Reflecting an 11% gain from current levels, Morgan Stanley (MS, Financial) has raised its base-case estimate for the S&P 500 (SP500) to 6,500 by the end of 2025.
Chief U.S. equities strategist Michael Wilson of Morgan Stanley notes that the raised target reflects expectations of widening bottom-line growth, better business cycle signs, and Federal Reserve rate reductions projected next year. Based on a 12-month ahead earnings per share projection of $303, the new objective takes a 21.5x price-to-earnings multiple.
Wilson, in a client note, wrote, "We expect the recent broadening in earnings growth to continue in 2025 as the Fed lowers rates and business conditions improve." He also mentioned that post-election corporate confidence, which matches the atmosphere following the 2016 election, might help to increase profitability in a variety of sectors.
Wilson pointed to dangers from policy changes, interest rate changes, and geopolitical uncertainty while stressing possible deregulation advantages under Donald Trump's presidency. While its most optimistic projection places the index at 7,400, a 26% increase, Morgan Stanley's negative scenario forecasts the index may drop 22% to 4,600.
With reference to tariff risks and limited pricing power, Morgan Stanley advises overweighting financials (XLF) in sector preferences while underweighting consumer discretionary and basics (XLP). This study combines ideas from Morgan Stanley's revised view with Michael Wilson's most recent report.
