Morgan Stanley has turned more optimistic on U.S. equities, betting that strong earnings growth and favorable economic conditions will sustain the ongoing bull market.
The bank now projects the S&P 500 will reach 8,300 points within the next 12 months, implying a 12% gain from current levels. The team, led by Mike Wilson, also raised its year-end forecast for the index from 7,800 to 8,000 points.
A robust earnings season has surprised many market forecasters, leading to upward revisions in stock market expectations. First-quarter profits for S&P 500 companies have surged 27% so far, more than double the approximately 12% growth analysts had previously anticipated.
Wilson stated, "Despite geopolitical risks, concerns over private credit, and the disruptive impact of AI, earnings data has remained resilient, supporting our outlook."
Wilson maintained a bullish stance throughout the sell-off triggered by the Iran conflict, particularly optimistic about earnings prospects. His view has proven correct, as the market has rebounded to record highs.
He also expects earnings growth and market leadership to broaden this year, even though much of the first-quarter strength came from a handful of large technology companies.
He favors the industrial, financial, and consumer discretionary sectors. He added that valuations for hyperscale data center operators remain reasonable.
Meanwhile, Wilson's colleague Marina Zavolock holds a less optimistic view on European equity markets. The strategist noted that European stocks are "in the grip of uncertainty stemming from the closure of the Strait of Hormuz." She anticipates companies will pass rising costs on to consumers, which could dampen demand.
Zavolock stated, "We maintain our prior forecast for European equities to consolidate and trade sideways."
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