by Julien Ponthus
Morgan Stanley strategist Michael Wilson, well known for his bearish views on US equities in recent years, has an outright bullish outlook for 2025.
The strategist expects the S&P 500 to end next year around the 6,500 level, up 11% from Friday’s close, with gains driven by improving economic growth and further Federal Reserve interest-rate cuts. He previously had a target of 5,400 for the benchmark in mid-2025.
“US valuations are rich, but this is helped by better macro in the US, potential future US tariff policy being more negative for rest-of-world growth, and animal spirits leading to the rally broadening out,” the Morgan Stanley strategists wrote in a note. Deregulation under the administration of Donald Trump will also benefit US corporates, though the impact of other potential policies is unclear, he said.
After correctly predicting the stock selloff in 2022, Wilson held a bearish outlook through 2023 as markets rallied. He finally gave in and boosted his target for the S&P 500 earlier this year, and said the benchmark could even reach 6,100 by the end of 2024.
US stocks have already surged over 50% since the start of 2023, lifted by a frenzy surrounding artificial intelligence developments, a surprisingly resilient economy and interest-rate cuts.
“We expect this broadening in earnings growth to continue as the Fed cuts rates into next year and business cycle indicators continue to improve,” Wilson wrote in Morgan Stanley’s 2025 outlook.
The implementation of Trump’s economic agenda may support sentiment further, though Wilson recommended that investors remain nimble in their sector and stock selection, given the lack of visibility on the impact of policies on immigration, trade, deregulation and government spending.
Post-election uncertainty has also led the strategists to maintain a wider-than-normal range of outcomes for stocks. In their worst-case scenario, the S&P would drop 22% to 4,600 points while the most bullish case would see the index surge 26% to 7,400 points.
The bank expects the US stock market to continue to outperform the rest of the world, particularly Europe, where Morgan Stanley strategists lowered their rating to neutral. The MSCI Europe index is seen trading in range until more visibility is provided on US policies such as trade tariffs.
Over at Goldman Sachs Group Inc., strategists led by Peter Oppenheimer said today that they forecast total global equity returns in dollar terms of 10% through to the end of 2025.
“Equity valuations have increased and leave little room for further valuation expansion,” they wrote in a separate note. “We expect index returns to be driven largely by earnings growth.”
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