Morgan Stanley's famous short seller Wilson turns bullish: No need to worry about high valuations, interest rate cuts, and profit growth, the S&P 500 will rise another 11% next year!

In recent years, Morgan Stanley strategist Michael Wilson, known for his bearish stance on the U.S. stock market, has recently reversed his position, expressing a completely bullish outlook for the U.S. stock market in 2025. According to Bloomberg News, Michael Wilson currently expects the S&P 500 index to reach around 6,500 points by the end of next year, an 11% increase from last Friday's closing price. He stated that factors driving this increase include enhanced momentum in U.S. economic growth and further interest rate cuts by the Federal Reserve. Additionally, although the impact of some potential policies under Trump’s administration on the market remains unclear, the deregulation policies expected to be promoted by the new government will also benefit U.S. companies. He had previously predicted that the S&P 500 index would reach 5,400 points by mid-2025. In a report, strategists including Michael Wilson stated, “Valuations in the U.S. are high, but this is due to improvements in the U.S. macroeconomy, potential U.S. tariff policies that may be less favorable to global growth in the future, and investor optimism driving the market's upward range.” Wilson had previously accurately predicted the sell-off in the U.S. stock market in 2022 and maintained a bearish stance during the market's rise in 2023. Earlier this year, he ultimately adjusted his position, raising the target for the S&P 500 index and stating that the index could reach 6,100 points by the end of 2024. Since the beginning of 2023, the S&P 500 index has surged over 50%. Analysts believe this is mainly driven by the boom in artificial intelligence development, unexpectedly strong economic performance, and the boost from interest rate cuts. In Morgan Stanley's 2025 outlook, Wilson wrote, “As the Federal Reserve further cuts interest rates next year and business cycle indicators continue to improve, we expect the range of corporate profit growth to continue to expand.” Although the implementation of Trump’s economic policies may further support market sentiment, Wilson advises investors to remain flexible in sector and stock selection, as the new government's policies on immigration, trade, deregulation, and government spending remain unclear. Moreover, post-election uncertainty has prompted strategists to set a broader range of expectations for the stock market than usual. Morgan Stanley strategists expect that in the worst-case scenario, the S&P 500 index could drop 22% to 4,600 points, while in the best-case scenario, the index could soar 26% to 7,400 points. Morgan Stanley expects the U.S. stock market to continue outperforming other global markets, especially far exceeding European markets, as the firm has downgraded its rating on European markets to neutral. The MSCI Europe index is expected to maintain a range-bound fluctuation until U.S. trade tariffs and other policies become clearer. Meanwhile, the Goldman Sachs strategist team led by Peter Oppenheimer stated on Monday that the firm expects a total return on global equities, measured in U.S. dollars, of 10% by the end of 2025. “Stock valuations have risen, and there is limited room for further expansion of valuations,” they wrote in a separate report. “We expect index returns to be primarily driven by earnings growth.” The Oppenheimer team also pointed out two major risks facing the U.S. stock market in their report. The first is the trading frenzy triggered by Trump's election, which may overdraw U.S. stock returns, making the market more susceptible to adjustments. Strategists noted that since global stock markets have risen 40% since October 2023, there is greater room for disappointment in the market, while the chances of further valuation increases are fewer. Additionally, the impact of the new Trump administration's policies remains uncertain. The second risk is related to what Goldman Sachs calls "abnormally high market concentration." Data shows that the largest 10 companies in the U.S. account for over 20% of the total value of global market indices, with Apple, Microsoft, Amazon, Nvidia, Google's parent company Alphabet, and Meta accounting for 36% of the S&P 500 index, driving most of the returns. So far this year, these leading companies have a return rate close to 37%, while the overall return rate of the S&P 500 index is 31%. Goldman Sachs stated that this level of market concentration brings many market risks, especially as these large-cap tech stocks shift from relatively light capital models to capital-intensive models