Stock Market Outlook: A Bullish Stance
The past two years have been remarkable for the stock market, with the S&P 500 experiencing a 24% gain last year and another 23% appreciation so far this year. Morgan Stanley has finally jumped on the bandwagon, upgrading its rating on U.S. stocks to overweight and targeting 6,500 by the end of 2025.
Valuations: Rich but Justified
The firm acknowledges that valuations are richer than they used to be, but argues that this is justified given the market’s growing certainty about fundamentals. In fact, Morgan Stanley expects the multiple on 12 months forward earnings to contract only slightly, to 21.5 from 22.2, remaining at a premium to the 10-year average.
Earnings Growth Expectations
The firm anticipates 13% earnings per share growth in 2025 and another 12% gain for 2026, driven by the Fed’s expected rate cuts and improving business cycle indicators. A potential rise in corporate confidence post-election could also catalyze a more balanced earnings profile across the market.
U.S. Exceptionalism
Morgan Stanley believes that U.S. exceptionalism will continue, driven by the country’s strong fundamentals and accommodative monetary policy. The firm is also bullish on Japanese equities, but has lowered its rating on European stocks to neutral due to tariff risks and exposure to China.
Market Expectations
The firm expects the 10-year Treasury yield to fall to 3.55%, down from its previous call of 3.75%. It also targets $66 per barrel for Brent crude oil and limited upside for gold, targeting $2,600 an ounce by the end of 2025.
Asset Performance
U.S. stock futures were mixed after the worst week for the S&P 500 in two months, while gold rose and Treasury yields increased. The S&P 500 has gained 23.08% year-to-date, with the Nasdaq Composite up 24.44%.
Other Market News
Tesla’s stock jumped on reports of a framework for self-driving cars being a priority for Trump. Nvidia’s stock was lower due to supply issues with its new chip. Netflix will be in the spotlight after a highly watched but glitchy Jake Paul vs. Mike Tyson fight. Spirit Airlines filed for bankruptcy protection.
Economic Indicators
The Labor Department’s report on state-by-state payrolls data will be closely watched, providing insights into how much of October’s weakness was linked to hurricanes and how much was due to underlying labor-market conditions.
Markets in Focus
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