Prominent Wall Street bear Wilson sets bullish target for US stocks

(Bloomberg) — Morgan Stanley strategist Michael Wilson, known for his bearish views on U.S. stocks in recent years, has a downright bullish outlook for 2025.

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The strategist expects the S&P 500 to end next year around the 6,500 level, up 11% from Friday’s close, with gains driven by improving economic growth and further interest rate cuts by the Federal Reserve. He previously had a target of 5,400 for the benchmark by mid-2025.

“US valuations are rich, but this is helped by better macroeconomic policies in the US, possible future US tariff policies that are more negative for growth in the rest of the world, and an ‘animal spirit’ that means the rally broadens,” Morgan Stanley strategists wrote in a note. Deregulation under Donald Trump’s administration will also benefit American companies, although the impact of other potential policies is unclear, he said.

After correctly predicting the stock sell-off in 2022, Wilson had a bearish outlook for 2023 as markets recovered. He eventually relented and raised his target for the S&P 500 earlier this year, saying the benchmark could reach as high as 6,100 by the end of 2024.

US stocks are already up more than 50% since the start of 2023, boosted by the frenzy surrounding artificial intelligence developments, a surprisingly resilient economy and interest rate cuts.

“We expect this expansion in earnings growth to continue as the Fed cuts rates next year and cyclical indicators continue to improve,” Wilson wrote in Morgan Stanley’s 2025 outlook.

The implementation of Trump’s economic agenda could further support sentiment, although Wilson recommended that investors remain vigilant in their sector and stock selection given the lack of visibility on the impact of policies on immigration, trade, deregulation and government spending.

Post-election uncertainty has also led strategists to adopt a wider-than-normal range of outcomes for stocks. In their worst-case scenario, the S&P would fall 22% to 4,600 points, while in the most bullish case the index would rise 26% to 7,400 points.

The bank expects the US stock market to continue to outperform the rest of the world, especially Europe, where Morgan Stanley strategists have downgraded their rating to neutral. The MSCI Europe index moves within the bandwidth until there is more insight into US policy, such as trade tariffs.

At Goldman Sachs Group Inc. Strategists led by Peter Oppenheimer said today that they forecast total global equity returns of 10% in dollar terms through the end of 2025.

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