Morgan Stanley Predicts 8% S&P 500 Surge by 2026

Morgan Stanley, a leading investment banking firm, has forecasted that the S&P 500 index will achieve new all-time highs within the next year. This bullish outlook is supported by several key factors, including a weakening US dollar, improved earnings revisions, and expected rate cuts by the Federal Reserve.

According to Andrew Sheets, Morgan Stanley’s global head of corporate credit research, the S&P 500 is expected to surge by nearly 8% in 2026. This prediction is based on a favorable macroeconomic environment where the stock market has already digested the odds of a US recession and is poised for steady growth in the coming months. Sheets believes that while inflation data may pick up slightly and growth may slow, the equity market is forward-looking and will benefit from a better rate of change in earnings revisions.

Sheets also highlighted that the weaker US dollar is a tailwind for earnings, as it makes overseas earnings more valuable when converted back into US dollars. This, combined with better earnings revisions, suggests that companies are performing better than initially expected, which can drive stock prices higher. Additionally, the anticipated rate cuts by the Federal Reserve are seen as a positive for the market, as lower interest rates can make borrowing cheaper and encourage investment.

As of the latest data, the S&P 500 is trading at 6,038 points. Morgan Stanley's prediction of new all-time highs for the S&P 500 comes at a time when the market is already showing signs of strength. The index has been on a steady upward trajectory, and recent economic data has been largely positive. However, there are still risks and uncertainties that could impact the market's performance, such as geopolitical tensions and inflation concerns. Despite these risks, Morgan Stanley's prediction suggests that the market's fundamentals are strong and that the S&P 500 is poised for further gains.