Thoughts on the Market

Our U.S. Hardlines, Broadlines and Food Retail Analyst Simeon Gutman explains how affordability and new shopping habits are changing how Americans choose and care for their pets.
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Simeon Gutman: Welcome to Thoughts on the Market. I’m Simeon Gutman, Morgan Stanley’s U.S. Hardlines, Broadlines and Food Retail Analyst.
Today: the state of the pet economy, or as we lovingly call it, the “petriarchy.”
It’s Monday, June 1st, at 10am in New York.
Hey Sammy, who wants to go on a walk?
If you have a pet, you probably know the routine. You go in for one bag of food. Then you remember the treats, the medicine, the grooming appointment. Maybe the toy they definitely do not need. And then the vet bill you hope is not around the corner.
Pets are family. But family has gotten more expensive.
That’s the big shift in the U.S. pet economy. The emotional bond is still powerful. About two-thirds of dog and cat owners strongly agree their pet is an important member of the family. More than one-third say they would take on debt to pay for a pet’s medical expenses.
Today, the growth story in the pet industry has changed. After an extraordinary post-pandemic run, it has entered a slower, more mature phase. We see growth settling around 4 percent, down from nearly 9 percent annually from 2019 to 2025.
That doesn’t mean the market is shrinking. We still see total U.S. pet spending rising from about [$]200 billion in 2025 to more than [$]240 billion by 2030. But the easy growth days look behind us. The industry now has to work harder for each dollar.
Affordability sits at the center of this story. A pet may start as an emotional decision, but it quickly becomes a line item in the household budget. Overall pet ownership remains above pre-COVID levels, at about 67 percent, but it has slipped from the 2024 high. That pressure shows up most clearly among younger consumers for whom cost has become the top barrier.
And consumers are adapting. When pet food prices rise, shoppers stock up on sale items, compare prices online and in-store, and in some cases trade down. Still, pet food remains resilient. Almost all owners plan to keep spending the same or spend more on pet food over the next six months.
The bigger change is that services continue to take share from products, with veterinary care at the center. Services accounted for just over 40 percent of pet industry spending in 2025, and we see that moving higher by 2030. Food and toys still matter, but healthcare, prescriptions, diagnostics and routine care are becoming a bigger part of the wallet.
That brings us to vets – who remain the most trusted source of pet care information, cited by nearly 60 percent of owners. Younger pet owners still rely on vets, but they also turn more to online sources, friends, relatives and even store personnel. About three-quarters of owners visited a vet in the past six months, but average visits fell to under two, which is down from just over two in 2024. This points to a more cautious consumer, especially around routine care.
We also see a subtle shift in the kinds of pets people choose. Cat ownership has moved higher versus pre-COVID levels, while dog ownership among younger adults has pulled back from its 2024 peak. That shift is not surprising, given that cats typically come with lower overall spending than dogs.
Shopping habits are changing as well. Online pet product shopping has grown a lot since 2019, but its share of wallet has leveled off at roughly one-third.
The next leg of digital growth may come less from simply moving store purchases online and more from subscriptions, pharmacy, healthcare and broader pet care ecosystems.
So where does that leave the pet economy? Pet owners are certainly not walking away from their animals. But they are making more practical choices, watching prices more closely, and deciding where convenience, health and value fit into the same budget.
Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Commercial real estate debt is now one of the market’s most avoided asset classes. Our Global Head of Fixed Income Research Andrew Sheets explains why there may be an opportunity to invest in those securities.
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Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley.
Today, why commercial real estate debt could be overlooked and undervalued.
It's Friday, May 29th at 2pm in London.
Bond yields have risen this year, and it's attracting strong flows into fixed income markets. The problem is that all of that demand is narrowing the risk premium that one receives. Spreads on U.S. mortgage bonds are richer than 89 percent of observations over the last 20 years. Spreads on the U.S. high yield market, well, they're richer than 96 percent of the time. And spreads on U.S. investment grade, it's 99 percent.
We live in a world where the risk premium on most bonds is very low versus history, but there are exceptions. One is debt backed by commercial mortgages or so-called CMBS. Spreads here, notably and unusually, are significantly higher than the long run average. It is a market that we like.
Commercial property is largely comprised of lending against office buildings, apartments, retail complexes, and industrial sites like warehouses. The first three have faced major challenges over the last five years.
Office values have slumped as investors feared more people working from home. Apartments have suffered from significant supply in building, conceived in a low-rate world as this has come online. And retail has faced long-run concern about the trend of more online shopping. And the rise of interest rates, well, that's loomed over everything.
A building, in a lot of ways, is a lot like a bond, promising a dependable stream of rents over time. When an investor can get that stream of cash flows from the bond market, commercial property prices must adjust lower to remain competitive.
