Morgan Stanley raised its 12-month target price for the S&P 500 to 8,300, primarily driven by strong corporate earnings. The new target represents a potential rise of more than 12% from current levels.
The bank’s equity strategy team, led by Michael Wilson, forecasts earnings per share of $339 for 2026, representing 23% growth, followed by $380 in 2027 and $429 in 2028.
The $8,300 target is based on a 20.50x multiple of future earnings of $404 per share, and the bank also raised its year-end 2026 target to $8,000 from a previous $7,800.
The strategists wrote: Our positive outlook on the index is linked to the earnings story, not to the expansion of valuation multiples.
They cited first-quarter results as evidence of broadly resilient earnings, noting that the average S&P 500 stock posted a positive surprise in earnings per share of 6% during the quarter, the strongest in four years.
Earnings revisions for the index also accelerated to 22%, compared to 5% at the start of the earnings season. Morgan Stanley also noted that forward earnings per share growth for the average S&P 1500 stock rose to 12% from 8% at the beginning of the year.
Strategists described the recent market correction — which saw the S&P 500 fall less than 10% on a price basis to its March lows — as healthy rather than alarming.
They wrote: Nearly half of the stocks in the broader market (Russell 3000) have seen declines of 20% or more, and the S&P's price-to-earnings forward multiple has shrunk 18% from its peak, while forward earnings have continued to rise even during the period of tension.
The team added: This is not relaxation in our view, but rather a market that has done a great deal of work to price in the numerous risks that have emerged over the past six months, including tensions with Iran, concerns about AI disruption, and private credit pressures.
Regarding monetary policy, the strategists said that achieving Morgan Stanley's multiplier target of 20.50 times does not necessitate a reduction in interest rates, which is a slight contraction from the current level of 21.20 times.
The bank's retrospective tests show that multiple expansion is uncommon when the Federal Reserve keeps interest rates unchanged and earnings growth is strong, but price returns tend to be robust nonetheless. The note noted that the median historical performance in these earlier periods was 14%.
Therefore, the rise in pricing power driven by the recovery in demand is supportive for stocks, as long as it does not lead to an interest rate-hiking cycle by the Federal Reserve — which Morgan Stanley has confirmed is not its expectation for the next twelve months.
The major financial institution favors the industrial, financial services, and discretionary consumer goods sectors, and continues to view large technology companies (hyperscalers) as attractive relative values given their strong future earnings and unburdened valuations. The bank also upgraded the healthcare sector to neutral weight.
Small-cap stocks were kept at a neutral weight compared to large-cap stocks, as monetary policy is expected to be less accommodative than previously anticipated.
