Morgan Stanley CIO Warns of Market Shift: Is It Time to Fade Out?

Morgan Stanley Executive Warns of Market Shift After Nasdaq Peak NEW YORK, May 16, 2025 — In a recent interview with Bloomberg Business, Lisa Shalett, Chief Investment Officer at Morgan Stanley Wealth Management, issued a cautionary note regarding the current state of the equity markets. Shalett stated that "Things have fundamentally changed from the Nasdaq peak." She cited several factors contributing to this shift, including decelerating top-line growth among the seven largest technology companies (Mag 7) and a significant decline in free cash flow yields. She explained that growth investors typically dislike deceleration and that this trend is a significant concern. Shalett also highlighted the impact of the ongoing arms war, pointing to continued high capital expenditure as a factor impacting valuations. She noted that, according to Morgan Stanley's latest update, Mag 7 free-cash-flow yields have shrunk by approximately 11%. "It's just hard to justify the numbers," she said, adding that while market levels may appear stable, earnings per share are down 6%. Given these factors, Shalett indicated her intention to "fade out" of the recent equity market surge, opting instead to search for undervalued assets. Her insights provide a valuable perspective on the current market climate and underscore the importance of careful analysis before making investment decisions.