Lisa Shalett, Chief Investment Officer at Morgan Stanley, warns: The rebound in U.S. stocks might be coming to an end, suggesting a shift from technology stocks to the financial and healthcare sectors.

Taiwan • Business • 05/17 14:27
Lisa Shalett, Chief Investment Officer at Morgan Stanley, warns: The rebound in U.S. stocks might be coming to an end, suggesting a shift from technology stocks to the financial and healthcare sectors.

Morgan Stanley Wealth Management's Chief Investment Officer, Xia Leite, warns that the rebound in U.S. stocks is unlikely to be sustained. She advises investors to realize profits from tech stocks and shift towards industries such as finance, energy, and healthcare, which benefit from regulatory easing. She points out that there is a structural shift in the AI sector, with corporate revenues and free cash flows below expectations, constraining the market's upward potential. Xia Leite's view aligns with changes in market fund flows, indicating an increasing preference among investors for defensive and value-oriented assets.

Key Updates

05/19 13:47

CNBC personality Jim Cramer calls out the week's top ten stock market events and five must-know things before Monday's market opens.

On May 19, 2025, Moody's downgraded the United States' sovereign credit rating, leading to a drop in U.S. stock futures, a rise in long-term bond yields, and a withdrawal of funds from risk assets. CNBC host Jim Cramer listed the top ten stock market events for the week, including corporate earnings reports, the impact of the downgrade, and developments in AI technology. The five key points to watch before Monday's market opening provide context, including Moody's downgrade, last week's stock market rebound, Nvidia's new technology, progress on the congressional budget bill, and the tariff dispute involving Walmart and Trump.

05/19 10:50

AI chips are becoming the new global currency: Bank of America is optimistic about Nvidia and AMD, Saudi Arabia's major order highlights the demand for AI infrastructure

A report by the Bank of America indicates that AI chips are emerging as the "new currency" in global geopolitical and economic negotiations, whose strategic value surpasses that of traditional tech products. Saudi Arabia has entered into multi-billion dollar AI infrastructure agreements with NVIDIA and AMD, and global AI infrastructure spending is expected to reach $6.7 trillion by 2030, with chip designers capturing a $3.1 trillion market share. This "sovereign AI" wave led by the Middle East is reshaping the power dynamics of global technology and capital markets.

05/19 06:51

U.S. stock index futures continue to decline following Moody's credit rating downgrade: Dow futures at one point fell more than 300 points.

On May 19, 2025, Moody's downgraded the U.S. sovereign credit rating from Aaa to Aa1, leading to a decline in U.S. stock futures during the Asian trading session. Dow Jones Industrial Average futures fell by 311 points, S&P 500 futures fell 60 points, and Nasdaq 100 futures declined 278 points. This downgrade sparked market concerns, affecting global stock markets and driving up the prices of safe-haven assets such as gold. U.S. Treasury yields neared 4.5%, becoming a key focus for the market, potentially impacting the flow of funds into the stock market.

05/18 10:17

Key Drivers of U.S. Stock Market Trends This Week: Trump's Tariff Negotiations, Federal Reserve Policy, Economic Data, Computex Taipei, and Corporate Earnings

Last week, the major U.S. stock indices rebounded, with investors focusing on five key variables: the Trump administration's tariff policy and trade negotiations, the Federal Reserve's policy stance, U.S. economic data, technology information from the Taipei International Computer Show (COMPUTEX 2025), and corporate earnings, especially the growth expectations for tech stocks. These factors will influence the short-term trend of U.S. stocks.

05/17 22:17

Moody's downgrade of U.S. debt leads to an increase in yields, as Trump signs a $2 trillion deal during his Middle East trip, boosting AI and prompting a stock market rebound.

On May 16, 2025, Moody's downgraded the United States' sovereign credit rating from "Aaa" to "Aa1," leading the 10-year U.S. Treasury yield to rise to 4.49%, and U.S. stocks were under pressure after hours. President Trump visited the Middle East that same week, signing economic and arms deals exceeding $2 trillion with Saudi Arabia, the UAE, and Qatar, and facilitated cooperation on AI chips, which boosted tech stocks. Despite the short-term volatility caused by the downgrade, the market remained optimistic due to the strong performance of AI and tech stocks.

05/17 14:27

Lisa Shalett, Chief Investment Officer at Morgan Stanley, warns: The rebound in U.S. stocks might be coming to an end, suggesting a shift from technology stocks to the financial and healthcare sectors.

Morgan Stanley Wealth Management's Chief Investment Officer, Xia Leite, warns that the rebound in U.S. stocks is unlikely to be sustained. She advises investors to realize profits from tech stocks and shift towards industries such as finance, energy, and healthcare, which benefit from regulatory easing. She points out that there is a structural shift in the AI sector, with corporate revenues and free cash flows below expectations, constraining the market's upward potential. Xia Leite's view aligns with changes in market fund flows, indicating an increasing preference among investors for defensive and value-oriented assets.

