The 1% Move Report

Wealth Management — November 4, 2025

• The S&P 500 decreased -1.2% Tuesday to end the day at 6,771.67, having gained 15.1% thus far in 2025.
• Four of 11 S&P 500 sectors were higher on the day, as Financials (+0.5%) and Consumer Staples (+0.5%) were the strongest-performing S&P 500 sectors, while Consumer Discretionary (-1.9%) and Information Technology (-2.3%) underperformed.
• By the 4:00 p.m. equity market close, the US 10-year Treasury yield decreased to 4.09%; WTI Crude decreased to $60.39 per barrel; and gold decreased to $3,934.22 per ounce.

• US equities slid Tuesday, led by megacap tech names, after the S&P 500 logged its softest market open since 2023. A risk-off tone pervaded throughout the trading session, catalyzed overnight by cautionary commentary from Wall Street executives on elevated valuations and narrow equity market breadth.
• The US dollar rose to its highest level since May, while US Treasuries bull-steepened across the yield curve, tracking investors' flight-to-safety behavior. Bitcoin fell below $100,000 for the first time since June, while the VIX Index rose 9%, moving above 18.
• The US government shutdown extended to its 35th day, now tied for the longest in history, raising risks of deeper economic disruption amid limited data releases and continued uncertainty on potential drivers toward resolution.

• The GIC recommends preparing for a solid-but-slowing US backdrop, emphasizing US large-cap ‘quality’ across both growth and value, while erring on the side of asset class diversification. With megacap and large-cap leadership likely to persist and a policy/productivity backdrop that favors strong fundamentals, we prefer core fixed income in the "belly of the curve" over short duration. We continue to use real assets and hedge funds to help mitigate emerging risks. The GIC consistently re-assesses its outlook in light of incoming data points.
• Please find more information on the GIC's tactical positioning on the next two pages and reach out to your Morgan Stanley Financial Advisor to discuss portfolio strategies.

US: Although US large-cap stocks, as measured by the S&P 500 Index, were recently up approximately 35% from their April 8 closing low, for one of the swiftest six-month rebounds outside of a recession recovery, they have materially trailed small-cap, micro-cap and unprofitable tech. While we don’t see a recession in 2026, we also don’t see a strong enough boom to lift all those boats, and we sense that the crosscurrents of stimulus will continue to favor BIG over small. We see opportunity to rotate portfolios up in quality, including reloading in “Mag 7” names, where prospects for achieving ambitious earnings growth forecasts in 2026 are higher. We added to our Overweight on Oct. 15.

International Equities (Developed Markets): Recent outperformance has been catalyzed as responses to the “America First” agenda have driven fiscal stimulus and concerns about tariffs have been cooling rest-of-world (ROW) inflation. This is creating ROW opportunities to simultaneously enjoy monetary, fiscal and currency-related stimulus. The outlook is improving in Japan. Exported deflation from China and lower global oil prices help.

Emerging Markets: China stimulus, while potentially insufficient to address the challenges of the country’s secular bear market, is likely enough to help stabilize the downturn in the short term. The US-China trade conflict remains a wild card, and we expect the “bazooka” of China stimulus may come in light of ongoing trade tensions. Given that valuations in the region are already nondemanding, we are inclined to be patient and wait for recovery. A weaker US dollar and lower global energy prices are positives for Latin America and Southeast Asia.

US Investment Grade: The Fed easing cycle, including some assumptions around the loss of Fed independence in 2026, has been baked into the US Treasury yield curve, with another four to five 25-basis-point rate cuts discounted. As a result, we are materially reducing short-duration exposure and moving toward the “belly of the curve” to capture decent coupons with lower price volatility. We see the long end continuing to be plagued by structural imbalances that show up as widening term premiums, with the two-year/30-year portion of the curve remaining in a steepening pattern.

International Investment Grade: Yields are decent, central banks have begun to cut rates and there is room for spread tightening as economic growth improves. Currency impact is a tailwind for US dollar investors.

Inflation-Protected Securities: Real yields have sold off and are now bordering on cheap relative to the past two years. The securities could be a potential buy in a stagflation environment.

High Yield: We have eliminated our exposure to the equity-like asset class to reduce equity beta of portfolios. High yield bonds rallied aggressively after the unprecedented provision of liquidity from the Fed and fiscal stimulus from Washington. However, we believe there is currently limited upside. Ultra-tight spreads may be the result of increasing competition for capital among private credit financial sponsors and general partners and may not fully reflect adequate compensation for default risk.

REITS: We expect higher stock-bond correlations, which places a premium on the diversification benefits of investing in real assets. Nevertheless, with real interest rates positive and services inflation remaining quite sticky, we would need to be selective in adding to this asset class broadly. We are focused on interesting opportunities aimed at solving the residential housing shortage.

Commodities: Gold may be part of a secular growth story around collateralizing stablecoins and other cryptocurrencies as fiat currencies lose appeal. Global reflation, tense geopolitics, especially in the Middle East, and ongoing fiscal spending suggest decent upside potential for precious metals and industrial commodities, including energy-related.

MLP/Energy Infrastructure: We previously increased exposure to real assets, with a preference for energy infrastructure and MLPs. Competitive yields and expectations for continued capital discipline amid stable oil and gas prices underpin our decision, as does hedging against geopolitical risks.

Hedged Strategies (Hedge Funds and Managed Futures): We recently added to equity hedged positions, noting the pickup in idiosyncratic risk, falling borrowing costs and rising volatility. The current environment appears constructive for hedge fund managers, who are frequently good stock pickers and can use leverage and risk management to potentially amplify returns. We prefer very active and fundamental strategies, especially high quality, low beta, low volatility and absolute return hedge funds.

Market data provided by Bloomberg.

Dow Jones Industrial Average (DJIA): A price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry.

NASDAQ Composite Index: A broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market.

S&P 500 Index: The Standard & Poor's (S&P) 500 Index tracks the performance of 500 widely held, large-capitalization US stocks.

US Trade-Weighted Dollar Index: A weighted average of the foreign exchange value of the 17US dollar against a subset of the broad index currencies that circulate widely outside the US.