Morgan Stanley raises S&P 500 target on earnings optimism

Morgan Stanley has raised its annual target for the S&P 500, saying strong corporate earnings and growing artificial intelligence adoption could continue driving gains in U.S. equities.

The brokerage increased its 2026 year-end target for the benchmark index to 8,000 points from 7,800, implying an upside of roughly 8% from Tuesday’s close of 7,400, News.Az reports, citing Reuters.

Morgan Stanley said its bullish outlook is being driven primarily by earnings growth rather than higher market valuations.

“Our bullish index view is an earnings story, not a multiple expansion one,” the bank said in a note published Wednesday.

The firm expects earnings per share for S&P 500 companies to rise to $339 in 2026, representing a 23% increase from the previous year. Analysts at the bank cited productivity improvements from broader AI adoption and stronger pricing power among companies as major factors supporting earnings growth.

According to LSEG I/B/E/S data, around 83.2% of the 440 S&P 500 companies that had reported first-quarter results by May 8 exceeded analysts’ expectations.

The S&P 500 also posted its strongest monthly gain since November 2020 in April, highlighting continued investor confidence despite ongoing geopolitical tensions in the Middle East.

Morgan Stanley said the recovery in U.S. equities is expected to continue over the next 12 months as companies benefit from positive operating leverage and AI-related efficiency gains.

At the same time, the bank warned that inflation remains one of the biggest risks to its outlook, especially as expectations for near-term interest rate cuts continue to fade.

The brokerage also raised its mid-2027 target for the S&P 500 to 8,300 and projected earnings per share of $380 in 2027 and $429 in 2028.

Elsewhere, Morgan Stanley lifted its mid-2027 target for the MSCI Europe to 2,700 from 2,600, citing expectations that broader investment flows into global markets could resume if tensions around the Strait of Hormuz ease in the coming months.

Other major financial institutions, including HSBC and RBC, have also recently raised their forecasts for the S&P 500, reflecting growing optimism on Wall Street about the outlook for U.S. stocks.

News.Az 

By Aysel Mammadzada