Published: November 18, 2025
Morgan Stanley’s Mike Wilson has turned into one of Wall Street’s biggest stock market bulls, lifting his S&P 500 target to 7,800 and calling for a 16% rally powered by AI spending, “rolling recovery” earnings and a dovish Fed. Here’s what the new forecast means for stocks, inflation, sectors and global markets going into 2026.
Morgan Stanley Turns Aggressively Bullish on the S&P 500
Wall Street woke up this week to one of the boldest calls of the year: Morgan Stanley now expects the S&P 500 to surge to 7,800 by the end of 2026, implying roughly 16% upside from current levels. [1]
The upgrade, led by Mike Wilson, the bank’s chief U.S. equity strategist, marks a sharp shift from his reputation as a cautious — even bearish — voice earlier in this cycle. Coverage of the new outlook across Business Insider, Reuters and Bloomberg highlights that Wilson has effectively moved into the camp of top stock market bulls, calling for continued gains even after several years of double‑digit returns for U.S. equities. [2]
The new target is not just a round number:
- It assumes another two years of solid earnings growth for S&P 500 companies.
- It leans on the idea that we are still in the early phase of a new bull market that began in April 2025. [3]
- It explicitly favours U.S. stocks over the rest of the world, and equities over bonds and credit, especially as AI-related capital spending accelerates. [4]
At the same time, today’s market narrative is far from unanimous euphoria. A fresh Bank of America fund manager survey flagged cash levels at multi‑year lows and mounting AI bubble fears, triggering what the bank calls a “sell signal” for risk assets. [5]
In other words: the bullish call is landing at a moment when optimism and anxiety are both running hot.
Inside Wilson’s Bull Case: “Rolling Recovery” Meets “Run‑It‑Hot” Inflation
Morgan Stanley’s internal framework for this rally has two big pillars that keep showing up across its latest strategy notes: a “rolling recovery” in the economy and a policy stance that effectively runs inflation a bit hot. [6]
1. From “Rolling Recession” to “Rolling Recovery”
For much of the past few years, Wilson’s team described the U.S. as going through a rolling recession: sectors taking turns getting hit while the headline economy avoided a classic, broad‑based downturn.
Now, the bank argues that the pendulum has swung the other way:
- Corporate results show broad improvement, not just strength in mega‑cap tech. In the latest earnings season, more than four‑fifths of S&P 500 companies beat profit expectations and around three‑quarters beat revenue estimates, signalling demand is holding up across sectors. [7]
- Earnings revision trends have turned positive again — the kind of breadth that typically characterises the early phase of a new profit cycle, not the late stage. [8]
Morgan Stanley’s conclusion: a new two‑year “up cycle” for earnings and stocks began in April 2025, and still has plenty of room to run. [9]
2. Policymakers Let the Economy “Run Hot”
The second pillar is more controversial: inflation and policy.
Morgan Stanley argues that the U.S. has entered a new inflation regime, where price growth is likely to run moderately above pre‑pandemic norms for years. Yet, instead of aggressively slamming the brakes, policymakers appear willing to tolerate somewhat hotter inflation while they manage high debt levels and deficit spending. [10]
For equities, that mix can be supportive in the near term:
- Higher nominal growth and pricing power can boost corporate revenues and earnings, especially in sectors that can pass along higher costs. [11]
- The bank expects the Federal Reserve to be dovish rather than hawkish through much of the forecast horizon, with interest‑rate cuts and easier financial conditions acting as a tailwind for valuations. [12]
Wilson has previously described this environment as a world of shorter, hotter cycles: two up years for equities followed by a down year, instead of the long, slow expansions that dominated the 1980–2020 era.
3. AI Capex and a “Favourable Policy Backdrop”
Beyond domestic macro dynamics, Morgan Stanley’s global outlook highlights a trio of structural forces: [13]
- AI capital expenditures: Rising investment in artificial intelligence infrastructure is expected to keep boosting productivity and profit margins, especially for U.S. companies leading that wave.
- Supportive policy: Fiscal spending, selective tax policies and targeted industrial strategies are seen as adding fuel — particularly in the U.S.
