Copyright © BusinessAMBE 2023

Key takeaways

  • Morgan Stanley expects the S&P 500 to reach 7,800 points over the next twelve months.
  • Bond markets should see an initial uptick in the first half of 2026 as central banks cut interest rates, followed by small increases towards the end of the year.
  • Financing for AI infrastructure is likely to be a major theme on credit markets in 2026.

After a tumultuous 2025 marked by political and economic uncertainty, Morgan Stanley is forecasting much brighter prospects for 2026, especially for riskier assets such as U.S. equities. The investment bank predicts that the S&P 500 will reach 7,800 points over the next twelve months, a 14 percent rise from its current level.

Drivers of optimism

The upbeat outlook for U.S. stocks is driven by a number of factors, including a favorable mix of fiscal and monetary policy, expected interest-rate cuts by the Federal Reserve (Fed), tax benefits for companies under the “One Big Beautiful Act,” and efficiency gains thanks to artificial intelligence (AI).

Serena Tang, Chief Global Cross-Asset Strategist at Morgan Stanley, points to the unique synergy between fiscal policy, monetary policy and deregulation, something rarely seen outside of a recessionary period.

Bond market

While U.S. equities are expected to outperform their global peers, the outlook for bond markets is more nuanced. In the first half of 2026, government bonds are expected to see an upswing as central banks move to cut interest rates.

Yields on ten-year U.S. Treasuries should fall through mid-year and then edge slightly above 4 percent by year-end. Similar but less pronounced trends are expected in the eurozone and the United Kingdom.

Currency forecasts

The U.S. dollar, which lost more than 10 percent against other major currencies in the first half of 2025, could initially depreciate further, but is expected to recover in the second quarter, bringing an end to the bear-market phase.

European currencies, which have been among the stronger performers in the G10 space in 2025, could lose momentum if the European Central Bank and the Bank of England continue cutting interest rates.

Credit market

Financing for AI infrastructure is expected to be a key theme in credit markets in 2026. With less than 20 percent of the estimated 3 trillion dollars (around 2.6 trillion euros) in data center investments made so far, a larger wave of bond issuance in the technology sector could widen spreads on U.S. investment-grade bonds. High-yield bonds, however, could fare better thanks to their lower exposure to the surge in AI-related issuance.

Mergers and acquisitions should also give the credit market a boost. Morgan Stanley projects deal volume growth of 32 percent in 2025, followed by 20 percent in 2026 and 15 percent in 2027. As for commodities, the bank favors gold and industrial metals such as copper and aluminum over energy sources. The price of Brent crude oil is expected to hover around 60 dollars a barrel, due to weak demand and rising supply. (jv)

Follow Business AM on Google News as well

Want access to all articles? For a limited time, take advantage of our promo and subscribe here!

https://tce.exchange/a/c0_Y2FoVTHWZSdYdBJgSIg1d0773cb.R8uKPyo8RtefYHNDtrq-kQ/morgan-stanley-1.jpg"/>

© The Content Exchange, source News