--- title: "Morgan Stanley: The market underestimates the U.S. stock bull market, six catalysts will ignite risk appetite" type: "News" locale: "en" url: "https://longbridge.com/en/news/271664526.md" description: "Morgan Stanley's strategist team believes that the market has underestimated the potential of the U.S. stock bull market, predicting that the S&P 500 index will reach 7,800 points by 2026. Six major catalysts will drive an increase in risk appetite and valuations, particularly the earnings growth and valuation recovery of median stocks. The strategists pointed out that, in addition to large tech stocks, ordinary constituents also have significant upside potential, indicating a broad market recovery and the arrival of a bull market" datetime: "2026-01-06T14:32:02.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/271664526.md) - [en](https://longbridge.com/en/news/271664526.md) - [zh-HK](https://longbridge.com/zh-HK/news/271664526.md) --- > Supported Languages: [简体中文](https://longbridge.com/zh-CN/news/271664526.md) | [繁體中文](https://longbridge.com/zh-HK/news/271664526.md) # Morgan Stanley: The market underestimates the U.S. stock bull market, six catalysts will ignite risk appetite According to the Zhitong Finance APP, the latest research report released by the stock strategist team at Morgan Stanley, led by top Wall Street strategist Michael Wilson, shows that market consensus expectations are significantly underestimating the positive impact on risk appetite and valuations from multiple bullish catalysts as we approach 2026. The Morgan Stanley strategists, led by Wilson, stated that the biggest surprise in 2026 may not be that only a few large-cap tech stocks with high weight continue to lift the S&P 500 index, but rather that the "median stock in the S&P 500 index" experiences both earnings growth and multiple valuation expansion, leading to a broader stock market uptrend and "market breadth expansion." The "median stock" mentioned in the Morgan Stanley report refers to a statistical concept: in a sample of stocks (usually the constituents of the S&P 500), the stocks are ranked from low to high based on a certain metric (in this report, the valuation multiple, i.e., expected P/E), and those stocks located at the 50th percentile are considered the "most typical stocks." Morgan Stanley also cited the phenomenon of "the median stock in the S&P 500 index being at a discount of about 3 P/E multiple points relative to the market-cap-weighted index" to elaborate: aside from a few extremely high-weight tech giants, a broader range of "ordinary S&P 500 constituents" still has significant room for valuation recovery/appreciation under multiple favorable catalysts. Wilson set the target level for the S&P 500 index at 7,800 points by the end of 2026 and stated that the "multiple synergistic driving factors" he described are contributing to a rolling cyclical recovery in the U.S. stock market. Therefore, Morgan Stanley defines 2026 as a "broad stock market bull market under rolling recovery," advocating for a return of market risk appetite "from point to area" and a resonant uptrend across multiple cyclical industries, with cyclical stocks leading the second phase of the bull market. They believe that the current stock market is at the starting point of a new earnings cycle and structural bull market, expecting that by 2026, the core leadership of the U.S. stock market will spread from large-cap tech stocks benefiting from AI, such as Nvidia, Google, and Microsoft, to mid-cap and cyclical core industries. Morgan Stanley strategists emphasized that under the investment theme of "U.S. economic soft landing + rolling recovery," cyclical stocks (especially strong cyclical industries like industrials, financials, and consumer discretionary) are expected to benefit comprehensively, significantly outperforming the average benchmark performance of the past two to three years. "We believe that market consensus is still underestimating the collective positive impact brought by a series of bullish catalysts—from deregulation factors to operational leverage to loose monetary and stimulative fiscal policies," wrote the Morgan Stanley strategists led by Wilson. **This team of strategists provided a comprehensive overview of several key tailwinds that they believe the U.S. stock market has not fully accounted for:** **Earnings Growth Trajectory:** Morgan Stanley's modeling indicates that by late 2026, earnings per share (EPS) growth could reach a high of 15 to 20 percent, driven by declining expense growth and strengthened pricing power leading to positive operational leverage; Morgan Stanley also expects that the scale of AI adoption will accelerate significantly this year, driving an overall net profit margin expansion of 40 basis points for the S&P 500 index **Deregulation:** The financial sector, which occupies a neutral weight, will be a key beneficiary. The finalization of the eSLR rules and other changes are expected to "unlock a significant