Headline: Morgan Stanley Raises S&P 500 Target to 7,800 as Profits and Policy Support Rally
Introduction: Morgan Stanley has boosted its 12-month S&P 500 forecast to 7,800, citing stronger corporate earnings and a more supportive Federal Reserve as catalysts for continued gains in U.S. equities. The bank’s chief U.S. equity strategist, Mike Wilson, also argues a new bull market began in April, setting the stage for broader market leadership.
Morgan Stanley’s upgraded view is anchored in sustained earnings growth and margin improvement. Wilson highlights improving operating leverage, firm pricing power, and productivity gains tied to artificial intelligence as key drivers of profit expansion through 2027. The strategy team projects S&P 500 earnings per share of $272 in 2025, $317 in 2026, and $356 in 2027. While valuation multiples may ease slightly, the bank expects them to remain elevated relative to history thanks to robust profit growth and resilient demand.
Policy is the second pillar of the outlook. Morgan Stanley anticipates a more accommodative Federal Reserve, with rate cuts and a supportive balance sheet stance helping to extend the cycle. The bank believes markets may be underestimating how dovish policy could become, a setup that favors risk assets and supports a wider advance beyond mega-cap leaders.
Sector and style leadership is expected to broaden as earnings recover. Morgan Stanley upgrades small caps to overweight on improving revisions and sees renewed small-cap outperformance. The team also moves consumer discretionary goods to overweight amid better revisions versus services, while reaffirming overweight positions in financials and healthcare—identifying healthcare as a preferred “quality growth” exposure.
Key Points: – New S&P 500 12-month target raised to 7,800 from 7,200, citing a bull market that began in April – Earnings outlook strengthened by operating leverage, pricing power, and AI-driven efficiency – EPS projections: $272 for 2025, $317 for 2026, and $356 for 2027 – Expectation of a more dovish Federal Reserve with rate cuts and supportive balance-sheet policy – Leadership to broaden: small caps upgraded to overweight; consumer discretionary goods also upgraded – Overweight calls reaffirmed on financials and healthcare, with healthcare favored for quality growth
