After a turbulent 2025 defined by political volatility and economic uncertainty, Morgan Stanley (MS) is striking a notably optimistic tone for 2026. In a newly published outlook, the investment bank forecasts a strong rebound for risk assets, led by U.S. equities, with the S&P 500 (SPX) projected to climb to 7,800 points over the next twelve months—roughly a 15% gain from current levels.
Claim 70% Off TipRanks Premium
- Unlock hedge fund-level data and powerful investing tools for smarter, sharper decisions
- Stay ahead of the market with the latest news and analysis and maximize your portfolio's potential
The bank’s confidence rests on a rare alignment of supportive forces. According to Serena Tang, Chief Global Cross-Asset Strategist at Morgan Stanley, the combination of fiscal stimulus, monetary easing, and deregulation has created a policy mix seldom seen outside recessionary recoveries. Expected interest-rate cuts by the Federal Reserve, alongside tax incentives embedded in the “One Big Beautiful Act,” are anticipated to bolster corporate profitability. This is further compounded by the accelerating impact of artificial intelligence, which Morgan Stanley believes will deliver meaningful efficiency gains across multiple sectors.
While equities are expected to outperform global peers, the bond market outlook is more nuanced. Government bonds could rally in the first half of 2026 as central banks begin to ease their monetary policies. However, yields on 10-year U.S. Treasuries are forecast to bottom out mid-year, then drift slightly above 4% by year-end. Similar, though less pronounced, patterns are expected in both the EU and the UK.
Currency markets may also see shifting dynamics. The U.S. dollar, after losing more than 10% against major currencies in early 2025, could weaken further before stabilizing and recovering in the second quarter of 2026. European currencies, strong performers in 2025, may lose momentum if rate cuts by the ECB and Bank of England persist, as many analysts expect.
A dominant theme in credit markets will be financing for AI infrastructure. With less than 20% of an estimated $3 trillion in data center investment completed, Morgan Stanley expects a surge in bond issuance by technology firms such as Alphabet (GOOGL) and Microsoft (MSFT). This could widen spreads in U.S. investment-grade credit, while high-yield bonds may prove more resilient due to lower exposure.
The bullish macro outlook is reinforced by Morgan Stanley’s own performance. The firm recently reported record revenues of $18.2 billion, client assets of $8.9 trillion, and a return on tangible common equity of 23.5%. Continued growth in wealth management, recovering investment banking activity, and expanding AI-driven platforms underscore why the bank sees 2026 as a year of renewed opportunity—tempered only by lingering regulatory and geopolitical risks.
