Morgan Stanley Predicts Strong 2026 for U.S. Stocks as AI Spending Accelerates

Morgan Stanley is turning bullish on global equities for 2026, projecting that
U.S. stocks will outperform international markets and continue benefiting from
surging AI-driven capital expenditures and a supportive policy environment.

“Risk assets are primed for a strong 2026, powered by micro fundamentals, accelerating AI capex, and a favorable policy backdrop,”
the firm said in a series of global economic and strategy reports released Monday.

2025 has been marked by volatility across global markets, fueled in part by
U.S. President Donald Trump’s fluctuating tariff policies.
However, heading into 2026, much of the trade-related uncertainty has begun to ease,
setting the stage for more stable growth.

U.S. Economic Outlook

Morgan Stanley expects the U.S. to remain the “swing factor” in the global economy.
The firm is forecasting the S&P 500 to reach 7,800 by the end of 2026—representing
about a 16% increase from current levels—driven by robust earnings, expanding margins, and
productivity gains tied to accelerating artificial intelligence adoption.

The outlook also favors U.S. small-cap stocks over large caps, with cyclicals
expected to outperform defensive sectors.
According to Morgan Stanley, this trend will be supported by the
Federal Reserve’s dovish monetary stance throughout 2026.

In currency markets, the firm projects the U.S. Dollar Index (DXY) will fall to 94
in the first half of 2026 before rebounding to around 99 by year-end.

European Economic Outlook

Morgan Stanley expects European equities to benefit from the broad U.S. recovery,
despite ongoing fiscal challenges and rising competitive pressure from China.
The bank raised its 2026 year-end target for the MSCI Europe Local Currency Index
from 2,250 to 2,430.

The index has already gained roughly 12.5% this year, fueled by optimism surrounding
German fiscal stimulus, better-than-expected corporate earnings, and easing inflation across the region.

Commodities Outlook

Morgan Stanley’s 2026 commodity forecasts highlight notable upside for precious and industrial metals.
The firm sees:

• Gold reaching $4,500 per ounce
• Copper rising to $10,600 per ton
• Brent crude holding near $60 per barrel, supported by a relatively balanced supply-demand environment

According to the firm, steady demand and limited supply expansion will be key drivers for metals, while oil prices will remain restrained by softer global consumption trends.