Morgan Stanley says a fresh growth cycle is coming to carry stocks higher in 2026. The bank pointed to under-the-radar signs of economic growth, like rising copper prices. Strategists forecast the S&P 500 to rise 13% in 2026, one of the most bullish calls on Wall Street. The US stock market is heading for another big growth spurt. That may seem hard to believe given how high stocks have climbed in the last three years, but the market is flashing a handful of signs it's headed for a new growth cyc ...

Core Insights - A top Wall Street analyst suggests that the current earnings season validates the thesis of a "rolling recovery" in the economy, indicating that the "rolling recession" is retreating into the past [1][2] Group 1: Economic Context - The U.S. private sector has experienced a "rolling recession" during the pandemic, characterized by a prolonged downturn that did not reflect in headline GDP but affected hiring, earnings, and confidence [2] - The current earnings season shows revenue "beat" rates more than double historical averages, with median stock earnings growth reaching its fastest pace since 2021 [2] - The S&P 500's collective revenue surprise stands at 2.3%, compared to a historical norm of 1.1%, indicating stabilization and firming top-line momentum [2] Group 2: Earnings Recovery - The third quarter of 2023 marks the end of one of the longest earnings recessions on record, with median stock earnings growth among the Russell 3000 hitting 11%, up from 6% in the previous quarter [3] - Earnings revisions made a "V-shaped" recovery in April, which is seen as an inflection point for the economic cycle [3] Group 3: Cost Structures and Profitability - Companies have significantly leaner cost structures due to rightsizing during the downturn, with wage expenses decreasing in growth rate terms [4] - The reduction in excess labor costs during the rolling recession has aligned wage expenses with profitability, positioning businesses to benefit from top-line improvements [4] - A slight firming in top-line performance and pricing power is expected to lead to greater bottom-line leverage due to restrained costs [4]

Core Viewpoint - The U.S. economy is experiencing a "rolling recovery" despite current market volatility and investor skepticism, with potential for an economic boom in various sectors over the next six to twelve months [1][2]. Economic Outlook - Morgan Stanley's chief equity analyst, Mike Wilson, has shifted from a "rolling recession" perspective to a "rolling recovery" since April, indicating an early-stage economic boom [1]. - The economy has consistently surprised positively throughout 2025, despite warnings from skeptics regarding tariffs and macroeconomic uncertainties [2]. Earnings Performance - Third-quarter earnings have raised some concerns for Wilson, as investors are jittery and companies are not significantly raising guidance, reflecting a cautious outlook [2]. - The financial sector's earnings season has begun with total EPS surprises averaging almost 6%, which is above historical norms, yet the market's reaction has been muted [3]. Market Sentiment - Despite companies beating earnings expectations, investor confidence remains low, particularly in economically sensitive sectors like regional banks and capital goods [3]. - Wilson notes that unresolved risks are weighing heavily on traders' minds, contributing to a choppy market environment [2]. Future Catalysts - Potential catalysts for a powerful upswing in equities include de-escalation of trade tensions, stabilization of EPS revisions, and improved liquidity [2]. - Upcoming policy developments, such as anticipated trade negotiations at the APEC summit, are viewed as potential positive influences on the market [2]. Risks and Corrections - Wilson remains cautious about the possibility of a near-term correction in the stock market, citing recent credit market stress and scrutiny of regional banks following unexpected credit losses [2].

Group 1 - Morgan Stanley projects the S&P 500 to reach 7,200 by mid-2026, indicating a 12% increase from the last close of 6,389 [1] - The bullish outlook is supported by favorable economic factors, including a "rolling recovery" environment, improved operating leverage, AI adoption, a weakening U.S. dollar, and tax savings from the Inflation Reduction Act [2][4] - Anticipated interest rate cuts by the Federal Reserve in early 2026 and easing year-over-year growth comparisons further bolster the positive outlook [3] Group 2 - Oppenheimer raised its year-end S&P 500 target to 7,100 from 5,950, citing robust corporate earnings and favorable macroeconomic conditions [5] - Other institutions have also revised their forecasts upward, including BMO (6,700), Goldman Sachs (6,600), and Bank of America (6,300) [5] - Despite the bullish sentiment from many firms, Evercore ISI and HSBC remain cautious with the lowest targets at 5,600 [7]