So here’s the deal: while you were probably doom-scrolling through your feeds, Morgan Stanley’s Michael Wilson just did something that should make your portfolio perk up. He bumped his S&P 500 target from 7,200 to 7,800 for the end of 2026. That’s an 18% jump from where we’re sitting now at around 6,600.
Now, before you roll your eyes at another Wall Street prediction, hear me out. The S&P has been on an absolute tear – we’re talking three straight years of double-digit returns, averaging 19% annually. That’s the kind of performance that makes your 401k actually look decent for once.
Wilson’s calling this a “new bull market,” which sounds fancy but basically means he thinks the party’s just getting started. His theory? The old bull market died during that lovely market crash in early 2024 (remember that fun time?), and we’ve been in Bull Market 2.0 since late April.
The Money Behind the Madness
Here’s where it gets interesting. Wilson isn’t just throwing darts at a board – he’s betting on corporate earnings to do the heavy lifting. His team expects S&P 500 earnings to jump 17% in 2026 and another 12% in 2027. That’s some serious growth, driven by what he calls the usual suspects: AI making everything more efficient, friendly tax policies, and companies actually having some pricing power again.
The best part? Wilson thinks many stocks aren’t as expensive as they look, even with a P/E ratio of 22. Translation: there might still be room to run before things get truly bonkers.
Small Caps: The Underdogs Ready to Shine
But here’s the plot twist that caught my attention: Wilson thinks small caps are about to have their moment. While the Russell 2000 has been basically napping this year (up just 5.8% versus the S&P’s 13%), he expects these smaller companies to start outperforming their big brothers.
Why should you care? Small caps have been the market’s forgotten stepchildren for years, but they tend to move fast when they finally wake up. Think of them as the scrappy underdogs who’ve been waiting for their chance to show what they can do.
The Sectors to Watch
Wilson’s also bullish on financials, industrials, and healthcare – especially biotech. His reasoning is solid: lower interest rates help banks and healthcare companies, while increased M&A activity could give these sectors a nice boost.
Healthcare, in particular, could be interesting. The sector benefits from rate cuts, has reasonable valuations, and biotech historically performs well 6-12 months after the Fed starts cutting rates. Plus, with all the M&A chatter, someone’s always looking to buy the next big breakthrough.
Look, nobody has a crystal ball, and Wilson could be completely wrong. But his logic is sound, and frankly, it’s refreshing to see an analyst who’s not just recycling the same tired predictions. Whether you’re all-in or just dipping your toes, 2026 might actually be worth paying attention to.