Morgan Stanley's Dan Skelly on US Market Inflows, AI Impact, and 2026 Outlook

US Market Performance and Rangebound Environment

• 🎯 The US market is currently in a rangebound environment, frustrating both bulls and bears.
• ⚠️ The range is capped by the expectation that full earnings downgrades have not yet occurred and uncertainty around final tariff levels.
• 💡 The lower end of the range is supported by continued labor market resilience and the early stages of AI adoption.
• 🤝 The White House has shown flexibility on maximal positions, contributing to market stability.

US vs. International Equities

• 📊 Morgan Stanley's midyear update favors US stocks over rest of world, specifically US over Europe.
• 📉 European equities, despite a recent hot streak, may face potential growth and earnings downgrades due to trade battles.
• 📈 Inflows into the US market remain strong year-to-date, contradicting earlier 'sell America' sentiments.

AI's Impact on Markets and Economy

• 🚀 The Magnificent 7 group reported significant year-over-year earnings growth (32%), far exceeding the S&P 493 (8%).
• 💰 This growth is attributed to the Mag 7 being both beneficiaries and major spenders related to AI investments.
• 🌐 The positive impact of AI is broadening beyond the initial group into software and consumer internet sectors.
• 📈 By 2026, the Fortune 100 is expected to better quantify and validate AI adoption across financials, manufacturing, and healthcare.