- Morgan Stanley (MS) forecasts a rebound in US assets, projecting the S&P 500 (SPY) to reach 6,500 by Q2 2026, driven by Fed rate cuts, a weaker dollar, and AI-driven efficiency gains.
- The 10-year Treasury yield, after a recent 10 basis point spike, is expected to stabilize and fall to 3.45% by mid-2026 as markets anticipate rate cuts.
- Despite short-term deficit concerns, strong foreign demand for US bonds and stable equity fund allocations counter fears of a sustained retreat from US markets.
Investors have been rattled by concerns over a new spending bill and its potential to widen the federal deficit, prompting a sell-off in US assets. The S&P 500 (SPY) has declined roughly 1% over the past two days, while the 10-year Treasury yield has surged by 10 basis points in just four days, reflecting downward pressure on bond prices. Despite this turbulence, strategists at Morgan Stanley (MS) – as reported by Business Insider – remain optimistic about the resilience of US stocks and bonds, forecasting a rebound and outperformance compared to global markets over the next year.
Morgan Stanley’s confidence stems from a lack of compelling alternatives to US assets, a concept encapsulated by the phrase “TINA — there is no alternative.” The strategists argue that foreign investors are unlikely to significantly abandon US markets, as evidenced by robust demand for US dollar-denominated bonds. Foreign holdings of these bonds have reached an all-time high, underscoring sustained interest in high-quality US assets. This trend counters fears of a structural retreat from US markets, which briefly surfaced during tariff-related uncertainty in April.
For US equities, Morgan Stanley projects the S&P 500 (SPY) will climb to 6,500 by the second quarter of 2026, implying a 12.5% gain from its current level of approximately 5,775. According to the report this bullish outlook hinges on several factors: anticipated Federal Reserve rate cuts in 2026, a weakening US dollar, and growing recognition of efficiency gains driven by artificial intelligence. The firm also notes that easing trade tensions have eliminated the most severe downside risks, reducing the likelihood of the S&P 500 retesting its April lows. A supportive policy environment and seven expected rate cuts in 2026 are projected to lift valuations above historical averages, even as volatility persists over the next two quarters.
On the fixed-income side, Morgan Stanley views the recent spike in the 10-year Treasury yield as a short-term phenomenon. The bank anticipates yields will stabilize in a range until the fourth quarter of 2025, before declining to 3.45% by mid-2026 as markets begin pricing in rate cuts. This outlook challenges the narrative of a sustained sell-off in US bonds, with strategists pointing to steady global demand for US debt. Global equity funds have not significantly reduced their US exposure beyond routine index weight adjustments, further supporting the case for resilience in US markets.
The broader context reinforces Morgan Stanley’s perspective. The US economy has demonstrated relative strength compared to other developed markets, and the Federal Reserve’s ability to navigate inflation and growth through monetary policy adjustments remains a key driver of investor confidence. While deficit concerns and legislative uncertainties have sparked short-term market jitters, the structural advantages of US assets – such as deep liquidity, robust corporate earnings, and a stable currency – continue to attract global capital. Morgan Stanley’s analysis suggests that these factors, combined with favorable policy developments, will underpin a recovery in both stocks and bonds over the coming year, positioning US markets to outperform their international counterparts.
WallStreetPit does not provide investment advice. All rights reserved.
- Bulenox: Get 83% OFF ... Use Discount Code: JJT3A
- Risk Our Money Not Yours | Get 50% to 90% OFF ... Use Discount Code: MMBVBKSM
Disclaimer: This page contains affiliate links. If you choose to make a purchase after clicking a link, we may receive a commission at no additional cost to you. Thank you for your support!
Leave a Reply