Episode summary
3 Policy Catalysts to Watch This Fall
Thoughts on the Market (Morgan Stanley)
· · Hosts: Michael Zezus, Ariana Salvatore
Summary
The host and a guest focused on three public-policy catalysts that could move markets this fall: the November midterm elections, a September 24 U.S.-China meeting, and year-end fiscal fights over government funding and the NDAA. The guest said the midterms matter less for broad party control than for specific state races, especially governorships that can shape regulation of data centers and appoint utility commissioners.
On data centers, the guest argued the politics are scrambled and cut across both parties, with some candidates favoring conditional approvals and others pushing more restrictive pauses. Even so, the guest said Morgan Stanley remains constructive on AI capex, citing the internet team’s forecast for more than a trillion dollars of hyperscaler spending next year and pointing to mitigation efforts on power and water concerns.
The guest also said the U.S. and China are likely to preserve the managed stability reached at the May summit, though there is room for tactical escalation and some incremental AI-related changes. On fiscal policy, the host and guest flagged a latent risk of another shutdown in December, while also noting that midterm seasonality can create a knee-jerk equity reaction that may not last if investors stay focused on the AI buildout.
Key takeaways
- The guest said the most consequential fall catalyst is the midterm elections, especially state races that could affect data center permitting and utility regulation.
- Morgan Stanley’s internet team is still forecasting over a trillion dollars of hyperscaler AI capex next year, according to the guest.
- The guest said opposition to data centers is not neatly partisan, with both Republican and Democratic candidates pushing conditional or more restrictive approaches.
- The guest expects the September 24 U.S.-China meeting to preserve managed stability, while allowing for tactical escalation on trade and AI.
- The guest said another government shutdown in December remains a latent risk, with the NDAA and funding debates likely to resurface after the elections.
Notable quotes
“the biggest debate far and away is on data center push back”
“our internet team is still forecasting over a trillion dollars of spending for the hyperscalers next year”
“the overarching goal for both sides is to maintain this managed stability that was established in the May summit too”
“we could see these kind of reemerge as really big debates towards the end of the year”
“We think that's not likely to be durable”
How the episode opens
Welcome to Thoughts on the Market. I'm Michael Zizus, deputy global head of research for Morgan Stanley. — And I'm Ariana Salvatore, head of public policy research. — Today, we'll look ahead to public policy catalysts that matter for investors this fall. It's Wednesday, September 2nd at 10:30 a.m. in New York. Okay, Ariana, there's a few days left in the summer, and investors are already starting to think about what's going to happen this fall. And there's a pretty heavy calendar. Everything from midterm elections to some pretty important diplomatic dates. High level, what do you think people need to focus on?
So, I'll start with probably the most consequential catalyst of the list that you mentioned, and that's the midterm elections. Obviously, not until November 3rd, but the debate is going to start to emerge over the coming weeks in terms of if Democrats were to win just one chamber versus both chambers, if Republicans were to keep control, what could that mean for markets, and what are the durable policy themes? I think in this context, the biggest debate far and away is on data center push back.
And this has transitioned from more of a macro thematic, so investors trying to understand the potential implications for the capex buildout to more of a micro really granular question, right? Which races are the ones that we need to watch? Where are their states or jurisdictions that projects that are pending could be possibly called into question?
And that's sort of the the continuous debate that I've had recently with investors trying to pinpoint it more precisely to figure out where exactly the buildup could be impacted. So, I hear from investors this general concern that the midterm elections will reveal that it's become a consensus preference amongst American voters and members of both parties to slow down on data center spending or perhaps even stop it or something more severe like that.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- midterm elections
- data center backlash
- u.s.-china summit
Companies and tickers mentioned
- MS
- Morgan Stanley
Watch the episode
Watch “3 Policy Catalysts to Watch This Fall” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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