, if the MLP is
deemed to be a corporation, then its income would be subject to federal taxation at the entity level, reducing the amount of cash available for
distribution to the fund which could result in a reduction of the fund’s value.
MLPs carry interest rate risk and may underperform in a rising interest rate environment. MLP funds accrue deferred income taxes for future tax
liabilities associated with the portion of MLP distributions considered to be a tax-deferred return of capital and for any net operating gains as well as
capital appreciation of its investments; this deferred tax liability is reflected in the daily NAV; and, as a result, the MLP fund’s after-tax performance
could differ significantly from the underlying assets even if the pre-tax performance is closely tracked.
Duration
Duration, the most commonly used measure of bond risk, quantifies the effect of changes in interest rates on the price of a bond or bond portfolio.
The longer the duration, the more sensitive the bond or portfolio would be to changes in interest rates. Generally, if interest rates rise, bond prices fall
and vice versa. Longer-term bonds carry a longer or higher duration than shorter-term bonds; as such, they would be affected by changing interest
rates for a greater period of time if interest rates were to increase. Consequently, the price of a long-term bond would drop significantly as compared
to the price of a short-term bond.
International investing entails greater risk, as well as greater potential rewards compared to U.S. investing. These risks include political and
economic uncertainties of foreign countries as well as the risk of currency fluctuations. These risks are magnified in countries with emerging
markets and frontier markets, since these countries may have relatively unstable governments and less established markets and economies.
Investing in currency involves additional special risks such as credit, interest rate fluctuations, derivative investment risk, and domestic and foreign
inflation rates, which can be volatile and may be less liquid than other securities and more sensitive to the effect of varied economic conditions. In
addition, international investing entails greater risk, as well as greater potential rewards compared to U.S. investing. These risks include political and
economic uncertainties of foreign countries as well as the risk of currency fluctuations. These risks are magnified in countries with emerging markets,
since these countries may have relatively unstable governments and less established markets and economies.
ON THE MARKETS
Managed futures investments are speculative, involve a high degree of risk, use significant leverage, have limited liquidity and/or may be generally
illiquid, may incur substantial charges, may subject investors to conflicts of interest, and are usually suitable only for the risk capital portion of an
investor’s portfolio. Before investing in any partnership and in order to make an informed decision, investors should read the applicable prospectus
and/or offering documents carefully for additional information, including charges, expenses, and risks. Managed futures investments are not intended
to replace equities or fixed income securities but rather may act as a complement to these asset categories in a diversified portfolio.
Investing in commodities entails significant risks. Commodity prices may be affected by a variety of factors at any time, including but not limited to,
(i) changes in supply and demand relationships, (ii) governmental programs and policies, (iii) national and international political and economic events,
war and terrorist events, (iv) changes in interest and exchange rates, (v) trading activities in commodities and related contracts, (vi) pestilence,
technological change and weather, and (vii) the price volatility of a commodity. In addition, the commodities markets are subject to temporary
distortions or other disruptions due to various factors, including lack of liquidity, participation of speculators and government intervention.
Physical precious metals are non-regulated products. Precious metals are speculative investments, which may experience short-term and long
term price volatility. The value of precious metals investments may fluctuate and may appreciate or decline, depending on market conditions. If sold
in a declining market, the price you receive may be less than your original investment. Unlike bonds and stocks, precious metals do not make interest
or dividend payments. Therefore, precious metals may not be suitable for investors who require current income. Precious metals are commodities
that should be safely stored, which may impose additional costs on the investor. The Securities Investor Protection Corporation (“SIPC”) provides
certain protection for customers’ cash and securities in the event of a brokerage firm’s bankruptcy, other financial difficulties, or if customers’ assets
are missing. SIPC insurance does not apply to precious metals or other commodities.
Bonds are subject to interest rate risk. When interest rates rise, bond prices fall; generally the longer a bond's maturity, the more sensitive it is to this risk.
Bonds may also be subject to call risk, which is the risk that the issuer will redeem the debt at its option, fully or partially, before the scheduled maturity date.
The market value of debt instruments may fluctuate, and proceeds from sales prior to maturity may be more or less than the amount originally invested or the
maturity value due to changes in market conditions or changes in the credit quality of the issuer. Bonds are subject to the credit risk of the issuer. This is the
risk that the issuer might be unable to make interest and/or principal payments on a timely basis. Bonds are also subject to reinvestment risk, which is the risk
that principal and/or interest payments from a given investment may be reinvested at a lower interest rate.
Bonds rated below investment grade may have speculative characteristics and present significant risks beyond those of other securities, including greater
credit risk and price volatility in the secondary market. Investors should be careful to consider these risks alongside their individual circumstances, objectives
and risk tolerance before investing in high-yield bonds. High yield bonds should comprise only a limited portion of a balanced portfolio.
Interest on municipal bonds is generally exempt from federal income tax; however, some bonds may be subject to the alternative minimum tax
(AMT). Typically, state tax-exemption applies if securities are issued within one's state of residence and, if applicable, local tax-exemption applies if
securities are issued within one's city of residence.
Treasury Inflation Protection Securities’ (TIPS) coupon payments and underlying principal are automatically increased to compensate for inflation
