Morgan Stanley’s Global Investment Committee is sounding the alarm on some of the market’s hottest trades, warning that it may be time to take profits after a blistering rally.
In its latest Weekly Market Insight Report, the bank noted that the S&P 500 has climbed 34% off its April lows – one of the strongest surges outside a recessionary recovery in 75 years.
Despite the market’s resilience, Morgan Stanley’s strategists are growing skeptical. The firm’s Global Investment Committee (GIC) believes the rally has likely gone too far, too fast – particularly in the highest-beta and most speculative corners of the market.
Says the analysts,
“Consider taking profits in high-beta, small/micro-cap, speculative and unprofitable equities and redeploying to large-cap core and quality stocks, including the ‘Mag 7′ and GenAI beneficiaries in financials, health care and energy. In fixed income, we suggest shifting up in duration to the five-to-ten-year belly of the curve’ to clip coupons, while focusing on asset class diversification. International equities and real assets, including gold, real estate and select private infrastructure, are opportunities to add.”
The GIC says it remains in the “midcycle soft landing” camp, expecting the Federal Reserve to resume rate cuts in 2026 after a short-term jolt of fiscal and monetary easing, a so-called “sugar rush” stimulus in the first half of the year.
Under the bank’s outlook, the U.S. economy could deliver around 2% real growth without tipping into recession, though the firm warns of a weaker labor market and fragile consumer demand.
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