Wall Street investment bank Morgan Stanley (MS) remains bullish on U.S. stocks.
The American stock market is entering the year’s second half in record territory, and Morgan Stanley expects the current bull run to continue over the next 12 to 18 months.
Mike Wilson, Morgan Stanley’s top equity strategist, says in a new note to clients that three factors are likely to power U.S. stocks higher in coming months.
The first is corporate earnings, with analyst forecasts for S&P 500 earnings improving markedly as fears subside about the damage done to corporate profits from tariffs and trade wars.
Specifically, the view of company profits is widening beyond the big tech names such as Nvidia (NVDA) and Meta Platforms (META) to a broader swath of the market.
Wilson also notes that earnings growth is now expected to outperform economic growth, a reversal from what occurred in 2022 to 2024.
Tax incentives from U.S. President Donald Trump’s economic stimulus bill is also expected to give corporate America a lift in coming quarters, notes Wilson.
The second factor are interest rates. Wilson expects the U.S. Federal Reserve to cut interest rates seven times in 2026 as unemployment becomes more of an issue than inflation.
Such a dramatic cut to interest rates will provide a strong tailwind to stocks, says Wilson.
The third factor likely to keep the current rally going is the market’s ability to shrug off exogenous shocks.
“The equity market seems to be following the historical playbook around prior geopolitical risk events that we highlighted last week — stability in performance after a few days,” writes Wilson.
Finally, Wilson cites calm in the bond market as another reason for investors to remain constructive on stocks.
“With this dynamic taking place, and the 10-year yield staying contained below 4.50%, we believe interest rate risk has been reduced for the time being,” Wilson writes in his note.
Morgan Stanley maintains its target for the S&P 500 index over the next 12 months at 6,500, which is 4% higher than its current level.
MS stock has risen 13% this year to trade at $140.69 U.S. per share.