These challenges are material, but they are also not new. Indeed, investors may recall that fears around commercial property peaked way back in early 2023 following significant rate hikes by the Federal Reserve. Back then, there were widespread fears that commercial property weakness would ricochet back and threaten the banking system.
Three years later, those worst fears have not been realized. And while defaults and restructurings have happened, overall commercial property fundamentals are beginning to pick back up.
Commercial property transaction volumes increased 27 percent in the U.S. in the first quarter relative to a year prior; and prices are rising, up about 5 percent over the same period. The amount of commercial real estate debt being originated is up about 40 percent over the last year – a sign that lenders are coming back. And the number of commercial deals that are becoming distressed and unable to pay their bills, they just saw their first quarterly decline since all of those problems in early 2023.
Part of this recovery in the commercial real estate market may be explained by U.S. growth, which continues to be resilient, and some of it mirrors other cycles.
When rates rose and commercial lending markets weakened, the construction of new properties really slowed down. It takes several years to build a building, and so it's only now that the impact of everything that was not built is starting to be felt.
With less supply coming online, the value of existing property is better supported, especially relative to the more elevated risk premiums on offer for its debt.
Thank you, as always, for your time. If you find Thoughts on the Market useful, let us know by leaving a review wherever you listen. And also tell a friend or colleague about us today.

Our Deputy Global Head of Research Michael Zezas explains why the recent U.S.-China summit may have eased near-term risks, without changing the bigger picture for investors.
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Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Deputy Global Head of Research.
Today, we're talking about what investors should take away from the recent U.S.-China summit.
It's Thursday, May 28th at 10:30am in New York.
It's been two weeks since the much-anticipated U.S.-China summit, where Presidents Trump and Xi met to discuss a wide array of issues in their relationship. Understandably, investors were watching carefully. The relationship between the two countries and its potential impact on global economic conditions has been a driver of markets at key intervals.
Brinksmanship around the trade relationship has been particularly noteworthy. In 2025, the level of tariffs substantially influenced macro markets, and export restrictions for semiconductors and rare earths drove volatility in key equity sectors such as tech hardware. Coming into the summit, the two countries had found a tenuous equilibrium, with the policy volatility of last year giving way to an uneasy calm this year.
So, did the summit change anything?
As best we can tell, not really. Some modest progress was made in lower sensitivity areas, but investors shouldn't confuse that with a durable reset in relations. The summit, in our view, points to a more managed relationship, not a fundamentally stable one.
Here's what investors should keep in mind. At the risk of stating the obvious, the concrete public policy choices of each country matter a lot from here. President Trump emphasized renewed investment in the U.S.-China relationship. That's good. Talking beats not talking. But the bigger issue is what happens next.
So far, we haven't seen broad language around joint efforts to establish trade and investment cooperation boards translated into workable arrangements; which if they materialized might hint at a more stable relationship
So, net-net for investors, the summit is best understood as a continuation of the status quo, not a pivot. It may reduce near-term tail risks, which is sufficient to support the many other positive drivers pushing equity markets higher.
But it does not eliminate the structural forces behind U.S.-China competition.
That means we'll keep tracking this relationship as an economic and markets catalyst and keep you in the loop.
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As AI changes the video game industry, Matt Cost, from Morgan Stanley’s U.S. Internet team, takes us through the game play and what could drive the next level of engagement.
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Welcome to Thoughts on the Market. I’m Matt Cost, from Morgan Stanley’s U.S. Internet team.
Today – how new AI tools are reshaping the video game industry.
It’s Wednesday, May 27th, at 10am in New York.
We’ve all done it at some point. You think you’ll open your phone for just a few minutes. But end up in a game, a match, or a virtual world for much longer than you planned. Now, that window of attention is at the heart of one of the biggest battles in entertainment.
Americans over 15 years old spend about 22 minutes per day playing games – that’s more than they spend socializing, playing sports, or reading. And the next big shift in gaming may stem from who gets to create games and how they do it.
We expect consumers to spend more than $275 billion on video games in 2026. And the industry is reinvesting over $50 billion of that into game development and operations. But AI could cut that by nearly half.
Today, making a major game is expensive, slow, and labor-intensive. A typical AAA title – the gaming equivalent of a studio blockbuster – can cost hundreds of millions of dollars and take four years to build. More than 90 percent of that cost is people: so that’s developers, designers, artists, writers and many more.
But AI could change that math. New tools could increase productivity multiple times over, helping smaller teams do more in less time. Even after accounting for AI compute and asset-generation expense, we think that cost savings could exceed 40 percent. That’s over $100 million per game project. Across the industry, that could generate savings of roughly $22 billion.
