Morgan Stanley Forecasts S&P 500 to Rise Amid Economic Recovery
New York, Monday, 17 November 2025.
Morgan Stanley predicts a 16% rise in the S&P 500 over the next year, driven by a ‘rolling recovery’ in the U.S. economy and supportive inflation dynamics.
Economic Recovery and Inflation Dynamics
Morgan Stanley has revised its forecast for the S&P 500, predicting a 16% rise over the next year, with a target of 7,800 by the end of 2026. This optimistic outlook is attributed to a ‘rolling recovery’ in the U.S. economy along with a fresh inflationary regime. The investment bank suggests that this new inflationary environment will buoy the stock market, as policymakers appear willing to tolerate slightly higher inflation to support economic growth [1].
Market Conditions and Investor Sentiment
The current market sentiment is influenced by mixed conditions, with recent fluctuations in the S&P 500 reflecting investor responses to Federal Reserve commentary and economic data delays due to a government shutdown that ended on November 12, 2025. These factors have kept the market in a state of cautious optimism, as evidenced by the S&P 500 recently testing its 50-day Simple Moving Average [2].
Corporate Earnings and Sector Performance
Corporate earnings have played a significant role in sustaining market optimism, with 82% of S&P 500 companies surpassing earnings estimates for Q3 2025. This strong performance suggests a robust earnings cycle, particularly in sectors such as healthcare, consumer staples, and energy, which have gained ground despite the tech sector’s relative weakness [1][3].
Implications for Investors
For investors, Morgan Stanley recommends overweighting small-cap, cyclical, financial, industrial, and healthcare stocks to capitalize on the predicted market uptrend. The bank’s analysis indicates that these areas are poised to benefit from the ongoing economic recovery and resilient corporate earnings, which are expected to continue driving market growth into 2026 [1].