Morgan Stanley Raises S&P 500 Target to 8,000 as Earnings Beat Expectations

TLDR

• Morgan Stanley raised its S&P 500 year-end 2026 target from 7,800 to 8,000
• The bank’s 12-month target is 8,300, implying over 12% upside from current levels
• EPS forecast for S&P 500 companies set at $339 for 2026, a 23% jump year-over-year
• 83.2% of S&P 500 companies that reported Q1 earnings beat analyst estimates
• Morgan Stanley says this is an earnings story, not a valuation expansion story

Morgan Stanley has raised its year-end 2026 price target for the S&P 500 to 8,000, up from 7,800. The bank also set a next-twelve-month target of 8,300, which would represent more than 12% upside from current levels around 7,400.

The move follows a strong first-quarter earnings season. Of the 440 S&P 500 companies that had reported by May 8, about 83.2% beat analyst estimates, according to LSEG data.

The bank’s equity strategy team, led by Michael Wilson, is forecasting earnings per share of $339 for 2026. That would be a 23% increase from the prior year. EPS estimates rise further to $380 in 2027 and $429 in 2028.

The 8,300 target is based on a price-to-earnings multiple of 20.5 times forward EPS of $404. That is a slight compression from the current multiple of 21.2 times.

What’s Driving the Earnings Growth

Morgan Stanley pointed to AI adoption and efficiency gains as key drivers behind the earnings outlook. The bank also cited improving pricing power among S&P 500 companies as a supporting factor.

The median S&P 500 stock posted a 6% EPS surprise in the first quarter, the strongest in four years. Earnings revisions breadth for the index also accelerated to 22%, up from just 5% at the start of earnings season.

Forward EPS growth for the S&P 1500 median stock has risen to 12% from 8% at the start of the year.

The bank described the market pullback seen at the March lows as a healthy correction rather than a warning sign. The S&P 500 declined less than 10% on a price basis, while roughly half of stocks in the broader Russell 3000 saw drawdowns of 20% or more.

Rate Cuts Not Required

Morgan Stanley said its targets do not depend on the Federal Reserve cutting interest rates. Historical data from the bank shows that price returns tend to be strong even when the Fed is on hold and earnings growth is robust. The median historical return in those conditions is 14%.

The bank does see inflation as a potential risk to its outlook. Rising pricing power is a tailwind for stocks, but only as long as it does not push the Fed toward hiking rates, which Morgan Stanley does not expect in the next 12 months.

Other banks have moved in the same direction. HSBC and RBC also raised their S&P 500 forecasts earlier this month.

Morgan Stanley favors Industrials, Financials, and Consumer Discretionary among sectors. It also views large-cap tech hyperscalers as attractive given strong forward earnings. The bank moved Healthcare to equal weight.

In a separate note, Morgan Stanley raised its 2027 mid-year target for the MSCI Europe index to 2,700 from 2,600.

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