release of bank capital productivity." The Trump administration's easing of banking regulations, along with expanded lending guidelines and relaxed lending standards, should facilitate strong growth in commercial and industrial loans. **Monetary Policy:** Morgan Stanley economists expect the Federal Reserve to further cut interest rates in January and April 2026, while the Fed will purchase $40 billion in short-term government bonds each month to provide stronger liquidity to the market. Morgan Stanley predicts that as more incremental liquidity flows into long-term U.S. Treasuries, the 10-year U.S. Treasury yield, known as the "anchor of global asset pricing," will reach 3.75% in the second quarter of 2026, which will significantly benefit market risk appetite. **ISM Cycle Volatility Turning Point:** The Trump administration's push for the return of high-end manufacturing, such as chips, to the U.S., along with the 45-month ISM cycle amplitude and the lagging effects of relatively low interest rates, as well as the rebound trend in the breadth of earnings revisions, all point to an acceleration of U.S. manufacturing activity this year. **Consumer Tailwinds:** The shift in "wallet share" from services to goods is underway, while pricing power for goods is strengthening. The OBBBA (the "Big and Beautiful" Act led by the Trump administration) is expected to increase U.S. personal comprehensive income by about $65 billion in 2026. Morgan Stanley states that 2025 will be a year of tariff policy, tightened immigration, and the "Big and Beautiful" Act (OBBBA) from its introduction to intensive implementation. It is expected that from 2026 to 2027, the overall framework of policies stimulating economic growth will be largely settled, shifting the focus of the U.S. economy from "policy disruptions" to how businesses and households adjust spending in the context of tax cuts from the "Big and Beautiful" Act and the Trump administration's efforts to boost consumer confidence. **Weakening Dollar and Oil Prices:** The weakening dollar supports overall earnings revisions for the S&P 500 index against the backdrop of approximately 30% exposure to overseas sales; meanwhile, gasoline prices are at a five-year low, providing a positive buffer for consumers. **"Goldilocks-style Soft Landing" Approaches! Morgan Stanley Bets on the "End of the AI Investment Theme Solo Dance"** The OBBBA (the so-called "Big and Beautiful" Act) passed by the Trump administration in 2025 will strongly drive economic growth effects starting in 2026. Coupled with the inflationary pressures from Trump's tariff policies, which are ultimately confirmed to be temporary disturbances until short-term inflation gradually dissipates, and the vigorous construction of AI data centers by tech giants like Google centered around AI computing infrastructure, will jointly drive the U.S. economy to present a "Goldilocks-style soft landing" with moderate growth in 2026. The so-called "Goldilocks" U.S. macroeconomic environment refers to an economy that is neither too cold nor too hot, maintaining moderate "gentle growth" in GDP and consumer spending, along with a long-term stable "gentle inflation trend," while the benchmark interest rate is on a downward trajectory. Overall, Morgan Stanley expects the U.S. economy to gradually emerge from a state of high uncertainty and return to a positive trajectory of "gentle growth" in 2026 Morgan Stanley stated that the U.S. stock market has emerged from a three-year "rolling recession" and has officially entered the "rolling recovery" phase. The continuously compressed cost structure, strong earnings revisions, significant improvement in corporate operating leverage, and the release of pent-up demand together constitute a "typical early-cycle" environment. On the macro front, Morgan Stanley expects that the Federal Reserve's interest rate cut path will initiate a new round of capital expenditure cycles, with real interest rates returning to normal, and corporate investment (especially in AI and manufacturing) becoming the new growth engine. Therefore, Morgan Stanley defines the current situation as the "second phase bull market under rolling recovery"—dominated by earnings expansion and cyclical sector rotation, with a comprehensive return of risk appetite in financial markets, making the market more broad-based and resilient. The Morgan Stanley strategy team advises investors to "overweight cyclicals and underweight defensives"—that is, to "overweight" financials, industrials, healthcare, and consumer discretionary in 2026; "underweight" consumer staples and real estate; and "equal weight" the technology and energy sectors ### Related Stocks - [S&P 500 (.SPX.US)](https://longbridge.com/en/quote/.SPX.US.md) ## Related News & Research - [Stocks Try to Bounce After Brutal Selloff, Can Bulls Follow Through?](https://longbridge.com/en/news/281201657.md) - [This bull market has charged away from a correction. 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