S&P 500 now more likely to reach 7,200 next year, according to Morgan Stanley’s Wilson

The new highs keep coming. Futures early Monday showed the S&P 500 on course for its 15th record of 2025. Tariff deals at levels that eight months ago would have been considered economically damaging are now welcomed by investors.

And many analysts are embracing the optimism. Mike Wilson, Morgan Stanley’s chief stock-market strategist, says he now is leaning more toward his bull case for the S&P 500 SPX, in a new note that published Monday.

That’s 7,200 for the Wall Street benchmark in 12 months’ time, based on earnings per share of $319 and a forward share price–to–earnings multiple of 22.5.

Wilson says this view is grounded on a more resilient earnings and cash flow backdrop than previously expected, an improvement driven in part by AI adoption, dollar weakness, cash tax savings from the Trump administration’s One Big Beautiful Bill Act and pent-up demand for many sectors in the market.

Also, many parts of the stock market will benefit from easier growth comparisons, having experienced what Wilson terms “rolling earnings recessions for the better part of the last 3 years.”

And with private-sector wage growth in decline for the last several years — and AI adoption accelerating the phenomenon — this positive operating leverage should see profit margins expand. All told, earnings revision breadth has improved considerably in recent months, he says.

The high probability of Federal Reserve rate cuts in the first quarter of 2026 will also be a boon for stocks.

Indeed, the likelihood of easier monetary policy is one reason Wilson is comfortable with applying the historically high 22.5 multiple.

“On that score, our regime analysis shows that when EPS growth is above the long-term median and the fed-funds rate is down on a year-over-year basis (our house views by mid-2026), the market multiple expands 90% of the time,” Wilson says.

With regard to tariffs, he acknowledges they may be a problem for consumer-goods companies, in which he suggests investors should be underweight. But overall the “rate of change on policy uncertainty peaked back in April as stocks troughed.”

Wilson’s favored sector is industrials, even though he notes it’s already the best performing in the S&P 500 to date in 2025 and over the last month. “Relative earnings revisions remain durable, capacity utilization is stabilizing, and aggregate C&I [commercial and industrial] loans have surpassed $2.8 trillion (the highest level since 2020),” he writes.