Morgan Stanley's Katerina Simonetti talks her 2026 market outlook

Market Outlook - Morgan Stanley Private Wealth is cautiously optimistic about the US stock market outperforming the rest of the world in 2026 [1][2] - The focus for AI in 2026 shifts from infrastructure build-up to implementation and profitability [3] - The market consensus anticipates Federal Reserve rate cuts in 2026, driven by expected tax refunds and changes in tax policy benefiting consumers and businesses [4][5] Risk Assessment - The firm identifies potential vulnerability in the tech sector and emphasizes caution despite excitement surrounding AI [2][3] - Tariffs, though less discussed, could still significantly impact the economy [6] - Overvalued tech stocks are sensitive to volatility, especially if the Federal Reserve doesn't cut rates as expected [7] Investment Strategy - The firm advocates broadening investment portfolios by taking profits from overrepresented sectors and investing in underrepresented sectors like industrials and financials [9][10] - The firm suggests considering international opportunities to diversify investments [10] - The firm recommends profit-taking as a strategy when investments perform well, without necessarily changing the overall investment strategy [9]