Morgan Stanley Sees S&P 500 Soaring 16% in 2026

According to a new report from Morgan Stanley, the S&P 500 is poised to surge 16% to 7,800 by the end of 2026, marking the start of a new bull market and earnings cycle. The bank's chief US equity strategist, Mike Wilson, believes the US economy is in the midst of a "rolling recovery," contrasting with the earlier "rolling recession" thesis.

This recovery is already underway, with 82% of S&P 500 companies beating earnings estimates and 76% topping revenue forecasts in the latest quarter. Additionally, the bank sees the economy entering a new inflationary regime where policymakers are willing to "run it hot" on price growth, at least in the short to medium term.

To capitalize on this early-cycle environment, Morgan Stanley recommends investors focus on small-cap stocks, cyclical sectors, financials, industrials, healthcare, and consumer discretionary. The strategists believe these areas will benefit from factors like compressed cost structures, pent-up demand, rebounding earnings revisions, and a Fed that is tolerant of higher inflation.

Overall, the bank's bullish outlook suggests the end of the bull market is not imminent, and investors have opportunities to ride the next wave of gains in the coming years.