- Disinflation with growth: Globally, the bank expects “moderate” growth and disinflation in 2026, even after a volatile 2025 driven partly by tariff uncertainty under President Donald Trump’s trade policies. [14]
Taken together, these factors underpin Morgan Stanley’s view that risk assets are “primed” for a strong 2026, with U.S. equities leading the pack. [15]
How the Numbers Add Up: Earnings, Valuations and Sector Plays
A bullish story lives or dies by its numbers — and Morgan Stanley has put some very specific figures behind its S&P 500 call.
Earnings: Double‑Digit Growth Through 2027
Across several notes and media summaries, the bank outlines a robust earnings path for the index: [16]
- 2025 S&P 500 EPS: around $272, roughly 12% year‑on‑year growth.
- 2026 EPS: about $317, implying ~17% growth.
- 2027 EPS: roughly $356, another ~12% gain.
That outlook assumes:
- Stronger pricing power as companies push through selective price increases.
- Efficiency gains from AI and automation. [17]
- A macro backdrop that avoids a severe recession, even if periodic corrections hit the market.
On those projections, a 7,800 S&P 500 level corresponds to roughly 22x forward earnings, a rich but not unprecedented multiple in an environment of low real yields and strong profit growth. [18]
Sector and Style Tilts: Where Morgan Stanley Sees Opportunity
In line with the early‑cycle narrative, Morgan Stanley is shifting its playbook and has laid out six key tilts, according to reporting from Business Insider and other outlets: [19]
- Small caps over large caps
- Compressed cost structures and improving demand create room for operating leverage to return.
- A friendlier rate environment tends to help smaller, more domestically focused companies.
- Cyclicals over defensives
- If growth is broadening, sectors tied to the economic cycle — such as industrials and consumer discretionary — should, in theory, outperform low‑beta, defensive areas.
- Financials
- Banks and other financial firms have seen some of the strongest positive earnings revisions since the market bottomed in April 2025.
- Lower rates and a rebound in deal‑making could lift returns, while valuations remain relatively undemanding.
- Industrials
- Positioned as a major beneficiary of the new capex cycle, including reshoring, infrastructure spending and AI‑linked investment.
- The bank remains overweight industrials into 2026 on the back of top‑line growth and margin expansion.
- Healthcare (especially biotech)
- Morgan Stanley argues that healthcare benefits from rate cuts, solid earnings momentum, easing regulatory overhangs and M&A tailwinds.
- Biotech, in particular, has historically outperformed in the 6–12 months after the first Fed rate cut in a cycle.
- Consumer discretionary
- With goods prices stabilising and signs that consumers are shifting spending back toward goods, the sector could ride both early‑cycle demand and lower borrowing costs.
None of these are guaranteed winners, and Morgan Stanley is explicit that uncertainty remains high and the range of outcomes is wide — but these are the levers the bank believes will best express its bull case. [20]
U.S. vs the Rest of the World: Why Morgan Stanley Is Overweight America
Morgan Stanley’s new strategy doesn’t just raise the S&P 500 target; it also draws a clear line between regions.
According to its global outlook:
- Equities overall > credit and government bonds — the bank prefers stocks to both corporate and sovereign debt. [21]
- U.S. stocks > global peers in 2026 — America is seen as the “swing factor” for global growth, thanks to its outsized role in AI, tech and fiscal policy. [22]
- Europe is still expected to participate in the upswing — Morgan Stanley has lifted its 2026 target for the MSCI Europe index — but more as a beneficiary of U.S. momentum than an independent engine of growth. [23]
The firm is also making big calls in commodities, projecting:
- Gold near $4,500 per ounce
- Copper around $10,600 per ton
- Brent crude oil anchored near $60 a barrel by 2026 [24]
Those forecasts suggest a world where:
- Real interest rates remain contained, supporting gold.
- Energy markets stay relatively balanced.
- The green‑energy and AI build‑out keep copper demand strong.
The Catch: Cash Warning Signs and AI Bubble Jitters
For all the optimism around Morgan Stanley’s call, the rest of the market is sending mixed signals.
