Morgan Stanley's Wilson Predicts 2025 US Stock Rally Driven by 25% Earnings Revisions

Morgan Stanley's chief investment officer, Mike Wilson, has predicted that the rally in US stocks is set to continue throughout 2025. In a note to investors, Wilson expressed his bullish outlook, citing several key factors that could drive the S&P 500 index higher.

Wilson believes that the Federal Reserve's anticipated rate cuts will inject liquidity into the market, while company earnings are expected to surpass expectations, propelling stock prices upward. He emphasized that equity markets have shown resilience since their low point in April, with the rally being more fundamentally driven than many investors realize.

Wilson identified three primary catalysts that could fuel the next leg of the stock market rally. The first is the anticipated improvement in corporate earnings, which is expected to boost investor confidence and drive stock prices higher. The second catalyst is the potential for further fiscal stimulus, which could provide an additional boost to the market. The third catalyst is the expectation of a continued low-interest-rate environment, which will make it cheaper for companies to invest in growth and for consumers to spend, both of which are positive for the economy and the stock market.

Wilson also highlighted the earnings revisions breadth as a key metric for predicting a bullish market. This metric, which measures the proportion of analysts who have raised their estimates minus the proportion who have lowered them, has increased from a low of -25% in April to -5% currently. Wilson noted that similar changes in the past have resulted in stronger earnings, providing fundamental justification for equity growth.

Additionally, Wilson pointed out that stocks are likely to trade higher ahead of expected Fed rate cuts later this year. He believes that the current market environment, characterized by the ongoing rollout of vaccines and the market's resilience in the face of recent geopolitical tensions, is supportive of a rally in the S&P 500.

According to the analyst's forecast, the S&P 500 index could see significant gains in the coming months, driven by these three catalysts. However, it is important to note that market predictions are subject to uncertainty and that actual outcomes may differ from forecasts. Investors should therefore approach the market with caution and conduct their own research before making investment decisions.