Morgan Stanley Says US Stocks May Struggle to Set New Records as Money Rotates Out of Tech
Forecast Trend Report by Period
Morgan Stanley said US stocks may struggle to reach fresh record highs as investors rotate out of large technology shares that powered this year's rally and into other sectors.
BlockBeats, a cryptocurrency-focused media outlet, reported on July 6 that Morgan Stanley strategists see investors moving out of technology stocks, the market's strongest-performing sector this year, and shifting into other parts of the market.
That rotation could undermine a rally led by artificial intelligence and megacap technology stocks. As investors pull money from the year's best-performing tech names and redeploy it elsewhere, US equities may face resistance in setting new record highs, the strategists wrote.
Morgan Stanley also said most of the good news on the economy and corporate earnings has already been priced in. That has slowed the advance in major indexes, and the market would need genuinely upside-surprising catalysts to climb much further.
Investors are particularly focused on whether heavy AI infrastructure spending can translate into actual profits rather than simply larger outlays. The firm said the market wants clear evidence that massive AI capital expenditure can turn into sustainable returns, and that rising spending by itself is not enough.
That uncertainty is helping drive flows away from megacap technology stocks and into a broader range of shares. It suggests investors are becoming more selective, looking for companies that can convert AI investment into earnings rather than merely expanding AI spending.
Morgan Stanley advised investors to place greater weight on the quality of earnings and the likelihood those profits can be realized. It also suggested taking some profits in small-cap stocks and raising exposure in some sectors to companies that could benefit from broader AI adoption.
Earlier Morgan Stanley research found that even though large technology companies posted strong third-quarter earnings, their share-price gains did not keep pace. Valuations have therefore come down, while industrial and cyclical stocks have continued to rise on expectations of interest-rate cuts.