by tracking the consumer price index (CPI). While the real rate of return is guaranteed, TIPS tend to offer a low return. Because the return of TIPS is
linked to inflation, TIPS may significantly underperform versus conventional U.S. Treasuries in times of low inflation.
Ultrashort-term fixed income asset class is comprised of fixed income securities with high quality, very short maturities. They are therefore subject
to the risks associated with debt securities such as credit and interest rate risk.
Although they are backed by the full faith and credit of the U.S. Government as to timely payment of principal and interest, Treasury Bills are subject
to interest rate and inflation risk, as well as the opportunity risk of other more potentially lucrative investment opportunities.
CDs are insured by the FDIC, an independent agency of the U.S. Government, up to a maximum of $250,000 (including principal and accrued
interest) for all deposits held in the same insurable capacity (e.g. individual account, joint account, IRA etc.) per CD depository. Investors are
responsible for monitoring the total amount held with each CD depository. All deposits at a single depository held in the same insurable capacity will
be aggregated for the purposes of the applicable FDIC insurance limit, including deposits (such as bank accounts) maintained directly with the
depository and CDs of the depository. For more information visit the FDIC website at www.fdic.gov.
The majority of $25 and $1000 par preferred securities are “callable” meaning that the issuer may retire the securities at specific prices and dates
prior to maturity. Interest/dividend payments on certain preferred issues may be deferred by the issuer for periods of up to 5 to 10 years, depending
on the particular issue. The investor would still have income tax liability even though payments would not have been received. Price quoted is per
$25 or $1,000 share, unless otherwise specified. Current yield is calculated by multiplying the coupon by par value divided by the market price.
The initial interest rate on a floating-rate security may be lower than that of a fixed-rate security of the same maturity because investors expect to
receive additional income due to future increases in the floating security’s underlying reference rate. The reference rate could be an index or an
interest rate. However, there can be no assurance that the reference rate will increase. Some floating-rate securities may be subject to call risk.
The market value of convertible bonds and the underlying common stock(s) will fluctuate and after purchase may be worth more or less than
original cost. If sold prior to maturity, investors may receive more or less than their original purchase price or maturity value, depending on market
conditions. Callable bonds may be redeemed by the issuer prior to maturity. Additional call features may exist that could affect yield.
Some $25 or $1000 par preferred securities are QDI (Qualified Dividend Income) eligible. Information on QDI eligibility is obtained from third party
sources. The dividend income on QDI eligible preferreds qualifies for a reduced tax rate. Many traditional ‘dividend paying’ perpetual preferred
ON THE MARKETS
securities (traditional preferreds with no maturity date) are QDI eligible. In order to qualify for the preferential tax treatment all qualifying preferred
securities must be held by investors for a minimum period – 91 days during a 180 day window period, beginning 90 days before the ex-dividend date.
Principal is returned on a monthly basis over the life of a mortgage-backed security. Principal prepayment can significantly affect the monthly
income stream and the maturity of any type of MBS, including standard MBS, CMOs and Lottery Bonds. Yields and average lives are estimated
based on prepayment assumptions and are subject to change based on actual prepayment of the mortgages in the underlying pools. The level of
predictability of an MBS/CMO’s average life, and its market price, depends on the type of MBS/CMO class purchased and interest rate movements.
In general, as interest rates fall, prepayment speeds are likely to increase, thus shortening the MBS/CMO’s average life and likely causing its market
price to rise. Conversely, as interest rates rise, prepayment speeds are likely to decrease, thus lengthening average life and likely causing the
MBS/CMO’s market price to fall. Some MBS/CMOs may have “original issue discount” (OID). OID occurs if the MBS/CMO’s original issue price is
below its stated redemption price at maturity, and results in “imputed interest” that must be reported annually for tax purposes, resulting in a tax
liability even though interest was not received. Investors are urged to consult their tax advisors for more information.
Rebalancing does not protect against a loss in declining financial markets. There may be a potential tax implication with a rebalancing strategy.
Investors should consult with their tax advisor before implementing such a strategy.
Equity securities may fluctuate in response to news on companies, industries, market conditions and general economic environment.
Companies paying dividends can reduce or cut payouts at any time.
Value investing does not guarantee a profit or eliminate risk. Not all companies whose stocks are considered to be value stocks are able to turn their
business around or successfully employ corrective strategies which would result in stock prices that do not rise as initially expected.
Growth investing does not guarantee a profit or eliminate risk. The stocks of these companies can have relatively high valuations. Because of these
high valuations, an investment in a growth stock can be more risky than an investment in a company with more modest growth expectations.
Asset allocation and diversification do not assure a profit or protect against loss in declining financial markets.
REITs investing risks are similar to those associated with direct investments in real estate: property value fluctuations, lack of liquidity, limited
diversification and sensitivity to economic factors such as interest rate changes and market recessions.
Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies.
Technology stocks may be especially volatile. Risks applicable to companies in the energy and natural resources sectors include commodity
pricing risk, supply and demand risk, depletion risk and exploration risk.
Yields are subject to change with economic conditions. Yield is only one factor that should be considered when making an investment decision.
Credit ratings are subject to change.
The indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the
performance of any specific investment.
The indices selected by Morgan Stanley Wealth Management to measure performance are representative of broad asset classes. Morgan
Stanley Smith Barney LLC retains the right to change representative indices at any time.
