Analysts Signal Bullish Turn for U.S. Stocks Amid Optimism and Strategic Shifts

Recent comments from top analysts suggest that the worst phase for U.S. stocks may be over, following a turbulent period induced by trade policy concerns. After several weeks of consecutive losses driven by fears over President Trump’s trade war and potential economic slowdown, analysts from Morgan Stanley and Citi are now expressing a more optimistic outlook on the market's trajectory.

The S&P 500, having entered correction territory last Thursday, has since seen a two-day rally starting this week, continuing the rebound observed last Friday. According to Morgan Stanley, the rebound is supported by signs that key indicators have reached oversold levels and improvements in market sentiment and positioning. Additionally, seasonal factors appear more favorable as the month progresses, and the weakening U.S. dollar may lead to revisions in corporate earnings forecasts. Lower interest rates this year could also bolster economic surprise indices, further supporting the market.

Morgan Stanley's Chief Investment Officer, Mike Wilson, reaffirms the prediction that the S&P 500, currently trading near 5500 points, is likely to see a rally led by cyclical and growth stocks, which have been heavily shorted. This view is reinforced by last Friday’s market movement.

Citi analysts share this optimism, emphasizing the healthier valuations of the S&P 500 post-recent sell-offs. They note that the valuation of the top seven tech giants has become more "rational," with these companies contributing significantly less to the index's total return compared to last year's peak. This presents an improved risk-reward scenario for equities, with Citi setting a year-end target of 6500 points for the index, which suggests a potential 15% rise from its current level.

Citi’s analysis also highlights long-term constructive views on the S&P 500, driven by factors such as productivity growth, advancements in artificial intelligence, operational leverage, shareholder influence, and the maturation of business models. These elements underscore the bank’s belief in the enduring strengths of the U.S. market.

As a whole, the positive sentiment among institutional analysts suggests a shift from a bearish to a bullish outlook on U.S. equities, supported by a combination of market technicals, macroeconomic factors, and corporate fundamentals.