Equity strategists at Morgan Stanley, led by Michael Wilson, maintain a positive outlook for US equities, projecting the S&P 500 will reach 7200 by mid-2026. This forecast represents a 14 per cent increase from the benchmark’s recent close of 6305.60.
The firm believes positive operating leverage, driven by lower wage costs and potential gains from artificial intelligence adoption, will be a key factor in the earnings outlook through 2026. Concerns regarding tariff-related costs impacting margins have been muted thus far, though strategists noted this risk may become more prominent in the third quarter. With solid earnings expected into next year and the Federal Reserve moving closer to cutting rates, Morgan Stanley anticipates valuations will remain supported at current levels.
While bullish on the longer-term, Wilson flagged near-term risks that could lead to consolidation or a correction in the third quarter. A key concern is the 10-year Treasury yield, which tested 4.50 per cent recently, a level at which rate sensitivity tends to increase for equities, according to Morgan Stanley’s analysis. The yield on the US government’s 10-year note ultimately ended 4 basis points lower at 4.38 per cent on Monday (Tuesday AEST).