Cash Levels Flash a “Sell Signal”
The latest Bank of America Global Fund Manager Survey, summarised today by AInvest and other outlets, shows: [25]
- Average cash balances dropped to 3.7%, down from 3.8% — the lowest since the 2021–2022 speculative peak.
- That’s below BofA’s 4% “sell signal” threshold, a level that historically preceded weaker equity performance over the next 1–3 months.
- Equity exposure is at its highest since February, while investors are heavily overweight emerging markets, banks, healthcare and commodities.
In plain English: professional investors came into the recent AI‑driven pullback already heavily invested with little dry powder, which can make the market more vulnerable to shocks.
AI Bubble Fears Are Real
The same survey shows a striking divergence between belief in AI and fear of a bubble: [26]
- A record share of managers say global equities are overvalued, and just over half describe AI‑related stocks as being in a bubble.
- Yet a majority also believe AI is already boosting productivity, with more expecting a meaningful payoff by 2026.
That tension matches the current tape: AI and mega‑cap growth have led markets higher, but they are now at the centre of every correction scare.
Wilson Still Sees Room for a Correction
Even as he turns bullish, Wilson hasn’t abandoned caution altogether. In recent Morgan Stanley research and podcasts, he has warned that a 10–15% pullback would be “normal” at this stage of a new bull market, citing stretched sentiment, pockets of froth and signs of funding stress. [27]
The key distinction is that he views such a correction as a pause within an ongoing uptrend, not the end of the cycle.
What This Means for Investors (Not Investment Advice)
For everyday investors trying to make sense of this, Morgan Stanley’s call is not a guarantee — it’s a scenario. But it does highlight several practical themes to keep on the radar as 2026 approaches:
- Earnings matter more than ever
The entire 7,800 thesis rests on the idea that profits keep beating expectations. Watch earnings revisions, not just headlines, especially in financials, industrials, healthcare and consumer names. - The cycle is shorter and sharper
If Wilson is right about “hotter but shorter” cycles, we may see deeper corrections inside longer‑term bull markets. That argues for having a plan for volatility rather than assuming a smooth ride. - Rates and inflation are still the fulcrum
A dovish Fed and manageable inflation are doing a lot of work in this forecast. A surprise re‑acceleration in inflation — or a more aggressive Fed — could compress valuations quickly. - Leadership is broadening beyond mega‑cap tech
Morgan Stanley’s overweight in small caps and cyclicals is a bet that market breadth improves. If rallies remain extremely concentrated in a handful of AI giants, that would be a warning sign that the early‑cycle thesis isn’t fully playing out. - Regional diversification remains relevant
Morgan Stanley prefers U.S. stocks, but even its own research sees opportunities in Europe, emerging markets and commodities. [28]
Important: This article is for information and analysis only and does not constitute personalized investment advice. Markets are uncertain; forecasts can be wrong. Before making any investing decisions, consider speaking with a licensed financial adviser and weighing your own objectives, risk tolerance and time horizon.
As of November 18, 2025, Morgan Stanley has thrown down a clear marker: a 16% S&P 500 rally into 2026, powered by earnings, AI, and a still‑supportive policy backdrop. Whether that plays out will depend on how those forces interact with increasingly stretched positioning and a market that is both bullish and uneasy at the same time.
References
1. www.reuters.com, 2. www.bloomberg.com, 3. www.businessinsider.com, 4. www.reuters.com, 5. www.ainvest.com, 6. www.businessinsider.com, 7. www.businessinsider.com, 8. www.businessinsider.com, 9. www.businessinsider.com, 10. www.businessinsider.com, 11. www.businessinsider.com, 12. www.investing.com, 13. www.reuters.com, 14. www.reuters.com, 15. www.reuters.com, 16. www.investing.com, 17. finance.yahoo.com, 18. www.investing.com, 19. www.businessinsider.com, 20. www.reuters.com, 21. www.reuters.com, 22. www.reuters.com, 23. www.reuters.com, 24. www.reuters.com, 25. www.ainvest.com, 26. www.ainvest.com, 27. www.morganstanley.com, 28. www.reuters.com
