Morgan Stanley keeps its bullish outlook for US stocks

On Monday, Morgan Stanley strategists led by Michael Wilson reiterated their bullish stance on US equities, citing strong earnings growth.

However, they said a moderate pullback is expected in the third quarter. Also, seasonal trends could affect stocks between mid-July and August. Falling stocks, they noted, suggest a buying opportunity.

According to Morgan Stanley's bullish scenario, the S&P 500 will reach 7,200 points by the middle of next year. In May, the company's strategists predicted the S&P 500 would rise to 6,500 points in the second quarter of 2026.

However, according to experts at the brokerage firm, rising Treasury bond yields, especially those of 10-year Treasuries, could increase the equities’ rate sensitivity and cause their underperformance.

Morgan Stanley also expects cost pressures related to Donald Trump's tariffs to manifest later this year. This could affect corporate margins and exacerbate inflation, leading to a revision in expectations of rate cuts by the Federal Reserve. Nevertheless, they consider the aforementioned risks temporary and recommend buying stocks on drawdown.