Amid the recent stock market dip, Wall Street banking giant Morgan Stanley remains optimistic that the benchmark S&P 500 index is likely to mount a major recovery in the coming 12 months.
In this line, Morgan Stanley has issued one of Wall Street’s most bullish calls for the broader U.S. equity market, projecting that the S&P 500 will climb to 7,800 by the end of 2026. The target implies a potential 17% increase from the index’s current value of 6,658.
The target, outlined by chief strategist Michael Wilson, reiterated that the current weakness in U.S. equities should be viewed as a tactical correction rather than a sign of deeper fundamental deterioration.
Notably, the S&P 500 has slipped roughly 4% from its October highs amid pressure on technology valuations, but Wilson argued that the breadth of the selloff indicates the downturn is nearing exhaustion.
Buying the dip
He maintained that any additional short-term weakness represents an opportunity for investors to increase exposure ahead of next year. According to Morgan Stanley, the projected move to 7,800 is supported by expectations of improving liquidity conditions and meaningful earnings growth.
“The weakness under the hood is a sign that we’re closer to the end of this correction, than the beginning,” Wilson wrote.
To this end, Wilson anticipates that the Federal Reserve will eventually cut interest rates, easing financial conditions and helping fuel an equity recovery. He also sees artificial intelligence as a key driver of corporate efficiency gains that could support the earnings outlook through 2026.
Overall, the bank maintains overweight positions in small-cap stocks, consumer discretionary, healthcare, industrials, and financials, areas it believes stand to benefit most when market momentum turns.
Wilson’s stance is consistent with his earlier bullish calls, including one in April when he maintained an optimistic outlook despite market turmoil linked to U.S. tariffs, a conviction later validated as the S&P 500 bounced back to record highs.
In general, a section of Wall Street has maintained a bullish stance on the index, with some analysts noting that the S&P 500 is likely to end the year valued at around 7,000.
However, the index, which has been dominated by a few technology giants, still faces skepticism over mounting concerns of a possible AI bubble as companies in the sector continue to grapple with significant valuations.
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