Morgan Stanley(US:MS)2025-06-04 01:50Investment Rating - The report indicates an overall positive sentiment towards US equities and core fixed income, suggesting an overweight (OW) position in these areas [12]. Core Insights - Equity markets experienced a rally in May, with the S&P 500 gaining 6.3% and the TOPIX increasing by 5.0%. Technology and communication services sectors led the gains, while healthcare lagged with a decline of 3.7% [2][11]. - The Market Sentiment Indicator (MSI) shifted to a neutral stance after initially signaling risk-off, with the VIX index reaching three-month lows [4][11]. - Gross issuance in the investment-grade (IG) and high-yield (HY) markets decreased by 12% and 28% respectively compared to the 2024 run rate, indicating a shift in market dynamics [3][11]. Market Review & Trends - Equities: The S&P 500 had its best May performance since 1990, with total returns of 6.3%. The technology sector outperformed with a 10.3% increase [5][11]. - Fixed Income: The UST 10Y yield was reported at 4.4%, with a total return of -1.1% for the month [11][32]. - FX: The US dollar depreciated against most developed market currencies, with the DXY index down 0.1% [2][34]. - Commodities: WTI Crude oil saw a notable increase of 5.3% in May [2][34]. Valuations - The report highlights that the current P/E ratio for the S&P 500 stands at 23.3, indicating a relatively high valuation compared to historical averages [27][30]. - The forward P/E for various sectors shows that communication services and consumer discretionary sectors are at 90% and 88% percentile respectively, suggesting high valuations [31][30]. Technicals - The report notes a significant decrease in gross issuance for both IG and HY markets, with a year-over-year decline of 12% for DM IG and 28% for DM HY [3][11]. - The cumulative change in the Fed rate over the next 12 months is projected to be -84 basis points, indicating expectations of rate cuts [11][12].