Three Major Surprises Forecasted by Morgan Stanley for 2026

Three Major Surprises Morgan Stanley Expects in 2026

1. Productivity Growth Without Employment

The U.S. economy may experience a "productivity growth without employment" that lowers inflation and facilitates the Federal Reserve's interest rate cuts. Morgan Stanley strategist Matthew Hornbach notes that the weakening labor market could limit wage growth and inflation while accelerating productivity could sustain economic growth. In such a scenario, core inflation may drop below 2%.

Hornbach states, "Supply-side disinflation provides the Fed with room to cut rates to supportive levels without investor concerns about a new wave of inflation," also highlighting that this could alleviate worries about increasing budget deficits in the U.S.

According to recent data, non-farm productivity increased by 3.3% in the second quarter, compared to a 1.8% decline in the previous quarter.

Shifting Balance Between Stocks and Bonds

2. Rebalancing of Stock and Bond Prices

Typically, stock and bond prices move in opposite directions, but in 2025, this relationship changed. According to Morgan Stanley, stocks and bonds rose simultaneously. This situation stems from poor economic data strengthening expectations that the Fed will cut rates.

Strategists anticipate that if inflation returns to the Fed's target level, there could be a return to a "bad news is bad" environment for risky assets.

Expectation of Rising Commodity and Energy Prices

3. Sharp Increase in Commodity and Energy Prices Expected

While commodity prices experienced significant growth in 2025, a continuation of this trend is expected in 2026. Morgan Stanley suggests that a weak dollar and global economic recovery could drive commodity prices higher.

The depreciation of the U.S. Dollar and China's strong consumption demand could push energy prices to new highs. Analysts believe that tight supply conditions and increasing investments in artificial intelligence enhancing demand support this scenario.