Despite uncertainties such as escalating trade tensions and the risk of a government shutdown impacting the U.S. stock market this year, Wall Street institutions, represented by Morgan Stanley (MS), maintain their bullish stance on equities. These institutions generally believe that strong corporate earnings growth will be the core driver propelling the market towards 2026, while current uncertainties regarding interest rate prospects and policy disruptions are merely short-term headwinds. Morgan Stanley strategist Michael Wilson pointed out that there are “clear signs” of a recovery in corporate profits, with U.S. companies enjoying improved pricing power. He particularly noted that earnings estimate revisions have bottomed out and rebounded, marking a critical inflection point in the trend of analysts downgrading expectations. In his research report, Wilson emphasized that although the Federal Reserve’s policy guidance and the risk of a government shutdown are putting pressure on near-term stock prices, these are only temporary obstacles on the path to a robust market driven by earnings growth through 2026.
The performance during this corporate earnings season has far exceeded market expectations. According to data, S&P 500 index constituent companies achieved nearly 15% profit growth in the third quarter. Against this backdrop, strategists from several investment banks expect technology companies to once again be the main engine of U.S. corporate profit growth next year. Strategists at UBS Group AG even predict that the S&P 500 index could reach a record high of 7500 points by the end of 2026, implying over 11% upside from current levels. This optimistic outlook is supported by various indicators. An index compiled by Citigroup shows that since mid-October, the number of analysts raising earnings expectations has outnumbered those lowering them. Market focus has now shifted to the upcoming earnings report from NVIDIA (NVDA), with investors hoping to find key clues about the development trend of artificial intelligence from its financial results. John Stoltzfus, a strategist at Oppenheimer Asset Management, also supports this view, believing it is too early to “give up” on the prospects of chip manufacturers and the AI industry. He suggests that the current stock price weakness reflected by the major indices is more akin to “pruning” or “fine-tuning” rather than the beginning of a more severe downturn.
Despite short-term challenges, such as Federal Reserve Chairman Powell’s cautious stance on the interest rate outlook dampening market sentiment, coupled with trade tensions and potential government shutdowns putting pressure on stocks, bullish institutions maintain a relatively optimistic stance. Strategist Wilson consistently maintains that fundamental factors will ultimately dominate market direction. The fact that the S&P 500 index has accumulated a 14% gain this year and is on track for a third consecutive annual increase also provides evidence of the market’s resilience. Overall, the consensus on Wall Street is that the continuous improvement in corporate fundamentals, particularly the strong recovery in profitability, is sufficient to offset the impact of short-term policy fluctuations and lay a solid foundation for stock market gains through 2026.
