Morgan Stanley Wealth Management’s chief investment officer, Lisa Shalett, believes the current bull market will be remembered as the “Great GenAI Boom.” She suggests that while infrastructure investment and productivity improvements are likely to be hallmarks, this era may also mark the point when tech scale and wealth concentration rewrote the investing handbook and altered the central bank framework.
According to Shalett, the US economy is currently powered by data-centre and related capital expenditure, alongside a resilient consumer base. This has resulted in “extreme dispersion,” creating distortions in a “K-shaped” economy. She noted that the top 40 per cent of households are driving 60 per cent of spending, with equity-ownership wealth effects overshadowing labour-income growth’s contribution to consumption.
Shalett also highlighted that market gains are largely dependent on a few stocks, with overall profits versus GDP falling for three years. This raises the question of whether the economy’s fate is now tied to the performance of GenAI and, consequently, equities. She also questions if labour-market dynamics are becoming less cyclically leveraged to rates, with consumption driven more by wealth than labour-income growth, potentially leading towards a ‘Japanification’ process where rates must be kept artificially low for decades, risking resource misallocation.
In terms of positioning, Shalett advises maintaining maximum diversification. She suggests taking profits in high-beta, small/micro-cap, speculative and unprofitable equities, and redeploying them into large-cap core and quality stocks, including the ‘Magnificent 7’ and GenAI beneficiaries in financials, healthcare, and energy. For fixed income, she recommends shifting up in duration to the five-to-ten-year ‘belly of the curve’ while focusing on asset class diversification. International equities and real assets, including gold, real estate, and select private infrastructure, are also potential opportunities.