Disclosures
Morgan Stanley Wealth Management is the trade name of Morgan Stanley Smith Barney LLC, a registered broker-dealer in the United States. This
material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security or
other financial instrument or to participate in any trading strategy. Past performance is not necessarily a guide to future performance.
The author(s) (if any authors are noted) principally responsible for the preparation of this material receive compensation based upon various factors,
including quality and accuracy of their work, firm revenues (including trading and capital markets revenues), client feedback and competitive factors.
Morgan Stanley Wealth Management is involved in many businesses that may relate to companies, securities or instruments mentioned in this
material.
This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any
security/instrument, or to participate in any trading strategy. Any such offer would be made only after a prospective investor had completed its own
independent investigation of the securities, instruments or transactions, and received all information it required to make its own investment decision,
including, where applicable, a review of any offering circular or memorandum describing such security or instrument. That information would contain
material information not contained herein and to which prospective participants are referred. This material is based on public information as of the
specified date, and may be stale thereafter. We have no obligation to tell you when information herein may change. We make no representation or
warranty with respect to the accuracy or completeness of this material. Morgan Stanley Wealth Management has no obligation to provide updated
information on the securities/instruments mentioned herein.
ON THE MARKETS
The securities/instruments discussed in this material may not be suitable for all investors. The appropriateness of a particular investment or strategy
will depend on an investor’s individual circumstances and objectives. Morgan Stanley Wealth Management recommends that investors
independently evaluate specific investments and strategies, and encourages investors to seek the advice of a financial advisor. The value of and
income from investments may vary because of changes in interest rates, foreign exchange rates, default rates, prepayment rates,
securities/instruments prices, market indexes, operational or financial conditions of companies and other issuers or other factors. Estimates of future
performance are based on assumptions that may not be realized. Actual events may differ from those assumed and changes to any assumptions
may have a material impact on any projections or estimates. Other events not taken into account may occur and may significantly affect the
projections or estimates. Certain assumptions may have been made for modeling purposes only to simplify the presentation and/or calculation of any
projections or estimates, and Morgan Stanley Wealth Management does not represent that any such assumptions will reflect actual future events.
Accordingly, there can be no assurance that estimated returns or projections will be realized or that actual returns or performance results will not
materially differ from those estimated herein.
This material should not be viewed as advice or recommendations with respect to asset allocation or any particular investment. This information is
not intended to, and should not, form a primary basis for any investment decisions that you may make. Morgan Stanley Wealth Management is not
acting as a fiduciary under either the Employee Retirement Income Security Act of 1974, as amended or under section 4975 of the Internal Revenue
Code of 1986 as amended in providing this material except as otherwise provided in writing by Morgan Stanley and/or as described at
www.morganstanley.com/disclosures/dol.
Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Financial Advisors do not provide legal or tax advice. Each client
should always consult his/her personal tax and/or legal advisor for information concerning his/her individual situation and to learn about
any potential tax or other implications that may result from acting on a particular recommendation.
This material is primarily authored by, and reflects the opinions of, Morgan Stanley Smith Barney LLC (Member SIPC), as well as identified guest
authors. Articles contributed by employees of Morgan Stanley & Co. LLC (Member SIPC) or one of its affiliates are used under license from Morgan
Stanley.
This material is disseminated in Australia to “retail clients” within the meaning of the Australian Corporations Act by Morgan Stanley Wealth
Management Australia Pty Ltd (A.B.N. 19 009 145 555, holder of Australian financial services license No. 240813).
Morgan Stanley Wealth Management is not incorporated under the People's Republic of China ("PRC") law and the material in relation to this report
is conducted outside the PRC. This report will be distributed only upon request of a specific recipient. This report does not constitute an offer to sell or
the solicitation of an offer to buy any securities in the PRC. PRC investors must have the relevant qualifications to invest in such securities and must
be responsible for obtaining all relevant approvals, licenses, verifications and or registrations from PRC's relevant governmental authorities.
If your financial adviser is based in Australia, Switzerland or the United Kingdom, then please be aware that this report is being distributed by the
Morgan Stanley entity where your financial adviser is located, as follows: Australia: Morgan Stanley Wealth Management Australia Pty Ltd (ABN 19
009 145 555, AFSL No. 240813); Switzerland: Morgan Stanley (Switzerland) AG regulated by the Swiss Financial Market Supervisory Authority; or
United Kingdom: Morgan Stanley Private Wealth Management Ltd, authorized and regulated by the Financial Conduct Authority, approves for the
purposes of section 21 of the Financial Services and Markets Act 2000 this material for distribution in the United Kingdom.
Morgan Stanley Wealth Management is not acting as a municipal advisor to any municipal entity or obligated person within the meaning of Section
15B of the Securities Exchange Act (the “Municipal Advisor Rule”) and the opinions or views contained herein are not intended to be, and do not
constitute, advice within the meaning of the Municipal Advisor Rule.
This material is disseminated in the United States of America by Morgan Stanley Wealth Management.
Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data they
provide and shall not have liability for any damages of any kind relating to such data.
This material, or any portion thereof, may not be reprinted, sold or redistributed without the written consent of Morgan Stanley Smith Barney LLC.
© 2019 Morgan Stanley Smith Barney LLC. Member SIPC.

