A Morgan Stanley report on equity market factors, listing four changing key elements. In summary …

Global markets have withstood all manner of challenges without cracking ...

Four key elements of this market are very different than a year ago. Back then, we chalked the market's resilience up to four factors:

  1. An unusually happy truce among growth, inflation and rates;
  2. a positive skew to policy surprises;
  3. rock-solid credit markets;
  4. and a large gap between (low) implied and (even lower) realised volatility.

All of these have changed

growth and inflation

  • For the last eight years, markets have been supported by the idea that good data would support market normalisation and bad data could bring further policy easing.
  • Good and bad were both good.
  • That's changed. US headline and core inflation have risen sharply since the start of the year
  • Unemployment is back down near historical lows
  • two things have stood out … Investors are now more sanguine … We're 8 ½ years into an expansion, and many investors finally are finally confident that there is plenty of time left on the clock.
  • China is rarely mentioned as a growth concern (after causing angst for much of this period).
  • Both … suggest a vulnerability to weaker data

Second, the change in policy

  • Last year, there was clear policy catalyst (tax) that the market was far from fully pricing. This year, that seems to have been replaced by a clear policy risk (trade) that the market is far from fully pricing. Our economists and US public policy team remain cautious on the current state of trade negotiations.

Third, credit markets

  • Last year, nearly every pocket of global credit was strong and stable. This year is very different

Finally, market volatility itself

  • Last year ... volatility at historically low levels
  • That's changed … realised volatility is often closer to the middle of the 10-year range

Zero Hedge have more on the report here if you are interested