Morgan Stanley: Funds may shift from tech stocks, US stock rally structure may pivot to broader rotation

June 15 – Morgan Stanley says the structure of the U.S. stock market’s rally is set to shift, with capital likely rotating out of high-valuation tech stocks into a wider range of cyclical sectors. The strategy team led by Michael Wilson notes that as geopolitical risks ease, oil prices decline, and pressure on interest rates and the U.S. dollar diminishes, the market backdrop is becoming increasingly supportive of economically sensitive assets. Sectors that have lagged in past performance could now see catch-up gains. The report points out that prior U.S. stock market gains were heavily concentrated in tech, while cyclical areas – including discretionary consumer spending, transportation, and regional banks – remain generally underweighted by funds, leaving room for new capital inflows. Recent expectations of easing U.S.-Iran tensions and smoother passage through the Strait of Hormuz have also lifted market risk appetite. Karen Ward, European strategist at J.P. Morgan Asset Management, echoes this view, arguing that falling oil prices will act as a key support for equities and push global central banks toward looser monetary policy. She forecasts short-term oil prices to fall to roughly $70 per barrel. Separately, Deutsche Bank’s strategy team believes the long-term relative advantage of U.S. stocks could weaken, with European markets looking relatively attractive given their higher weighting in cyclical stocks. Overall, institutional consensus holds that if geopolitical risks continue to abate and inflation cools, the U.S. stock market may transition from a "tech-driven structural rally" to a more balanced "cyclical rotation rally."