Morgan Stanley identifies 7 political risks hitting investors

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• U.S. defense spending expected to remain elevated, supporting defense prime contractors and companies specializing in drones, satellite technologies, and missile defense systems

  80% confidence

• Political risk is no longer something investors can file away under long-term concerns; in 2026, Washington is the market catalyst

  80% confidence

• Expects headline-driven volatility around USMCA negotiations, but sees reaffirmation of U.S.-Canada-Mexico trade relations as potentially positive for companies tied to near-shoring trend

  80% confidence

• Pharmaceutical companies could see pricing pressure accelerate, particularly on brand-name drugs that drive the bulk of industry profits

  80% confidence

• OBBBA legislation expected to deliver roughly $160 billion in consumer deductions and credits for 2026 tax year, potentially increasing total tax refunds by 44% year over year

  80% confidence

• Major organizational change at the Fed could trigger interim bond market volatility with expectations of weaker U.S. dollar, steeper yield curve, and higher term premiums

  80% confidence

• Financial institutions that earn revenue from higher lending rates face margin compression if affordability caps take effect

  80% confidence

• Reversing IEEPA tariffs could generate up to $175 billion in refunds to importers

  80% confidence

• Stealth correction is already underway beneath the surface of the S&P 500, even as the headline index holds near record levels

  80% confidence

• Geopolitical competition in the 'multipolar world' identified as one of the top-performing investment themes of 2025, with trend extending into 2026

  80% confidence

• Investors should diversify actively, not ride passive index exposure, and manage risk deliberately

  80% confidence

• Proprietary sector data showing health care stocks have been outperforming tech since mid-2025

  80% confidence

• IEEPA tariffs accounted for roughly half of all customs duties collected in 2025, totaling approximately $142 billion

  80% confidence

• S&P 500 expected to reach roughly 7,500 by year-end 2026, with bull market continuing into its fourth year

  80% confidence

• Average tax cut per filer estimated at approximately $2,300 from OBBBA

  80% confidence

• Growing adoption of stablecoins could increase demand for U.S. Treasuries and strengthen the dollar, potentially lowering government borrowing costs

  80% confidence

• Health care has historically been the best-performing sector in midterm election years

  80% confidence

• Health care sector positioned for recovery with greater policy clarity and improving macroeconomic backdrop benefiting insurance companies and biotech firms

  80% confidence