In its latest weekly report, Morgan Stanley analyzes the main focuses of the market, with special attention to the evolution of currencies and the beginning of the earnings season in the United States. The bank places emphasis on the behavior of the dollar, the risks associated with the Japanese yen and the role that business results will play in a context of high dispersion between companies. On the currency front, Morgan Stanley stands out the weakness of the dollarwith the dollar index accumulating a fall of more than 10% year-on-year and being close to multi-year lows in terms of variation. According to the bank, this movement tends to have positive implications for US earnings expectations. «Ultimately, this provides a positive tailwind for earnings revisions in the US,» the report notes, highlighting that historically The evolution of the dollar has anticipated changes in estimates several months in advance.
Falling dollar typically has positive implications for business earnings expectations
He japanese yen It is another of the elements that the bank monitors closely. Morgan Stanley warns that sudden upward movements in the currency can cause episodes of volatility in risk assets, due to the impact on carry trade strategies accumulated over years. «Sudden rises in the yen can have adverse effects on other risk assets due to the extensive carry trade that has been accumulating for years thanks to cheap financing,» recalls the report, citing as a precedent the episode of volatility recorded in the summer of 2024. However, the entity points out that this type of movements They are usually temporary and do not alter your background vision. As for the results seasonMorgan Stanley anticipates a campaign marked by strong differences between companies. The bank expects a high rate of positive earnings surprisesalthough accompanied by a notable dispersion in stock market behavior, and highlights that the results will act mainly as catalysts at the individual level.
‘SMALL CAPS’, THE CONVICTION REMAINS
Within this context, Morgan Stanley maintains a constructive view on American small companiesdespite the fact that they have recently ended a historical streak of better relative performance against large capitalizations. «The ‘small caps’ have put an end to their historic streak of better relative performance, although «fundamental tailwinds remain favorable in the medium term»points out the bank, recalling that the Russell 2000 chained fourteen consecutive sessions of advances against the S&P 500, the second longest streak since 1980. Although the entity recognizes the presence of signs of overbought in the short term, it insists that its positive vision remains intact. «We are respectful of the overbought levels of the RSI in the short term, but remain convinced in our bullish view on the ‘small caps’ for the next three to six months«says the report. This confidence is supported by the strength of earnings revisionsespecially in cyclical sectors such as consumption, industry, financial and energy. Overall, the Morgan Stanley report points to a weaker dollar as support for earnings, foresees an earnings season marked by stock selection and maintains a positive view on small companies, although it warns of tactical risks linked to currency volatility, interest rates and the geopolitical context.
