Famous short seller turns around! Morgan Stanley's chief strategist Mike Wilson expects the S&P 500 index to rise to 6,500 points

A prominent short-seller analyst on Wall Street has begun to join the bullish camp. According to the Zhitong Finance APP, Mike Wilson, chief strategist at Morgan Stanley, stated in a report released on Monday that the S&P 500 index could rise to 6,500 points within the next 12 months, which is about 10% higher than the current level of approximately 5,900 points. Wilson's prediction is one of the optimistic forecasts released by Wall Street since Trump was re-elected as President of the United States earlier this month. Macro Risk Advisors recently stated that the S&P 500 could reach 7,700 points next year. Veteran market commentator Ed Yardeni predicts that the S&P 500 will reach 7,000 points by 2025 and climb to 10,000 points by the end of this decade. However, Wilson's prediction is particularly noteworthy because he has previously been known as a market skeptic. In May of this year, he predicted that the S&P 500 would close at 4,500 points by the end of the year, which was 15% lower than the market trading level at that time. Since May, he has maintained a 12-month target price of 5,400 points for the S&P 500. Wilson stated that his new prediction is based on an expected earnings per share of $303 for 2026 and a price-to-earnings ratio of 21.5 times. He wrote, "We expect earnings growth in 2025 to continue to expand, as the Federal Reserve may cut interest rates next year, while business cycle indicators will continue to improve. In our baseline scenario, we believe that market valuations will only slightly adjust, as high price-to-earnings ratios rarely compress significantly in an environment of high earnings growth and loose monetary policy." Morgan Stanley expects earnings growth rates of 13% for 2025 and 12% for 2026. Although these figures are slightly lower than FactSet analysts' forecast of 13% growth for 2026, they are generally in line with mainstream expectations. FactSet also predicts that earnings per share will reach $309 in 2026. Nevertheless, these forecasts are still considered somewhat aggressive, as they require earnings growth over the next two years to exceed 9% in 2024. This target is expected to be achievable if Trump's economic policies are implemented smoothly. The Trump team has promised to reduce the corporate tax rate from 21% to 15% and to continue its landmark tax cuts from 2017, which also provide tax relief for individuals. While tax cuts and other stimulus measures may promote economic growth, there are also certain risks involved. A significant reduction in tax rates in an already well-functioning economy could reignite inflation risks. Proposed import tariffs could further drive up consumer prices, exacerbating inflationary pressures. If inflation spirals out of control, the Federal Reserve may have to cut back on the extent of interest rate cuts, which could both suppress inflation and hinder economic growth. Despite the gradual reduction of short positions in the market, some analysts remain cautious. Independent strategist David Rosenberg wrote in a report on Monday that it is wise to reduce portfolio risk until policy dust settles. He stated, "It should be clearly recognized that the current market rebound is not driven by earnings but by sentiment. If earnings were supporting the market, the S&P 500 should be trading about 1,000 points lower than its current level." As market sentiment rises, the tug-of-war between bulls and bears still exists. In the future, the effectiveness of U.S. economic policy implementation and changes in the global economic environment will have a significant impact on the direction of the S&P 500 index