(Bloomberg) -- US equities are likely to drive the global rally in the coming months on an improving corporate earnings outlook and a weaker dollar, according to cross-asset strategists at Morgan Stanley.
The team led by Serena Tang turned overweight on US stocks and Treasuries, while remaining constructive on corporate credit. Equities will benefit from expected Federal Reserve interest rate cuts and lower odds of a recession, they said.
“TINA – ‘there is no alternative’ – remains a theme for now,” Tang wrote in a note dated May 20. US assets “are – if not simply the best, nor better than all the rest – THE market which will attract the bulk of flows,” she said.
The strategists pushed forward their year-end S&P 500 target of 6,500 points to mid-2026. While that’s 9% higher than current levels, it implies gains for stocks are only likely to go so far. The estimate also matches the average 12-month price target issued by sell-side analysts.
US stocks have rallied in recent weeks, reversing the “Sell America” trade that gripped markets when President Donald Trump embarked on his trade war. The S&P 500 recouped its 2025 declines after Washington announced a temporary tariff truce with Beijing last week. Technology stocks are back in favor, pushing the tech-heavy Nasdaq 100 into so-called overbought territory.
Other Wall Street strategists have also turned more optimistic on stocks as recession fears fade. Goldman Sachs Groups Inc. strategist David Kostin raised his 12-month target for the benchmark index to 6,500 earlier in May, although he warned that pricing was already looking optimistic given lingering uncertainties.
The S&P 500 remains a laggard compared with international peers this year.
The Morgan Stanley strategists said that while market volatility could remain high as trade negotiations progress, the risk-reward setup is likely to favor US stocks and stay neutral for Europe. The outlook for emerging markets and Japan is tilted to the downside, they said.
The team sees range-bound Treasury yields until the final quarter of this year, when it expects investors to price in more US rate cuts for 2026. That’s likely to push the 10-year yield down to 3.45% by the second quarter of next year, they said. Meanwhile, they see the dollar continuing to weaken as the economic growth premium relative to peers fades and the yield gap with other countries narrows.
(Updates throughout)