Morgan Stanley’s chief investment officer, Mike Wilson, sees a meaningful rotation back into U.S. stocks. He spotlights a specific group, the “Mag Seven,” as a potential winner. “It started out with a low-quality rally, which is what we expect – meaning a short squeeze,” Wilson told the media on Monday.
“Then, we noticed that the revision factors on the Mag Seven are actually starting to stabilize a bit.”
The Mag Seven includes high-performing tech stocks such as Tesla. Wilson pointed out that the electric vehicle maker registered significant gains in Monday’s rally. However, Wilson suggests a narrow window for gains.
Stronger seasonals, lower rates, and oversold momentum indicators support our call for a tradeable rally from around 5,500,” he wrote. Despite his optimism, Wilson won’t rule out the possibility of new lows for the year. Whatever rally we’re getting now, we think will probably fade into earnings season, into May and June,” he added.
Stock rally prediction by Morgan Stanley
According to Wilson, the market weakness is mostly tied to fundamentals and technicals. “The reason the markets have been lower over the last three or four months has nothing to do with tariffs,” said Wilson.
It’s mostly to do with the fact that earnings revisions have rolled over, the Fed stopped cutting rates, and you had stricter enforcement on immigration.
Wilson’s year-end target for the S&P 500 is 6,500, which implies a nearly 13% gain from Monday’s close. “Could we make a new high in the year’s second half as people look forward to 2026? Yeah,” Wilson said.
According to Morgan Stanley strategists, a weaker dollar may improve the earnings outlook for U.S. stocks, potentially reversing the significant rotation in global markets that has been underway since the start of the year. Investors have significantly reduced their holdings of U.S. stocks while increasing their allocations to European stocks. However, Wilson notes signs of a shift in this trend already emerging.
The Morgan Stanley team sees the potential for a “tradeable rally” in the S&P 500 from around 5,500. They believe oversold momentum indicators, stronger seasonal performance, and quarter-end flows would support a rebound, though volatility is expected to persist.
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