Morgan Stanley Sees S&P 500 Correction Over After 7% Rally, 20% Earnings Boost
Morgan Stanley’s Michael Wilson states the S&P 500 held the lower end of its 6,300-6,500 correction range and has rallied 7% over two weeks, driven by 15% trailing earnings growth and over 20% projected year-on-year profit gains. First- and second-quarter EPS estimates have risen 1% and 4% since February.
1. S&P 500 Correction Range and Rally
Michael Wilson notes the S&P 500 held the low end of Morgan Stanley’s 6,300-6,500 correction target and has rebounded 7% from its low over the past fortnight, signaling that much of the pullback may be complete.
2. Earnings Growth Underpinning Bullish Stance
The strategist team highlights that S&P 500 trailing earnings growth stands at 15%, with earnings for the next twelve months up over 20% year-on-year; first-quarter and second-quarter 2026 EPS estimates have climbed 1% and 4%, respectively, since late February.
3. Preferred Sector Positioning
Morgan Stanley recommends a barbell strategy, overweighting cyclicals—financials, industrials and consumer discretionary—where earnings remain strong and valuations have compressed, while also holding quality growth names such as hyperscalers where sentiment and multiples have reset.
4. Potential Risks and Outlook
Despite a constructive view, the team warns that stalled peace talks and central bank vigilance on inflation could prompt a near-term retest of support, but expects these dynamics to resolve over six months, validating a more bullish stance.