Morgan Stanley’s US equity analysts, led by Michael Wilson, have revised their outlook on the S&P 500, setting a new 12-month price target of 7800. This projection is based on an anticipated forward earnings per share (EPS) of $US356, reflecting higher-than-consensus EPS figures throughout their forecast period. Morgan Stanley is a global financial services firm providing investment banking, wealth management, and investment management services. The firm serves corporations, governments, institutions, and individuals.
The analysts foresee substantial EPS growth in the coming years, estimating $US272 for 2025 (a 12 per cent increase), $US317 for 2026 (a 17 per cent increase), and $US356 for 2027 (a 12 per cent increase). This optimistic outlook is underpinned by several factors, including a resurgence of positive operating leverage, increased pricing power, efficiency gains driven by artificial intelligence (AI), and accommodating tax and regulatory policies.
According to the analysis, these policies are expected to facilitate a growth transition from public to private sectors, while interest rates remain contained across the yield curve. While valuation is expected to compress slightly from current levels, it is projected to remain elevated relative to historical data, holding at a multiple of 22 times earnings. The analysts anticipate that small-cap stocks will outperform large-cap stocks, and cyclical sectors will outperform defensive sectors.
In terms of sector recommendations, Morgan Stanley has reiterated its overweight positions in financials and industrials. The firm has also upgraded consumer discretionary goods and healthcare to overweight from underweight. Healthcare remains their preferred exposure to quality growth. Michael Wilson emphasised that he dislikes being labelled as simply bullish or bearish, stating that such labels do not accurately reflect the depth and complexity of their analysis.
