With S&P 500 at a New ATH, Morgan Stanley Warns of Elevated Risks

As the S&P 500 reached a new all-time high on Wednesday, U.S. stocks remain expensive, and valuations appear stretched. According to Morgan Stanley Wealth Management, investors should focus on maintaining a diversified portfolio.

“Political uncertainty from the new administration seems underestimated. 2025 is nothing like 2017, and we believe risks are significantly higher,” said Lisa Shalett, Chief Investment Officer and head of the Global Investment Office at the wealth management division.

Shalett expressed caution due to a “radical valuation gap” between U.S. assets and those in the rest of the world, creating substantial headwinds for domestic markets. Her team views the S&P 500 as “overly concentrated and expensive.”

She advised investors to consider balancing U.S. stocks and bonds with equities outside the U.S., particularly in Japan, Europe, and emerging markets. Instead of excessive concentration in U.S. stocks, Shalett suggested alternatives like credit and spread products, master limited partnerships (MLPs) in energy infrastructure, residential real estate investment trusts (REITs), market-neutral and absolute return hedge fund strategies, and high-dividend stocks to enhance returns.