Morgan Stanley diagnosed that the US stock market could face limitations in reaching new all-time highs as investors withdraw funds from mega-cap tech stocks, which led this year's rally, and reallocate them to other sectors. The institution explained, "The current market faces uncertainty about whether increasing AI capital expenditures can translate into tangible profits. This has led to a widespread outflow of funds from large-cap tech stocks, which had been concentrated due to 'buy the rumor, sell the news' sentiment, causing the index to stagnate. To rise another level, an even bigger positive catalyst is needed to overcome all these factors." Morgan Stanley further analyzed that the tech-driven upward momentum is weakening as funds shift due to expectations of interest rate cuts, and funds are being reallocated to beneficiaries of profitable AI applications, along with profit-taking in small-cap stocks.
