U.S. stocks can still rise! Morgan Stanley's well-known short seller turns "defector" again: S&P 500 will reach 6,500 points next year

According to the Zhitong Finance APP, Morgan Stanley strategist Michael Wilson has been known for his bearish stance on the U.S. stock market in recent years, but he holds an optimistic outlook for 2025. This strategist expects that with improved economic growth and further interest rate cuts by the Federal Reserve, the S&P 500 index will close around 6,500 points next year, an 11% increase from last Friday's closing level of 5,870 points. He previously predicted that the index would reach 5,400 points by mid-2025.

Wilson stated, "The valuation of the U.S. stock market is high, but the improvement in the U.S. macroeconomic situation, the potential for future U.S. tariff policies to have a greater negative impact on economic growth in other parts of the world, and animal spirits will drive the stock market rally." He noted that the deregulation under the Donald Trump administration would also benefit U.S. companies, although the impact of other potential policies remains unclear.

After correctly predicting the stock market sell-off in 2022, Wilson remained bearish during the market rebound into 2023. Earlier this year, he ultimately yielded and raised his target for the S&P 500 index, stating that the benchmark index could even reach 6,100 points by the end of 2024.

Driven by the AI boom, unexpected resilience in the U.S. economy, and interest rate cuts, the U.S. stock market has surged more than 50% since the beginning of 2023.

In Morgan Stanley's 2025 outlook, Wilson wrote, "As the Federal Reserve cuts interest rates next year and business cycle indicators continue to improve, we expect corporate earnings growth to continue to expand."

The implementation of the Trump economic agenda may further support market sentiment, but Wilson advises investors to remain flexible in selecting sectors and stocks, as the impacts of policies such as immigration, trade, deregulation, and government spending remain unclear.

Post-election uncertainty has also led strategists to have a wider range of predictions for stock market trends than usual. In the worst-case scenario, the S&P 500 index could drop 22% to 4,600 points, while in the most optimistic scenario, the index could soar 26% to 7,400 points.

Morgan Stanley expects the U.S. stock market to continue outperforming other regions globally, especially Europe. Morgan Stanley strategists have downgraded the rating of European stock markets to neutral. The MSCI Europe index is expected to trade within a range until U.S. trade tariffs and other policies become clearer.

Goldman Sachs strategist Peter Oppenheimer recently stated that the total return of the global stock market in U.S. dollars is expected to reach 10% by the end of 2025.

Oppenheimer's team stated, "Stock valuations have already risen, and there is little room for further valuation increases. We expect index returns to be primarily driven by earnings growth."