MW S&P 500 now more likely to reach 7,200 next year, according to Morgan Stanley's Wilson
By Jamie Chisholm
Better earnings and a steadily high multiple should boost stocks
The new highs keep coming. Futures early Monday showed the S&P 500 on course for its 15th record of 2025. Tariff deals at levels that eight months ago would have been considered economically damaging, are now welcomed by investors.
And many analysts are embracing the optimism. Mike Wilson, Morgan Stanley's chief stock-market strategist, says he now is leaning more toward his bull case for the S&P 500 SPX, in a new note that published Monday.
That's 7,200 for the Wall Street benchmark in 12 months time, based on earnings per share of $319 and a forward share price to earnings multiple of 22.5.
Wilson says this view is grounded on a more resilient earnings and cash flow backdrop than previously expected, an improvement driven in part by AI adoption, dollar weakness, cash tax savings from the Trump administration's One Big Beautiful Bill Act and pent up demand for many sectors in the market.
Also, many parts of the stock market will benefit from easier growth comparisons, having experienced what Wilson terms "rolling earnings recessions for the better part of the last 3 years."
And with private sector wage growth in decline for the last several years - and AI adoption accelerating the phenomenon - this positive operating leverage should see profit margins expand. All told, earnings revision breadth has improved considerably in recent months, he says.
The high probability of more Federal Reserve rate cuts in the first quarter of 2026 will also be a boon for stocks.
Indeed, the likelihood of easier monetary policy is one reason why Wilson is comfortable with applying the historically high 22.5 valuation multiple.
"On that score, our regime analysis shows that when EPS growth is above the long-term median and the fed-funds rate is down on a year-over-year basis (our house views by mid-2026), the market multiple expands 90% of the time," Wilson says.
With regard to tariffs, he acknowledges they may be a problem for consumer goods companies, of which he suggests investors should be underweight. But overall the "rate of change on policy uncertainty peaked back in April as stocks troughed."
Wilson's favored sector is industrials, even though he notes it's already the best performing in the S&P 500 year-to-date and over the last month. "Relative earnings revisions remain durable, capacity utilization is stabilizing, and aggregate C&I [commercial and industrial] loans have surpassed $2.8 trillion (the highest level since 2020)," he writes.
Companies likely to benefit from domestic infrastructure spending, particularly related to technology, include Rockwell Automation (ROK), Eaton $(ETN)$, Trane Technologies $(TT)$ and Johnson Controls International (JCI).
Despite Wilson's positivity going into 2026, he accepts that near-term the setup is not without risks, including stubbornly high longer-term Treasury yields, tariff-related inflation and seasonal stock market headwinds.
"Thus, we do expect some consolidation tactically, but would reiterate that we expect pullbacks to be shallow, and we're buyers of dips," he says.
Markets
U.S. stock-index futures (ES00) (YM00) (NQ00) are higher as benchmark Treasury yields BX:TMUBMUSD10Y dip. The dollar index DXY is up, while oil prices (CL.1) rise and gold (GC00) is trading around $3,337 an ounce.
Key asset performance Last 5d 1m YTD 1y S&P 500 6388.64 1.46% 3.49% 8.62% 17.03% Nasdaq Composite 21,108.32 1.02% 4.12% 9.31% 21.61% 10-year Treasury 4.374 -1.00 14.60 -20.20 19.50 Gold 3339.3 -2.08% 0.73% 26.52% 40.22% Oil 65.71 -0.11% 1.14% -8.57% -13.45% Data: MarketWatch. Treasury yields change expressed in basis points
The buzz
The U.S. and European Union agreed a trade deal over the weekend that increases tariffs on most EU exports to the U.S. to 15%.
The U.S. and China will conduct more trade talks on Monday in Sweden.
A busy week of possible market catalysts include U.S. second quarter GDP and the Federal Reserve policy decision on Wednesday, and the July nonfarm payrolls report on Friday.
It's also a big few days for corporate earnings, with highlights being Meta $(META)$ and Microsoft $(MSFT.UK)$ on Wednesday, followed on Thursday by Apple $(AAPL)$ and Amazon $(AMZN.UK)$.
Elon Musk said Tesla $(TSLA)$ has signed a $16.5 billion deal with Samsung Electronics (KR:005930) to produce new-generation chips for the electric-vehicle maker.
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July 28, 2025 06:41 ET (10:41 GMT)
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