Morgan Stanley Predicts S&P 500 Rally, Says Three Catalysts To Drive Next Leg Up: Report

Morgan Stanley chief investment officer Mike Wilson is reportedly predicting that US stocks are not done rallying in 2025.

Wilson says in a note to investors that the S&P 500 will likely continue putting up gains for the remainder of the year, reports Investing.com.

He believes that the Federal Reserve will cut rates, adding liquidity to the market, and company earnings will exceed expectations, sending stocks higher.

“Equity markets have been resilient since bottoming in April, and the rally has been more fundamentally driven than many appreciate…

We remain bullish on a six-to-12-month horizon as EPS (earnings per share) tailwinds expand, and the market has line of sight to Fed cuts.”

Wilson says a third catalyst behind a likely continued stock market rally is the decline in broader policy and geopolitical risks.

One metric Wilson uses to predict a bullish market is the earnings revisions breadth, or the proportion of analysts who have raised their estimates minus the proportion who have lowered them.

The earnings revisions breadth has increased from a low of -25% in April to -5% currently, providing “fundamental justification” for equity growth, Wilson says. He adds that similar changes in the past have resulted in stronger earnings.

“This series leads EPS surprise.”

Wilson also says that stocks will likely trade higher ahead of expected Fed rate cuts later this year.

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