"S&P500 to Reach 6500 by End of Next Year" vs "Up to 10% Decline"... Divergent US Stock Market Forecasts

Morgan Stanley "S&P 500 to Rise 10% Next Year"
RBC Capital Markets Analyzes Entry into Bear Market
Mixed Reviews on Trump’s Second Term Policies

As the 'Trump Rally' that led the market after the U.S. presidential election falters, Wall Street's outlook on the future direction of the New York Stock Exchange is divided. Morgan Stanley, known as a leading pessimist on Wall Street, reversed its previous bearish forecast and predicted that the S&P 500 index will rise by 10% next year due to pro-business policies in Donald Trump's second term. On the other hand, RBC Capital Markets expressed concerns over Trump’s second-term tariff policies, suggesting that a bear market has already begun and the S&P 500 index could fall by up to 10%.

According to Bloomberg and other local media on the 18th (local time), Mike Wilson, Chief Investment Officer (CIO) and equity strategist at Morgan Stanley, set the S&P 500 index forecast for next year at 6500. The S&P 500 closed around the 5900 level on that day, indicating an additional 10% upside potential.

Wilson anticipated that the Federal Reserve’s (Fed) interest rate cuts, improved economic growth, and regulatory easing policies by President Trump would push stock prices higher. In his report, Wilson stated, "Post-election, the corporate animal spirits have potentially revived, which could act as a catalyst for more balanced earnings across the market by 2025." Although current stock prices remain high, he believes that if the U.S. economy maintains steady growth, the stock price levels will be justified.

Morgan Stanley has long been regarded as a representative investment bank (IB) maintaining a bearish stance on the stock market on Wall Street. In May, Morgan Stanley predicted the S&P 500 would reach 5400 by mid-next year, but it already closed at around 5900 on this day. Wall Street is paying attention to the fact that even Morgan Stanley has shifted its position to forecast a rising market.

Morgan Stanley particularly advised focusing on cyclical stocks such as financials. Conversely, it recommended reducing exposure to consumer goods, which are expected to be hit by tariff increases promised by President Trump.

Wilson said, "With changes in market leadership and uncertainties related to Trump’s immigration, global trade, and government spending policies, investors need to respond quickly," adding, "We are experiencing significant policy changes that could have both short- and long-term impacts on the market."

Some analysts suggest that the stock market, which surged sharply after the election, may have already entered a bear market. RBC Capital Markets forecasted that the S&P 500 decline may have already started, with an additional drop of 5% to 10%. This view is based on concerns that Trump’s promised tariff hikes and tax cuts could drive inflation higher and prolong high interest rates. However, they noted that if U.S. economic growth does not fall to worrisome levels or a recession does not occur, the decline is unlikely to exceed 10%.

Lori Calvasina, U.S. equity strategist at RBC Capital Markets, said, "The U.S. stock market is finally paying more attention to the Trump administration’s global trade policies and tariffs," adding, "Concerns about inflation and the U.S. deficit caused a sudden rise in the yield on the 10-year U.S. Treasury, shaking the market. Confidence is growing that the S&P 500 decline, expected to be up to 10%, may have already begun."