Morgan Stanley continues to be bullish on U.S. stocks: Strong earnings outlook, recommends buying on dips

According to Zhitong Finance APP, Morgan Stanley strategist Michael Wilson stated on Monday that investors should take advantage of the sell-off in the U.S. stock market to buy, given the strong corporate earnings outlook for the coming year.

In his report, Wilson wrote that although the S&P 500 index faces pressures from a weak labor market and tariff-related inflation, which may delay the Federal Reserve's rate cuts, investors should view any pullbacks as buying opportunities.

Wilson stated, "As our analysis of the breadth of earnings revisions shows, a sustained recovery has already begun. Although the Federal Reserve is currently keeping interest rates unchanged, a weakening inflation momentum and a weak labor market later this year should lead to a strong rate-cutting cycle."

The record rally in the U.S. stock market came to a halt last week, with the S&P 500 index first hitting a historic high for six consecutive trading days, followed by four days of declines. Last Friday, the stock market fell in response to data showing a slowdown in U.S. job growth, an increase in the unemployment rate, and a series of tariffs imposed by U.S. President Donald Trump on trade partners.

Economic concerns intensified, with the S&P 500 index experiencing its largest single-day drop since May.

On a positive note, the performance of the second-quarter earnings season far exceeded expectations. According to data compiled by Bloomberg Intelligence, S&P 500 constituent companies are expected to achieve a 9.1% profit growth, significantly higher than the 2.8% anticipated by analysts. The proportion of companies exceeding expectations also reached its highest level in four years.

Goldman Sachs strategist David Kostin noted that corporate executives seem confident in their ability to mitigate the impact of tariffs on profits. He stated that although the pressure from tariffs on revenue growth should increase in the second half of the year, the earnings of large tech stocks and fiscal policies in 2026 should support the stock market.

Morgan Stanley's Wilson indicated that the widespread application of artificial intelligence, a weakening dollar, and tax cuts will provide a boost to the stock market. This strategist is one of the most pessimistic individuals regarding the U.S. stock market before mid-2024.

The Morgan Stanley strategist team led by Wilson earlier reiterated that the upward revision of corporate earnings has begun, and they are more inclined towards a bullish scenario for the S&P 500 index with a target of 7200 points