Morgan Stanley analysts are reportedly predicting that US stocks will hit a massive all-time high by the middle of next year.
The brokerage firm says that the S&P 500 may decline in the third quarter of this year, but ultimately reach 7,200 points by mid-2026, a more than 13% increase from its current level, reports Reuters.
Morgan Stanley chief investment officer Mike Wilson cites bullish market momentum driven by strong earnings as well as expected Fed rate cuts as the main catalysts for the new stock highs.
Says Wilson,
“With earnings on solid footing into next year and the Fed closer to cutting rates, valuations can remain supported around current levels (~22x) as we think about the 12-month outlook.”
However, Morgan Stanley warns that rising Treasury yields, particularly if the 10-year note exceeds 4.5%, may result in an underperformance of some stocks, like small-cap equities, which are more sensitive to rates.
The brokerage also says it expects a rise in costs and inflation to materialize later this year as a result of President Trump’s tariffs, which could impact firms’ profit margins.
Lastly, Morgan Stanley says the stock market may dip temporarily from mid-July to August as a result of seasonal trends.
Still, the brokerage firm says stock market dips in the third quarter are likely buying opportunities, predicting declines and consolidations will be temporary.
As of Wednesday’s close, the S&P 500 is trading at 6,358 points.
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