Morgan Stanley: All global indicators are very optimistic, is it "too good to be true"?

Despite the severe market volatility at the beginning of 2026, with significant fluctuations from Japanese government bonds to technology stocks, almost all indicators related to the global cyclical outlook are strengthening in unison beneath the surface, and this rare consistency signal deserves high attention from the market.

Morgan Stanley released a report titled "What's Next in Global Macro—Noisy Markets, Aligned Indicators" on February 8. The report pointed out that copper prices have surged 36% in the past six months, the South Korean stock market has skyrocketed 68% leading the world, financial stocks have outperformed the market in the US, Europe, China, and Japan, and small-cap stocks, cyclical stocks, and emerging market currencies are collectively strengthening.

Currently, fiscal, monetary, and regulatory policies are being relaxed simultaneously worldwide, combined with the expansion of AI investments and a wave of mergers and acquisitions, increasing the likelihood that "the cycle will burn hotter before it extinguishes." Key overheating signals have not yet appeared. Investors need to closely monitor five major indicators: inflation, bond volatility, the US dollar, credit, and whether stocks and credit decline when data is "good."

Morgan Stanley is optimistic about the global cycle and insists on a broadening trading strategy. Specifically, the institution is bullish on the Japanese stock market, US small-cap stocks outperforming large-cap stocks, US high-yield bonds outperforming investment-grade bonds, and high-yield mezzanine bonds, believing that emerging markets will continue to outperform, especially in Latin America.

Rare Indicator Consistency: Strong Signals from Deep Within the Market

Morgan Stanley emphasizes that a single indicator may fail at any time. However, when numerous indicators point in the same direction simultaneously, it is very worthy of attention. Specifically, the performance of these economically sensitive indicators is as follows:

As an economically sensitive commodity, copper has risen 36% in the past six months; the South Korean stock market, which has above-average cyclicality and sensitivity to global trade, has soared 68% during the same period, becoming the best-performing market among all major stock markets; the financial sector, at the core of credit creation, has outperformed the market in the US, Europe, China, and Japan over the past six and twelve months.

Data so far this year further confirms this trend: cyclical stocks and transportation stocks have performed excellently, small-cap stocks are leading, market breadth is improving, the yield curve is steepening in a bear market, and emerging market currencies are strengthening. All these results align with one hypothetical premise: future global growth will be stronger than current levels.

Triple Easing Combined: An Unprecedented Stimulus Package

What makes this indicator consistency even more striking is its contextual environment. Morgan Stanley points out that fiscal, monetary, and regulatory policies are being "simultaneously and globally" relaxed—this three-pronged easing policy combination itself is a powerful driving force.

At the same time, AI investments continue to grow significantly, and merger and acquisition activities are surging. These are all strong drivers, and combined with all these optimistic indicators, they increase the likelihood that "the cycle will burn hotter before it extinguishes."

Monitoring Five Overheating Signals: No Alarm Has Been Sounded Yet

But is this a good thing? Morgan Stanley raises a key question: Is the market currently overheating?

The institution has listed five overheating signals that need close attention: Is significant inflation imminent? Is bond volatility rising? Is the dollar significantly deviating from fair value? Is credit performing poorly? When data is "good," are stocks and credit declining?

The current answer is: not yet. Long-term inflation expectations in the U.S. and Eurozone remain aligned with central bank targets. The expected volatility of U.S. interest rates has actually decreased since the beginning of the year. The dollar's valuation is close to the level implied by purchasing power parity. Credit spreads are generally stable.

Last Monday's better-than-expected U.S. PMI data led to a rise in stocks and a rebound in credit, while weaker labor data later this week had the opposite effect—in other words, "good data is good news."

Investment Strategy: Maintain Cyclical Preference and Diversified Allocation

Based on this analysis, Morgan Stanley maintains a positive cyclical preference and adheres to a broadening trading strategy. Specifically, the institution is optimistic about the Japanese stock market, U.S. small-cap stocks outperforming large-cap stocks, U.S. high-yield bonds outperforming investment-grade bonds, and high-yield mezzanine bonds, believing that emerging markets will continue to outperform, particularly in Latin America.

However, Morgan Stanley also warns that recent weeks have been a "painful reminder" that growth is not a panacea, with significant rotation between winners and losers beneath the surface. Overall, Morgan Stanley believes that this consistency across multiple indicators still suggests favorable fundamentals, maintaining a bullish outlook on the market until key indicators reverse.

Risk Warning and Disclaimer

The market carries risks, and investment should be approached with caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investment based on this is at their own risk