00:00Rajiv, do you think then we'll continue to see equity markets hitting all-time high despite some of the at
00:07least temporary or at least the hold right now that we are right in the Middle East conflict?
00:13Do you think we'll continue to see equity markets continuing to reach new highs?
00:17Look, that's a tough call.
00:20I think that equities need to be well supported by earnings.
00:24And what we're seeing so far, Netflix aside last night, earnings have largely held in.
00:28If earnings are there, then equities can continue to perform.
00:31But we do, from an economic standpoint, have a little bit of headwind ahead.
00:35We have not fully absorbed some of this oil shock.
00:39And that usually takes about two or three months.
00:41And so we would expect the economic data to be a little bit sideways over the next few months.
00:45And equities will have to decide if that's OK for the earnings story or not.
00:51What is the biggest indicator then, Rajiv, that you're watching?
00:55Because you point out in your notes that investors potentially are focusing too much on inflation and not enough on
01:00growth, as you were just pointing out there.
01:02Yeah, absolutely.
01:03And I think consumer health is really the focus where I would be looking at.
01:07I look around the world, and what we've seen is a lot of market pricing, particularly in the fixed income
01:14and rate side, around rate hikes potentially or inflation expectations, but not as much concern on the growth side.
01:22And our general view at Morgan Stanley since the beginning of this crisis has been that the growth risks will
01:27likely outweigh the inflation risks.
01:29And whatever inflation risks may be there will probably be short-lived.
01:32Now that energy prices have started to normalize materially since the ceasefire discussion, what we're starting to see is that
01:39the inflation expectations really need to come off the table.
01:42There will be, you know, obviously some pass-through, particularly to headline, a little bit to core.
01:47But our concern is really that the delivery price, the level of oil has been elevated for at least a
01:55couple months here.
01:56So you will see a quarter of headwind towards disposable income, and how that translates into consumption will be particularly
02:02interesting.
02:03Will the consumer dip into their savings to smooth things out, or do we have a little bit of a
02:07blip in the second quarter?
02:09And for me, this is the most important indicator over the next few months.
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