How Will Credit Markets Fare in 2026?

December 19, 2025

AI Summary

5 min read

🎙️ The Voices & The Context

The Format: This structured role-reversal interview flips the previous episode's dynamic, with Lisa Shallett probing Andrew Sheets on Morgan Stanley's 2026 economic forecasts amid resilient growth and moderating inflation, delivering a precise, data-driven exchange on market outlooks. Analytical and forward-looking.
The Format: An interview-style host discussion.
The Key Players:
- Andrew Sheets: Global Head of Corporate Credit Research at Morgan Stanley, offering expert insights into credit markets, inflation drivers, and corporate behavior; notable for his cautious yet constructive views on global growth.
- Lisa Shallett: Chief Investment Officer of Morgan Stanley Wealth Management, acting as the sharp questioner, tying broader investment themes to Andrew's credit expertise.

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What you'll learn

1 **(00:30) 2026 Outlook: Resilient Global Growth, Moderating Inflation, and Gradual Central Bank Easing**
2 **(02:17) Central Banks Cutting Rates More Slowly Amid Stronger Growth: Positive for Credit Markets**
3 **(03:54) Resurgent Animal Spirits: Boost for Equities but Headwinds for Credit**
4 **(05:07) Broader Asset Allocation: Equities Over Credit, Regional and Style Preferences**
5 **(06:30) Key Risks to the 2026 Outlook**

+ Full timestamped outline available in the app

Show Notes

To conclude their two-part discussion, our Head of Corporate Credit Research Andrew Sheets and Chief Investment Officer for Morgan Stanley Wealth Management Lisa Shalett discuss the outlook for inflation and monetary policy, with implications for investment-grade credit.

Read more insights from Morgan Stanley.

----- Transcript -----

Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Corporate Credit Research at Morgan Stanley.

Lisa Shalett: And I am Lisa Shalett, Chief Investment Officer of Morgan Stanley Wealth Management.

Andrew Sheets: Yesterday we focused on the topic of a higher for longer inflation regime, and I was asking the questions. Today, Lisa will grill me on my views for the next year.

It's Friday, December 19th at 4pm in London.

Lisa Shalett: And it's 11am in New York.

All right, Andrew, I'm happy to turn tables on you now. I'm very interested in your thoughts about the past year – 2025 – and looking towards 2026. In 2026, Morgan Stanley Research seems to expect a resilient global growth backdrop, with inflation moderating and central banks easing policy gradually. What do you think are the main drivers behind this more constructive inflation outlook, especially taking into account the market's prevailing concerns about persistent price pressures.

Andrew Sheets: There are a couple of factors that we think are going to be near term helps for inflation, although I don't think they totally rule out what you're talking about over that longer term period.

So first, we, at Morgan Stanley, are very cautious, very negative on oil prices. We think that there's going to be more supply of oil over the next year than demand for it. And so lower oil prices should help bring inflation down. There's also some measures of just how the inflation indices measure shelter and housing. And so, while we think, kind of, looking further ahead, there are some real shortages emerging in things like the rental markets – where you just haven't had a whole lot of new rental construction coming online, as you look out a year or two ahead.

But in the near term, rental markets have been softer. Home prices are coming down with a lag in the data. And so, shelter inflation is relatively soft. So, we think that helps. While at the same time fiscal policy is very supportive and corporates, as we discussed in our last conversation, they're really embracing animal spirits – with more spending, more spending on AI, more capital investment generally, more M&A. And so, those factors together, we think, can over the next 12 months, still mean pretty reasonable growth and Inflation that's still above target – but at least trending a little b