Graystone On The Markets

Încărcat de

Informații document

Titlu original

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Graystone On The Markets

Încărcat de

Drepturi de autor:

Formate disponibile

GLOBAL INVESTMENT COMMITTEE / COMMENTARY SEPTEMBER 2019

reduce the extra borrowing, and only with

Proactive Fiscal Stimulus probably increase if growth was to slow

invert, with the 10-year yield now 49 basis

Real year yield curve, a part of the curve that

and Tufts School of Medicine. Given the

Policy Uncertainty every incentive to ensure that clinical trials

bonds offer quite attractive positive yields

Long Bond. government bonds around the world trade

liquidity. The table below highlights how

Affect Bond Investors the 10-year US Treasury yield moved

beyond this can be obtained, but this

A Dollar? The ESF is fairly unconstrained in the

Weekly Hours Worked Could Be an Early Sign of a Weakening Job Market

“actionable.” With unstructured data

Artificial Intelligence and previously unstructured data in order to

Source: Morgan Stanley Wealth Management

Balanced Growth Market Growth

Opportunistic Growth Key

Ultrashort-Term Fixed Income

Fixed Income & Preferreds

Source: Morgan Stanley Wealth Management GIC as of Aug. 30, 2019

Balanced Growth Market Growth

Opportunistic Growth Key

Ultrashort-Term Fixed Income

Fixed Income & Preferreds

Source: Morgan Stanley Wealth Management GIC as of Aug. 30, 2019

Source: Morgan Stanley Wealth Management GIC as of Aug. 30, 2019

Companies paying dividends can reduce or cut payouts at any time.

Credit ratings are subject to change.

© 2019 Morgan Stanley Smith Barney LLC. Member SIPC.

S-ar putea să vă placă și