According to Zhito Finance APP, the wealth management division of Morgan Stanley, a top investment institution on Wall Street, recently published a report indicating that the benchmark index of US stocks -$S&P 500 Index (.SPX.US)$is showing signs of fatigue and stated that the Federal Reserve's pause in interest rate cuts reflects a "hawkish monetary policy stance," along with the "low-cost AI shockwave" brought by DeepSeek, which is transforming the narrative logic of the bull market in the US stock market.

In this latest research report, Morgan Stanley indicated that since the bull market in US stocks began at the end of 2022, the S&P 500 Index has risen by about 70%, but now it is consistently showing signs of weakness. Morgan Stanley noted that aside from technical driving factors, the US stock market is facing two fundamental changes. One is the Federal Reserve's firm choice to maintain rates unchanged after a series of interest rate cuts; the other is the super low-cost AI training innovation prospects brought about by Chinese startup DeepSeek, which triggered a violent sell-off wave in US tech stocks last week, including$NVIDIA (NVDA.US)$a drastic sell-off in US technology stocks, including those in the S&P 500 Index.

Morgan Stanley emphasized in the report that, overall, investors should focus on the "rotation and switching trend of leading forces" in the US stock market. As the bull market narrative is shaken by the aforementioned two forces, the core contributors to the US stock market are expected to shift from the "seven major US technology giants" stocks to value stocks, cyclical stocks, and long-term performance growth areas of the "non-generative AI type."

occupying the S&P 500 Index and$NASDAQ 100 Index (.NDX.US)$The so-called "seven major technology giants in the USA" with high weight include: Apple,$Microsoft (MSFT.US)$、 $Alphabet-A (GOOGL.US)$ 、$Tesla (TSLA.US)$, Nvidia, and meta platforms.$Amazon (AMZN.US)$As well as the parent company of Facebook,$Meta Platforms (META.US)$they are the core driving force behind the S&P 500 Index reaching new highs repeatedly.

Looking at the entire US stock market, the seven major technology giants have been the core driving force leading the entire US stock market since 2023. With their unmatched strong revenue from their AI deployments, solid fundamentals, consistently strong reserves of free cash flow over the years, and ever-expanding share buyback scales, they have attracted a global influx of capital.

As expectations for interest rate cuts have significantly cooled, the "seven major technology giants" are entering a correction trajectory.

Lisa Shalett, Chief Investment Officer of Morgan Stanley's Wealth Management division, wrote in this research report: "Although the Federal Reserve's pause in interest rate cuts in January has largely been anticipated by financial markets, many investors still hope the Federal Reserve will express its expected path for monetary easing. However, the Federal Reserve did not make the 'dovish' statements the market expected, and investors now need to acknowledge that policy-driven valuation expansion is nearing its limits, with market dynamics shifting towards earnings realization, particularly the monetization path of AI."

Shalett pointed out that the narrative of this bull market in US stocks has centered around American technological innovation and the absolute dominance of the 'seven tech giants' in the AI field, while the continued path of interest rate cuts by the Federal Reserve has fueled expectations for a 'soft landing' in the US economy, maintaining market momentum.

In her report, she stated: "Last week's DeepSeek impact event... reinforced our view that the bullish narrative in the market is shifting, and we are entering what is known as the 'Great Normalization' phase. We believe this phase will be dominated by the normalization of interest rates and market valuations; earnings growth will once again become the main driver of the stock market, while the concentration of Market Cap in the S&P 500 Index is expected to decline significantly, indicating a weakening trend for the seven tech giants."

Shalett noted that as investors converge on a consensus expectation of the Federal Reserve's terminal interest rate between 3.75%-4.0%, the upper limit for stock market valuation expansion will also be severely restricted. She indicated that this is because the neutral interest rate level and negative equity risk premium faced by 'Market Cap leaders' like the seven tech giants 'must be acknowledged.'

Currently, the Interest Rates futures market's expectations for the Federal Reserve to cut rates in 2025 have cooled significantly compared to the second half of last year, with some traders even beginning to price in a 'no rate cut' scenario for the Federal Reserve in 2025. The 'dot plot' released in December 2024 showed that expectations for rate cuts in 2025 have been significantly reduced from four times to two times, and both 2026 interest rate expectations and the market focus on 'neutral interest rate' expectations have been adjusted upward, forcing the US Treasury market to reprice its rate cut expectations while the rising budget deficit expectations drive the anchor for 'Global Asset Pricing'—the 10-year US Treasury yield—leading yields across all durations to suddenly shift to an upward trajectory.

Last week, due to investors' concerns that the 'low-cost AI large model computing paradigm' led by DeepSeek would cause tech giants to significantly cut AI GPU Orders in the short to medium term, the stock price of NVIDIA, the 'AI Chip king', plummeted nearly 17% last Monday, closing at $118.42, with a single-day Market Cap loss reaching $589 billion, marking the largest Market Cap loss in US stock market history, breaking the previous record.

As this 'DeepSeek low computing cost storm' from the East sweeps across the globe, investors have begun to strongly question whether the 'irrational' fervor of US tech giants like Microsoft and Google for their AI spending plans is reasonable. After all, expenditures amounting to tens of billions of dollars, compared to DeepSeek's training costs of merely millions, along with much lower inference costs compared to US AI leaders like OpenAI, have left investors in these US tech stocks both shocked and angered, which is why the total Market Cap of the NASDAQ 100 Index evaporated by nearly $1 trillion last Monday.

Editor/ping