Morgan Stanley Says US Stocks May Struggle to Reach Fresh Records as Money Leaves Tech
Summary
- Morgan Stanley said US stocks could face resistance in trying to return to record highs.
- The bank said a rotation of money out of large-cap technology shares and uncertainty over whether AI capital spending will translate into real profits could weaken the market rally.
- Morgan Stanley advised investors to focus on the realizability and quality of earnings, take some profits in small-cap stocks, and raise exposure to shares that stand to benefit from broader AI adoption.
Forecast Trend Report by Period
Morgan Stanley said the US stock market may struggle to set fresh record highs as money rotates out of the large technology shares that drove 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, this year’s strongest performers, and into other parts of the market.
The firm said that rotation could weaken a market rally led by artificial intelligence and megacap technology shares. With investors shifting out of the year’s best-performing tech stocks and into other sectors, US equities may face resistance in returning to record highs.
Morgan Stanley said most of the positive news on the economy and corporate earnings has already been priced in. That has slowed gains in the major indexes. For stocks to rise further, the market would need developments that genuinely exceed expectations.
Investors are focused in particular on whether heavy spending on AI infrastructure will translate into actual profits rather than simply larger outlays. Morgan Stanley said the market wants clear evidence that massive AI capital spending can turn into sustainable returns. Rising spending alone will not be enough.
That uncertainty is helping drive a shift in capital away from megacap technology stocks and into a broader range of shares. The move suggests investors are becoming more selective, favoring companies that can convert AI investment into real earnings rather than simply betting on an expansion in AI spending itself.
Morgan Stanley advised investors to place greater emphasis on the realizability and quality of earnings. It also recommended taking some profits in small-cap stocks and increasing exposure to sectors 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 lagged those results. As a result, valuations have fallen, while industrial and cyclical stocks have continued to advance on expectations of interest-rate cuts.
Minseung Kang
minriver@bloomingbit.ioBlockchain journalist | Writer of Trade Now & Altcoin Now, must-read content for investors.