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Morgan Stanley (MS+0.97%) is optimistic about the S&P 500 index in 2025, raising its base case projection to 6,500. This represents growth of nearly 11% from current levels, reflecting the positivity about the market’s trajectory.
The upgrade is underpinned by Morgan Stanley’s confidence in sustained earnings growth and a supportive monetary policy backdrop, which it sees as key drivers of market performance. The firm’s outlook projects mid-single-digit revenue growth paired with margin expansion, culminating in robust earnings per share (EPS) growth forecasts of 13% for 2025 and 12% for 2026. These factors highlight the Wall Street giant’s belief in the resilience of corporate profitability amid a favorable economic environment.
“Looking forward to 2025, we think it will continue to be important for investors to remain nimble around market leadership changes, particularly given the potential uncertainty that the recent election outcome introduces,” strategists led by Michael J. Wilson said in a note.
“This is also a reason why we are maintaining a wider than normal bull versus bear case skew—base case: 6,500; bull case 7,400; bear case 4,600.” he continued.
2025 might see more Fed rate cuts
Morgan Stanley analysts anticipate additional interest rate cuts from the Federal Reserve in 2025, which they believe could provide further support for economic growth and market stability. Additionally, the analysts highlight that the recent election outcome might ignite a resurgence in corporate “animal spirits,” akin to the surge in business optimism observed after the 2016 election.
“We expect the recent broadening in earnings growth to continue in 2025 as the Fed cuts rates into next year and business cycle indicators continue to improve,” analysts said in a note.
This renewed confidence could foster increased capital investment and risk-taking among businesses, driving a more evenly distributed earnings recovery across various sectors of the market.
Trump 2.0 might be different
In 2025, much of the market’s focus will be on how Donald Trump navigates the start of his second tenure. While President Trump is a familiar figure, analysts at Morgan Stanley emphasize that his second term could diverge significantly from his first, owing to his new cabinet appointments and the distinct dynamics of a second, and final, administration.
Morgan Stanley analysts expect notable policy shifts compared to the outgoing administration and Congress. These could include a broader scope for tariff implementation and stricter immigration enforcement. However, they point to a potentially more transformative—and harder to quantify—change: an aggressive push for cost-cutting measures in federal spending.
One key initiative under consideration is the proposed creation of a new Department of Government Efficiency (DOGE). If established, analysts noted that this department would carry a formal mandate to tackle one of the country’s most persistent challenges: sustainably reducing budget deficits.