Morgan Stanley Strategist Sees 12-Month Uptrend Driven by EPS Rebound, Rate Cuts

Mike Wilson, Chief Equity Strategist at Morgan Stanley, has highlighted that the recent stock market rally, which began in April, has been primarily driven by fundamental factors. Despite the possibility of short-term market consolidation, Wilson maintains a positive outlook for the next 6-12 months. He anticipates that improving corporate earnings and the market's growing acceptance of rate cuts will continue to support the uptrend.

According to Wilson, three key factors are expected to drive the market's upward trajectory. Firstly, the Earnings Per Share (EPS) revision rate has shown significant improvement, rebounding from -25% in April to -5%. This positive trend is expected to provide further support for stock indices to move higher. Secondly, the market has started to factor in the Federal Reserve's accommodative policy, with Morgan Stanley forecasting a total of seven rate cuts by 2026. Lastly, the decline in oil prices and the easing of policy and geopolitical risks have alleviated concerns about an economic downturn, thereby reducing overall market risk.

Wilson also noted that the current environment is conducive to a broad market rally. He predicts a shift from quality large-cap stocks to a more widespread diffusion across the market. Additionally, he believes that the current interest rate risk is manageable, further supporting the optimistic outlook for the stock market.