Morgan Stanley says the record-setting rally can continue as artificial intelligence (AI) drives a new phase for markets, and it’s laying out four themes for investors to follow.
In a CNBC interview, Morgan Stanley private wealth advisor Sherry Paul says investors shouldn’t assume the run is over just because indexes keep climbing higher.
But she warns that investors who are chasing the market should allocate funds to sectors and companies that have structural support or macro tailwinds.
“It’s important, especially for individual investors, because just because the market hits new highs doesn’t mean that we’re not going to hit more new highs. And I think we had 56 new highs in the last year or 18 months in terms of this market climb. It is impressive.
And the backdrop for those new highs is sitting inside of a really important moment in terms of tech innovation and what has now been, I think, more broadly branded as this industrial revolution being driven by AI. And that’s something that we’ve been thematically investing in now for almost four years.
And so there are plenty of opportunities in the market for investors who might have a little bit of FOMO (fear of missing out) here, but money placement’s gonna be key and crucial going forward.”
Paul says that now may be the time to rotate capital from the Magnificent 7 and into other emerging plays.
“The thematics in which the Magnificent 7 sit should actually be the engine that broadens out performance in the market, and those four themes really are deglobalization, which fundamentally puts you in sort of defense stocks as the world kind of engages in more conflict. We have industrials and materials in that space as an example, including tech.
Obviously, the AI innovation revolution, which continues to push tech within software and cloud computing in particular.
Deregulation, which makes it great for financials. We should start to see, within these themes, more M&A (mergers and acquisitions) activity as we get into dereg. And then the one thing I think people aren’t thinking enough about is longevity and what it means to have an aging population, sort of consume or stay in that existing housing, as an example, and what the implications are there. So, we’re leaning into biotech, in addition to technology.
So, there are plenty of thematics that transcend what we’re calling the political and policy chaos, that all four of which are communicating and accelerating one another in the same time zone. And that’s a very powerful setup for earnings and innovation going forward.”
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