Morgan Stanley, a leading investment institution on Wall Street, recently released a wealth management report stating that the performance of the S&P 500 index in the US stock market is showing signs of fatigue. It also noted that the Federal Reserve's hawkish stance on pausing rate cuts and low-cost AI technological innovations from DeepSeek are altering the narrative of the US stock market bull run.
According to the report, since the US stock bull market started in 2022, the S&P 500 index has risen by about 70%. However, current market indicators suggest that this upward trend has begun to slow. Morgan Stanley's analysis indicates that aside from technical factors, the market is facing two fundamental shifts: First, the Fed's decision to pause further rate cuts after a series of reductions, and second, low-cost AI technological innovations from the Chinese startup DeepSeek, which are putting tremendous pressure on US stock market tech giants.
Morgan Stanley pointed out that the leadership in the US stock market is evolving, particularly as the "big seven tech giants" (Apple, Microsoft, Google, Tesla, Nvidia, Amazon, and Meta) have driven strong market performance over the past few years. However, with the Fed pausing rate cuts and AI costs plummeting, the market focus might shift to areas like value stocks and cyclical stocks, rather than relying purely on tech stock gains.
The report specifically mentioned that low-cost AI technologies like those from DeepSeek have had a noticeable impact on US tech stocks. Last week, due to investor concerns about the reduced cost of AI training, tech stocks experienced widespread sell-offs, with Nvidia's stock price plunging nearly 17% in a single day, wiping out nearly $589 billion in market value, a record for the largest single-day market cap loss in US stock market history. Investors have reacted strongly to the rapid development of low-cost AI models led by DeepSeek, believing this could lead to substantial short-term cuts in tech companies' investments in AI hardware, particularly reducing the demand for AI GPUs.
Lisa Shalett, Chief Investment Officer at Morgan Stanley, mentioned in the report that despite the general market expectation of the Fed's pause on rate cuts in January, many investors still hoped the Fed would adopt a more accommodative monetary policy. However, the Fed did not take the dovish stance expected by the market, causing investors to reassess the space for market valuation expansion. Shalett stated that the current driving force of the US stock market would shift from policy-driven valuation expansion to profit growth, especially with progress on the commercialization path of AI.
Additionally, the Fed's interest rate policy also presents new challenges for the stock market. With the Fed's terminal rate expected to focus between 3.75%-4.0%, expectations for future rate cuts have drastically decreased, leading the interest rate futures market to anticipate a scenario where the Fed possibly won't cut rates in 2025, meaning greater constraints on stock market valuations.
Overall, Morgan Stanley believes that investors need to pay attention to the rotation and shift in US stock market leadership, as the core driver of future markets may shift from tech stocks to other areas. With the dual impact of Fed policy changes and AI technological progress, the US stock market may enter a new phase, ending the current bull run narrative and moving towards a "full normalization" phase.