But that money won’t just go straight to profits. Increased competition may erode those savings. And studios might put more money into marketing in response. So, AI could still meaningfully shift value across the gaming ecosystem.
The positives are clear. AI can speed up coding, asset creation, testing, and many other processes that are manual today. That’ll let studios spend less time on repetitive work and more time on higher-value creative tasks.
But it’s tough for newcomers to level up. AI does open the door for new players, but we think the industry looks more insulated from near-term disruption than the market fears – especially for companies with strong IP and advantages in live operations, data, and distribution.
AI can help generate worlds, characters, and digital assets, but great gameplay is harder. Gameplay is the feel, the challenge, the feedback, and the fun. Models still struggle to measure that, let alone deliver it consistently.
Live operations are another moat for established gaming companies. Many successful games don’t end at launch. Teams run them for years through updates, events, and passionate communities. That skill is hard to copy. And often it determines whether a game becomes a lasting franchise or fades quickly. So gradual integration of AI looks more likely than overnight replacement.
Finally, the largest opportunity may still be on the horizon. Beyond lowering the cost of making today’s games, AI could unlock entirely new types of interactive experiences that didn’t exist until now. And the game industry has been through this process before, when new technologies like smartphones changed games forever. But ultimately, the prize is still the same: building something that people can’t stop playing.
Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Our Chief Asia Economist Chetan Ahya looks at why spending not only on AI, but also on energy and defense, could drive Asia's strongest industrial cycle in decades.
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Welcome to Thoughts on the Market. I'm Chetan Ahya, Morgan Stanley's Chief Asia Economist.
Today – why Asia is headed toward its strongest industrial cycle since the mid-2000s.
It's Tuesday, May 26th, at 2pm in Hong Kong.
The market narrative in Asia has been narrowly – almost exclusively – focused on artificial intelligence. But AI is just one aspect of a much broader shift across the region.
We think Asia is entering an industrial supercycle. And this is being driven by a sustained rise in capital expenditures across AI, energy, defense and [the] broader industrial sector.
The numbers behind this are substantial. We forecast Asia's total investment could rise from about $11 trillion today to $16 trillion by 2030. So this implies a 7 percent annual growth rate over the next five years, which is triple the pace of the past two years, making it quite significant. And for the high growth sector such as AI, energy, defense and broader industrial sector we expect capex to grow at an even faster runrate of about 16 percent a year.
Now let's talk about the drivers.
No doubt, the first big driver behind this momentum is AI. Asia needs to invest more in AI infrastructure. At the same time, Asian chipmakers and memory producers are lifting capex to meet demand of U.S. hyperscalers for building data centres.
The second driver is energy. Asia needs to invest in the energy sector for three reasons – for powering AI, energy transition and energy security. The power demand for AI compute is growing exponentially. On top of that, economies are having to shift towards renewables, and that needs more investment in grids, storage, and power generation equipment. Moreover, the recent geopolitical tensions have made energy security a bigger policy priority, especially for Asia which is dependent on imported energy.
The third driver is defense. Now, even before the recent escalation in the Middle East, defense budgets across Asia were moving higher. This year, China has planned their defense spending to grow at a pace faster than its GDP growth. Meanwhile, India has raised budgetary allocations for defense capex by 18 percent this year. At the same time, Japan, Korea, and Taiwan are aiming to lift their combined defense spending from about 1.7 percent of GDP to 3 percent.
The fourth driver is broader industrial sector investment. Every economy in the region is working to secure their supply chains and focused more on onshoring of critical inputs for their domestic production.
So what does this mean for Asia? The region stands to reap the benefits of a rise in capex [spending] twice over. First, the increase in Asia’s capex will fuel its industrial cycle. Second, you have to consider [that] Asia is the world’s production house. And as rest of the world is increasing capex investment in the areas I identified earlier, Asia benefits from feeding this global demand.
Already, the evidence of a strong industrial cycle is visible. We prefer to look at capital goods imports as a proxy for capex. And that has been growing at an impressive rate of 27 percent on a year-over-year basis in dollar terms. Industrial production [growth] is nearing a four-year high. And non-tech exports, which are important from industrial production perspective, have staged a strong recovery since the fourth quarter of last year.
So which Asian economies will benefit? As such, all of them. But China, Japan, Korea, and Taiwan are the biggest beneficiaries because they are meeting both domestic and export demands. On the other hand, India's industrial sector benefits primarily from its own domestic capex cycle. The pickup in Asia’s industrial production is pushing industrial commodities prices higher, helping Australia and Indonesia, the two biggest commodity exporters in the region.
This next chapter of Asia’s growth story will filter through – from capex to jobs and income growth, and then through to the consumer. That's why this is not just an AI story. It will become a broader economic recovery across the region.
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