The investment arm of the US bank, holding about $2.05 trillion in AuM, said it favours the US and Japan, while it is underweight Europe.

Morgan Stanley’s investment arm is positive on the US and Japanese equity markets but more cautious about those of Europe. It said bond yields are, at least for now, priced for strong US nominal GDP growth, and are not a red flag.

As bond yields have risen it raises the question at what point will this start to seriously hit equity prices?

That question was posed by Jim Caron, chief investment officer of the Portfolio Solutions Group at Morgan Stanley Investment Management, part of Morgan Stanley, in a recent webinar for journalists. Morgan Stanley IM had about $2.05 trillion in assets under management at 30 September 2026

Today’s higher yields increasingly reflect resilient nominal growth rather than economic stress, with firm growth, resilient labour markets and productivity gains supporting economic activity while easing inflationary pressures, he said. 

“We are in a high nominal growth environment,” he said. When GDP growth is added to inflation, that figure is about 6.5 per cent. Real gross domestic income rose 2.6 per cent in Q2, the latest figure available. 

Looking at the 10-year US Treasury yield, this year it has risen as high as 5.31 per cent on 5 October before retreating to 5.09 per cent on the Friday market close. 

The nominal growth rate is pricing a high generation of corporate cashflow; earnings expectations for the third quarter of this year, he said, are “very robust.” (Several large US banks such as JP Morgan, Citigroup, Wells Fargo and Goldman Sachs have already reported Q3 figures.)

“The US equity market is priced to get the benefits of this growth more than any other market,” Caron said. Japan is also well positioned and nominal growth has been strong, he said. 

Morgan Stanley IM favours the US and Japan, while it is underweight Europe.

Asked about the impact of potential Democrat Party gains in the November mid-term elections, and the possible pushback against the Trump administration’s deregulation agenda, Caron said this could lead to a “narrowing” of investment opportunities in the US, encouraging a switch to ownership of larger, established companies and businesses such as AI “hyperscalers.”

Switching to the bond market, Caron, reflecting on the rise in yields this year, said it was entirely natural for yields to behave in such a way when nominal growth was as strong as it has been. “Bond yields are not necessarily pricing in slowing economic growth. They are going up for the right reasons. Bonds are bruised but they’re not broken.”

Morgan Stanley IM is underweight bond market duration risk and overweight forms of credit. It has cut interest rate sensitivities in its portfolios.

This publication asked Caron what his firm’s position is on private market investing and the amount of commentary that there has been on it in recent years.

“Over the last few years, it is has gotten very crowded and a lot of exit strategies have to [flow] through in order to get new investments in a robust manner. We are now seeing a lot more exits coming through,” he said, referring to investors being paid out. “This gives us an opportunity to deploy capital at new levels of interest rates.”

"The private credit market in areas such as software, an area that came under stress earlier this year, has rebounded. We have concluded the correction phase, and the next phase will be slower,” Caron concluded.