Shutterdown and the Fed are no obstacle: Morgan Stanley bets on a rally in 2026

Temporary political risks and cautious signals from the Fed will not prevent the U.S. stock market from continuing to grow in 2026, according to Morgan Stanley. The bank is betting on a strong recovery in corporate profits, which, according to its analysts, has already begun.

"While negative factors such as Fed signals and the shutdown have pressured recent quote dynamics, these are only temporary obstacles to a robust 2026 driven by earnings growth," Bloomberg quoted Morgan Stanley analyst Michael Wilson as saying in a note.

Wilson said he sees "clear signs" that the recovery in corporate profits has begun and that U.S. companies have gained more pricing power - the ability to influence the prices of their goods. He also pointed out that the bottom has been reached in earnings forecast revisions - since mid-October, the number of upgrades to analysts' forecasts has exceeded the number of downgrades.

UBS predicts that it will be technology companies that will once again provide the bulk of profit growth in the U.S. next year. Switzerland's largest bank expects the S&P 500 index to rise 11% from its current level to a record 7,500 points by the end of 2026.

Oppenheimer Asset Management strategist John Stoltzfus believes it's too early to "put a cross" on chip makers and AI prospects. "The current decline in stock prices, as reflected in the major indices, looks like a mild correction rather than the beginning of a more serious down period," Stoltzfus said.

The S&P 500 index is up for the third year in a row, having gained 14% since January. Last week turned out to be one of the worst weeks of the year for the U.S. technology sector: the collapse of Palantir and Nvidia shares led to a 3% drop in the Nasdaq Composite index. Despite a recovery in Friday's closing session, the Nasdaq Composite posted its worst weekly performance since the so-called Emancipation Day in early April, when President Donald Trump announced sweeping duties against trading partners, Yahoo Finance noted. The S&P 500 fell 1.7 percent for the week, while the Dow Jones Industrial Average lost 1.3 percent.

On Nov. 10, S&P 500 futures rose - after Republicans, backed by several Democratic senators, pushed a resolution through the Senate on Monday night that would end the longest shutdown in U.S. history.

Meanwhile, U.S. corporate earnings for the third quarter beat expectations: now that more than 90% of S&P 500 companies have reported earnings, the consensus forecast calls for a 13.1% year-over-year increase in quarterly earnings for the index - instead of the 7.9% that Wall Street was counting on in late September, Yahoo Finance notes.

This article was AI-translated and verified by a human editor