Morgan Stanley has reiterated its bullish outlook for U.S. equities, forecasting the S&P 500 will climb to 7,200 within the next year, a roughly 12% gain from recent levels. The bank’s call is underpinned by what it describes as a “rolling recovery” in corporate earnings, marking a shift from the rolling earnings recession that began in 2022.
I posted a little earlier on this call (Morgan Stanley raises its S&P 500 target to 7200), adding more now.
According to Chief Investment Officer Michael Wilson, the earnings rebound is gaining momentum thanks to several supportive factors:
- positive operating leverage,
- AI adoption,
- U.S. dollar weakness,
- tax savings under the OBBBA legislation (One Big Beautiful Bill Act, a sweeping U.S. tax and spending law)
- favourable year-on-year comparisons,
- pent-up demand across industries,
- and a high likelihood of Federal Reserve rate cuts by the first quarter of 2026.
April’s market selloff, triggered by Trump’s tariff announcements, likely marked the end of the earnings recession the analyst wrote, and that it now appears the US is transitioning to a recovery phase that is not fully appreciated by markets yet.
The bank also noted that the breadth of upward earnings revisions — a key signal of improving fundamentals — is inflecting sharply higher. While elevated valuations have raised concerns among some investors, Morgan Stanley believes those valuations are justified given the improving backdrop.
Further boosting sentiment are signs of easing macroeconomic uncertainty. Trump’s new trade agreement with the European Union and expectations of Fed policy easing later this year are reinforcing investor confidence in the market’s upside potential.
Morgan Stanley’s bullish case, once seen as aggressive, is now gaining credibility as earnings momentum accelerates.
This article was written by Eamonn Sheridan at investinglive.com.
