Investment banking giant Morgan Stanley believes the S&P 500 will not revisit its April lows and instead rally to new all-time highs within a year.
Morgan Stanley’s global head of corporate credit research, Andrew Sheets, says in a new CNBC interview that he sees the S&P 500 surging by nearly 8% in 2026, powered by a favorable macroeconomic backdrop.
According to Sheets, the stock market appears to have digested US recession odds and is poised to steadily climb higher in the coming months.
“We think the inflation data will pick back up a little bit, we do think growth is going to slow some. But importantly, we think the equity market is forward-looking and we think the equity market is going to look ahead to a better rate of change. We’ve already started to see some of the earnings revision numbers incrementally get better.
We think that the dollar has been weak. We think it continues to be weak. That’s a tailwind for earnings.
So we think the market is going to see better earnings revisions. Already, we think we’ve kind of priced [in] a recession, priced [in] the usual drawdown back in the April lows.
So a better rate of change, better trend on earnings revisions, tailwind from a weaker dollar should help S&P earnings hold up. The Fed’s going to be cutting over the next 12 months. We don’t expect a recession. Usually when that happens, the multiple doesn’t decline. And so that’s why we think the S&P can move up to 6,500 by the middle of next year.”
As of Tuesday’s close, the S&P 500 is trading at 6,038 points.
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