Morgan Stanley Turns Bullish on US Stocks: S&P 500 Forecast to Hit 6,500 by Mid-2026

Weaker dollar, rate cuts, and strong earnings drive upbeat market outlook

US Stocks Upgraded to Overweight

Morgan Stanley has turned bullish on US equities, forecasting the S&P 500 will soar to 6,500 by the second quarter of 2026. In its latest mid-year global outlook, the bank upgraded US stocks to “Overweight,” citing resilient corporate earnings, a weakening US dollar, and easing monetary policy.

This marks a clear preference for American markets over other global regions, as the firm takes a more cautious stance on Europe, Japan, and emerging markets.

Key Drivers of Optimism

According to Morgan Stanley, several factors support the bullish forecast for US stocks:

• Earnings Growth: Forecasts show earnings per share (EPS) climbing steadily through 2027.
• Weaker Dollar: A depreciating US dollar is expected to boost earnings for multinational firms.
• Falling Interest Rates: Softer inflation and policy easing could lift equity valuations.
• Global Growth Stability: Despite slower expansion, the global economy is not in recession.

The investment bank also highlights that both risk-free and riskier US assets offer strong value compared to the rest of the world (RoW), even amid policy uncertainty and slow global growth.

Global Outlook: A Mixed Bag

Morgan Stanley maintains a neutral (Equal Weight) view on global equities but holds an Overweight rating specifically for US stocks and core fixed income assets. Outside of the US:

• Europe & Japan: The firm remains neutral but notes margin pressure from strong local currencies and tariff exposure.
• Emerging Markets: Rated Underweight, with growth expected to slow and risks heightened.

Currency strength and trade tensions are flagged as potential headwinds for non-US equities.

US Assets Still Attractive

Despite the weakening dollar, Morgan Stanley dismisses fears that foreign investors will abandon US assets. “We push back against the idea that foreign investors would or should significantly reduce their exposure to US markets,” the report states.

The firm also stresses that deregulation and potential for more rate cuts than currently priced in could further bolster US market performance.

Economic Forecasts: Slower Growth, Sticky Inflation

Global GDP growth is expected to slow from 3.5% in 2024 to 2.5% in 2025. In key regions:

• US, UK, and Eurozone: Growth forecast to remain under 1%.
• China & Emerging Markets: Growth projected to decelerate more sharply.
• Inflation: Predicted to ease slightly, ending 2025 at 2.1%.

While the Fed is expected to hold interest rates steady through 2025, cuts are anticipated from early 2026. The European Central Bank and the Bank of England are expected to begin easing by the end of 2025.

Conclusion

Morgan Stanley’s bullish stance on US stocks stands out against a backdrop of global caution. With strong earnings potential, a favourable policy environment, and resilience to global headwinds, US equities are projected to outperform over the next 12 to 18 months.

Sources: (Investing.com, Reuters)