05/16 22:55

U.S.-China Tariff Deal and Trump's Visit to the Middle East Boosts the Market: Tech Stocks Lead the Gains, All Three Major U.S. Stock Indices Rise

On May 16, 2025, the US stock market closed higher across the board due to a 90-day tariff suspension agreement reached between US-China and a $200 billion trade agreement as a result of President Trump's visit to the Middle East. The Dow Jones Industrial Average rose by 331 points, the S&P 500 Index closed in the green for the fifth consecutive day, and the Nasdaq Composite rose by nearly 100 points. Tech stocks led the rally, with Tesla and Nvidia stocks rising 17% and 16% respectively this week. However, the US consumer confidence index dropped to its second-lowest level on record, and inflation expectations hit their highest level since 1981, contributing to market uncertainty.

05/16 21:54

U.S. stocks have rebounded strongly this week: Outstanding corporate earnings, relief from U.S.-China tariffs, and diminished inflationary pressure

In the second week of May 2025, the U.S. stock market rebounded strongly, with the S&P 500 index rising nearly 5% for the week. Driving factors included corporate earnings exceeding expectations, a temporary pause in the US-China tariff war, inflation data indicating reduced pressures, and market expectations of a shift in Federal Reserve policies. However, the technology and semiconductor sectors performed weakly, reflecting the market's conflicting views on the AI boom versus the real economy.

05/16 18:26

S&P 500 Index Rises for Five Straight Days: Eased US-China Trade Tensions and Corporate Mergers and Acquisitions Lift Market Sentiment

On May 16, 2025, the S&P 500 index of the U.S. stock market rose for the fifth consecutive trading day, with a total weekly gain of 4.5%. The rally was driven by a reduction in U.S.-China trade tensions, the merger between Charter and Cox, a depreciating dollar, moderate inflation figures, and expectations of a potential rate cut by the Federal Reserve. Investors moved funds back into riskier assets, and market sentiment warmed.

05/16 09:54

U.S. stocks have risen for four straight days: Market sentiment has improved, but the Federal Reserve warns about the risks of supply shocks.

U.S. stocks continued to rise this week, with the S&P 500 index closing higher for four consecutive days. The Dow Jones index rose over 270 points on May 15, due to the easing of U.S.-China tariffs and improving economic data, which boosted market confidence. Federal Reserve Chairman Powell warned that supply shocks could become more frequent and persistent, highlighting that the market still faces risks. Issues such as supply chain bottlenecks, policy uncertainty, and weak consumer spending remain, urging investors to remain vigilant.

U.S. Stocks Rebound Strongly, but Fundamental Concerns Emerge

Since U.S. President Trump announced a temporary suspension of high tariffs on multiple countries on April 8, 2024, U.S. stocks have embarked on a strong rebound. The S&P 500 index has risen about 19% since that day, while the Nasdaq 100 index quickly returned to a bull market after a 20% correction, mainly benefiting from the strong performance of large tech stocks.

However, on May 16, 2025, during an interview on Bloomberg TV, Charette pointed out that this rally lacks fundamental support. She stated that revenue growth for large tech companies like the so-called "Magnificent Seven" continues to slow, and the overall corporate profit momentum is weakening, which will limit further upward movement in the market. She bluntly said, "I think U.S. stocks will remain stagnant here; it's hard to justify this rally."

AI Theme "Significantly Deteriorated," Tech Stock Risks Rise

Charette specifically noted that the AI theme, which drove tech stocks up over the past year, has shown signs of "significant deterioration." She pointed out that the revenue growth rates of these AI giants have significantly declined, and to maintain their technological lead, companies have engaged in an intense capital expenditure "competitive race," leading to a continuous decline in free cash flow yield.

Additionally, she warned the market not to overlook the rise of Chinese AI startup DeepSeek. The company's recent technological breakthroughs in language models and generative AI have challenged the dominance of U.S. tech companies. This further deepens her concerns about the future performance of U.S. tech stocks.

Suggests Shifting Funds to Finance, Energy, and Healthcare

Facing increased risks in tech stocks, Charette suggests investors consider realizing profits and redeploying funds to other industries. She is particularly optimistic about the finance, energy, and healthcare sectors, believing these industries will benefit from recent U.S. regulatory easing policies and possess greater growth potential.

She pointed out that these industries have relatively reasonable valuations and solid fundamentals, offering a more attractive risk-return ratio in the current market environment. Especially with interest rate policies and regulatory environments gradually becoming clearer, the profitability of finance and energy stocks is expected to improve, while the healthcare industry, driven by an aging population and innovative drug developments, has long-term growth momentum.

Signs of Sector Rotation Emerge

Charette's views align with recent changes in market fund flows. According to market observation reports, in the first quarter of 2025, hedge funds and institutional investors have begun reducing tech stocks and increasing positions in healthcare and finance stocks. This round of sector rotation reflects investors' concerns about overvaluation and slowing growth in tech stocks and indicates a rising preference for defensive and value-oriented assets in the market.

Uncertainty Remains in Future U.S. Stock Trends

Despite the recent strong performance of U.S. stocks, Charette's warning rings an alarm bell for the market. She emphasized that investors should not be swayed by short-term rallies but should carefully assess corporate fundamentals and industry trends, adjusting their investment portfolios in a timely manner to respond to potential market volatility.

Her views also resonate with those of other strategists at Morgan Stanley. In the bank's second-half 2024 outlook report, it noted that although falling inflation and a shift in monetary policy may support economic growth, market expectations for corporate profits are already high, and caution is still needed regarding the risk of valuation adjustments.

References

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