Name: Deconcentrating
Uploaded: 2026-01-27T21:32:20+00:00
Duration: 283 s

Speakers

Lisa Shalett — Chief Investment Officer, Morgan Stanley Wealth Management

Summary

Lisa Shalett, Wealth Management CIO, argues the US equity market is deconcentrating from the top 10 and MAG 7 stocks as earnings growth, buybacks, and IPO dynamics favor broader leadership. She expects the passive S&P 500 gain to be under 10% in 2026 but sees active opportunities in equal-weighted exposure, large-cap core/quality, GenAI productivity beneficiaries in financials/healthcare/energy, emerging markets, and 2026 private-market vintages. She recommends trimming speculative small/micro/high-beta equities and avoiding single-name concentration.

US equities are broadening beyond the MAG 7 and top 10 mega-caps.
Non-MAG 7 S&P 500 earnings growth is expected to accelerate while tech/MAG 7 growth slows.
Tech buybacks are falling as hyperscaler capex rises toward 80% of operating cash flow.
An opening IPO market could crowd out mega-cap tech via capital-hungry GenAI listings.
She forecasts passive S&P 500 gains under 10% in 2026 and favors active selection.
Preferred areas include equal-weight S&P 500, large-cap core/quality, financials, healthcare, energy, emerging markets, and 2026 private-market vintages.
She advises taking profits in high-beta, unprofitable, small/micro, and speculative equities.

Ideas

Lisa Shalett Chief Investment Officer, Morgan Stanley Wealth Management 1:20

Mega-cap tech faces slowing growth, buybacks

MAG 7 and mega-cap tech leadership is fading: only two MAG 7 stocks outperformed the S&P 500 last year versus five in 2024; tech/MAG 7 earnings growth is forecast to slow from 30-35% to 13%; their buybacks are apt to keep falling as hyperscaler capex rises from about 60% to 80% of operating cash flow; and GenAI IPOs could crowd out mega-cap tech. This makes the concentrated mega-cap tech complex less attractive as the market broadens.

Lisa Shalett Chief Investment Officer, Morgan Stanley Wealth Management 1:55

Market broadening favors equal-weight S&P 500

The market is deconcentrating/broadening out from the top 10 companies and MAG 7, with the equal-weighted S&P 500 already outperforming the cap-weighted benchmark for at least two months. She expects this to persist in 2026 because non-MAG 7 S&P 500 earnings growth is forecast to accelerate from about 6% to 19%, while tech/MAG 7 earnings growth slows from 30-35% to 13%; tech buybacks are also falling as capex consumes more operating cash flow, and GenAI IPOs may crowd out mega-cap tech.

Lisa Shalett Chief Investment Officer, Morgan Stanley Wealth Management 3:21

Passive S&P 500 gains stay below 10%

She expects the passive S&P 500 index gain to be under 10% in 2026, below consensus year-end targets of 7500-7800, because the top-heavy mega-cap tech complex is losing leadership and the broadening is reducing index concentration benefits. Active stock selection should have more opportunity even as passive index returns are more muted.

Lisa Shalett Chief Investment Officer, Morgan Stanley Wealth Management 3:48

Rotate from speculative small caps to quality

She recommends taking profits in high-beta, unprofitable, small-cap, micro-cap, and speculative equities and redeploying into large-cap core and quality names. This is part of rebalancing for strategic diversification and avoiding single-name concentration as market leadership broadens.

Lisa Shalett Chief Investment Officer, Morgan Stanley Wealth Management 3:48

Rotate from speculative small caps to quality

Lisa Shalett Chief Investment Officer, Morgan Stanley Wealth Management 3:59

Favor GenAI beneficiaries in financials, healthcare, energy

She favors broadening into GenAI productivity beneficiaries, which are likely to be in financials, healthcare, and energy. These sectors are part of the rotation away from concentrated mega-cap tech, with financials and healthcare already starting to shine and non-tech S&P 500 earnings growth expected to accelerate.

Lisa Shalett Chief Investment Officer, Morgan Stanley Wealth Management 4:09

Add emerging markets for diversification

She recommends adding to rest of world equities, focusing on emerging markets, as part of broadening diversification away from concentrated US equity leadership and toward additional equity opportunities.

Lisa Shalett Chief Investment Officer, Morgan Stanley Wealth Management 4:11

Deploy 2026 vintages in private markets

She suggests preparing for better liquidity opportunities in private markets and planning 2026 vintage deployments in venture capital, growth private equity, and private commercial real estate. This is an allocation toward private-market diversification and away from public single-name concentration.

Deconcentrating

Summary

Ideas

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