So Morgan Stanley just did that thing where they move their little target numbers around, and this time it actually matters. They bumped their 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 – not exactly pocket change.
Here’s the thing: Michael Wilson, their chief U.S. equity strategist (fancy title for “guy who makes educated guesses about where stocks go”), thinks we’re in a brand new bull market. Not the same one that’s been chugging along since 2023 – nope, that one apparently died during the spring crash and got reborn in late April like some kind of financial phoenix.
“We’re in the midst of a new bull market and earnings cycle,” Wilson says, probably while adjusting his tie and feeling very important about it. But honestly? The numbers back him up.
The Earnings Game
The real story here isn’t just Wilson’s crystal ball gazing – it’s corporate earnings doing their thing. They’re expecting S&P 500 earnings to hit $272 per share this year (up 12%), then rocket to $317 next year (another 17% bump), and keep climbing to $356 in 2027.
Why should you care? Because earnings are basically the engine that makes stock prices go vroom. Companies making more money = investors getting excited = stock prices going up. It’s not rocket science, but Wall Street loves to make it sound complicated.
Wilson’s betting on a few things driving this earnings party: companies getting more efficient (thanks, AI), friendly tax policies, and businesses having more pricing power. Translation: companies can charge more for their stuff without customers running away screaming.
Where to Put Your Money
Here’s where it gets interesting for us regular humans with investment accounts. Morgan Stanley thinks small-cap stocks are about to have their moment. The Russell 2000 has been the sad kid at the lunch table this year, up only 5.8% while the S&P 500 partied its way to 13% gains.
But small caps might finally get their revenge tour in 2026. Wilson’s team also likes:
Financials: Lower interest rates and more merger activity should make banks and financial companies happy campers.
Healthcare: Rate cuts, reasonable valuations, and M&A action. Plus, biotech tends to do well 6-12 months after the Fed starts cutting rates. It’s like a delayed reaction, but in a good way.
Industrials: Because someone has to build all the stuff the economy needs.
The Reality Check
Look, predicting where the market goes is basically professional fortune telling with better suits and fancier charts. But Morgan Stanley’s track record isn’t terrible, and their reasoning makes sense: strong earnings growth, reasonable valuations (despite what your Twitter feed says), and economic conditions that don’t completely suck.
The S&P 500 has averaged 19% returns over the past three years. If Wilson’s right, we might see another solid year ahead. If he’s wrong? Well, at least we’ll all be wrong together.
Bottom line: Don’t bet the farm on any single prediction, but this one’s worth paying attention to. Especially if you’ve been sleeping on small caps and healthcare stocks.