Bloomberg Expert Forecasts July Rally in Stock Market

The article discusses the July 2025 commentary and economic outlook. The author predicts a strong earnings season due to a weak US dollar and optimism about AI implementation, which could lead to a July rally. The year-end S&P Index target is set at 6,600, with an upside risk.

In a recent update, Morgan Stanley's Chief Investment Officer, Mike Wilson, has adjusted his target for the S&P 500 in 2026. The new target is 7,200, up from the previous estimate of 6,600, reflecting a more optimistic outlook for the U.S. economy and corporate earnings.

Wilson's revision comes amid a period of significant market volatility, driven by tariffs and economic policy changes. The stock market bottomed in early April following a sharp sell-off due to President Trump's tariff policies. However, the market rebounded strongly, with the S&P 500 and Nasdaq Composite surging by 25% and 32% respectively, erasing the near-bear market drop. This rally was fueled by the pause in the implementation of the harshest reciprocal tariffs and the passage of the One Big Beautiful Bill Act, which included trillions of dollars in tax cuts.

Wilson attributes the improved outlook to several factors. First, the Federal Reserve's expected rate cuts for 2025 and 2026 are anticipated to provide additional support to the economy. Second, the stimulus from the tax cuts could offset some of the slowing associated with tariff-induced inflation. Third, the weak U.S. dollar is expected to boost corporate earnings through favorable currency conversion on overseas sales.

Moreover, Wilson notes that the earnings season has been positive, with earnings revisions accelerating higher. The forward price-to-earnings ratio for the S&P 500 is currently above 22.2, historically high but supported by the expected earnings growth and interest rate cuts. The U.S. Small Cap Growth Composite has also shown strong performance, with annualized returns of 14.35% over the past three years and 11.28% in the second quarter of 2025.

Wilson acknowledges that the risk of inflation remains, but he is optimistic that the economy can avoid a recession. He expects the S&P 500 to continue its upward trajectory, driven by positive operating leverage and earnings growth.

References:
[1] https://www.thestreet.com/investing/morgan-stanley-resets-s-p-500-target-for-2026
[2] https://seekingalpha.com/article/4802658-timessquare-us-small-cap-growth-strategy-q2-2025-commentary