Morgan Stanley warns of accelerating fund outflows from mega-cap tech

Morgan Stanley has suggested that the U.S. stock market may face constraints in reaching new all-time highs as investors pull funds from the mega-cap technology stocks that have led this year's rally and redirect them to other sectors. The institution noted that the market is facing uncertainty about whether increasing AI capital expenditure can translate into tangible profits, leading to a broad outflow from large tech stocks as the index stagnates after having priced in positive news. According to the firm, a massive positive development is needed for the market to rise further. Morgan Stanley also analyzed that the momentum of the tech-focused rally is weakening as funds shift in anticipation of interest rate cuts, with capital being reallocated from small-cap profit-taking to AI application beneficiaries with clear profitability.