Episode
3 Things That Could Break the Summer Rally
- Podcast
- Thoughts on the Market
- Published
- Jul 8, 2026
- Duration seconds
- 255
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Summary
Our Global Head of Fixed Income Research Andrew Sheets outlines what could potentially go wrong and disrupt markets’ optimism this summer. Read more insights from Morgan Stanley. ----- Transcript ----- Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley. Today, discussing three things that could disrupt a quiet summer. It’s Wednesday, July 8th at noon in New York. As markets turn the page toward the second half of the year, there are lots of reasons for optimism. Global growth remains solid. Earnings growth is strong, and broadening across more companies. Capital markets remain open and deal activity is robust. We continue to think that the best analogy for current conditions is something like 1997 through 1998 or 2005 through 2006 – periods where corporate aggression was increasing, and had further to go, leading to equities outperforming credit. Even more immediately, July also happens to be one of the best months of the year for markets. And while one should never base their entire investment strategy on how far the earth has travelled around the sun, this month has been the best month for the U.S. High Yield returns, by far, over the last 15 years. The last time the S&P 500 fell in the month of July was 2014. So given all that, what could go wrong? Well, here are three things that are on our mind. First, a key part of our most optimistic view is that U.S. inflation will be lower than the Federal Reserve expects in the second half of this year, leading them to leave interest rates unchanged, rather than raise rates as the market expects. The risk is that this assumption is just wrong, perhaps soon. There is certainly an argument that, if the Fed is worried about in…