Morgan Stanley's Bullish S&P 500 Outlook: Predicting a Strong Surge to 2026

Article Summary

• Morgan Stanley forecasts the S&P 500 to reach 7800 by the end of 2026.
• This prediction is attributed to strong expected growth in corporate earnings.
• Key factors supporting growth include improved corporate pricing power, AI-driven efficiency gains, and easing tax and regulatory policies.
• Despite the optimism, potential risks exist, including hawkish monetary policy and inflation.

Morgan Stanley Predicts Earnings Boom to Propel S&P 500 to Record Levels

Morgan Stanley strategist Michael Wilson has emerged as one of the most bullish voices on US equities, predicting a 16% surge in the S&P 500 over the next year. Wilson's forecast hinges on strong support from corporate earnings.

The chief US equity strategist at Morgan Stanley anticipates the benchmark index to trade around 7800 by the end of 2026. This target is among the highest tracked by the institution's strategists and would mark a double-digit gain for the index for the fourth consecutive year.

"We are in a new bull market and earnings cycle, especially for many of the laggard areas of the index," Wilson wrote in a report.

The strategist forecasts earnings per share for the S&P 500 to jump 17% and 12% in the next two years, respectively. He cites reasons including improved corporate pricing power, AI-driven efficiency gains, easing tax and regulatory policies, and stable interest rates.

Wilson was among the few to maintain a bullish outlook in April when massive US tariffs triggered a sharp stock market decline. His conviction proved correct, as the S&P 500 rebounded to record highs after then-US President Donald Trump eased the trade war.

In a widely followed investor survey this year, Wilson was ranked as the second-best portfolio strategist, trailing only Michael Kantrowitz of Piper Sandler & Co.

US stocks are nearing the end of a volatile year near historic highs, after third-quarter earnings significantly exceeded expectations. Despite investor skepticism about high AI valuations and the risks posed by the longest government shutdown in US history, they remain confident in economic growth.

The S&P 500 has surged 14% so far in 2025, after annual gains exceeding 20% in the previous two years.

Nevertheless, there remains plenty of caution in the market. For example, Goldman Sachs strategist Peter Oppenheimer expects US equities to underperform international markets over the next decade due to high valuations.

Morgan Stanley's Wilson also warned of short-term risks if the Federal Reserve's policy is more hawkish than anticipated. He added that, in the long run, an "overheated" economy could also lead to a resurgence of inflation.