Michael Wilson, one of the famous bears on Wall Street and Chief Investment Officer of Morgan Stanley, has once again switched sides and is bullish on the US stock market.
In the latest report released on Monday, Wilson set the target price for the S&P 500 index by the end of 2025 at 6500 points, which means the index may rise 10.3% from its current level.
According to Wilson, the Federal Reserve's interest rate cuts, coupled with improved economic growth and a potential wave of deregulation under the incoming Trump administration, suggest that investors should lean towards bullish stock markets.
The potential increase in corporate animal spirits after the election (as we saw after the 2016 election) may catalyze a more balanced profit situation in the entire market by 2025, "he added.
Considering that Wilson has been largely bearish on the US stock market in the past few years and correctly predicted a bear market in 2022, his recent turn is worth noting. Wilson previously set the target point for the S&P 500 index in mid-2025 at 5400 points, while the index closed at around 5893.62 points on Monday.
Moreover, he warned in early July that traders should be prepared for a significant pullback in the US stock market due to uncertainties in the US election, corporate profits, and Federal Reserve policies. Less than a month later, the S&P 500 index fell 8.5% from its peak.
Wilson had previously been skeptical about the upward trend of US stocks due to rising valuations. Although he still admits that the valuation is too high, he points out that as long as the economy remains stable, there will be no problem.
The report states that on the surface, valuations have not reached extreme levels.
The median P/E ratio of the S&P 500 index stocks is 19.0 times. If the recovery of corporate profits expands as we expect in 2025, the index should continue to receive support, "he added.
Wilson suggests that investors hold high-quality cyclical stocks, especially focusing on financial stocks. On the other hand, he suggests that investors reduce their holdings of non essential consumer goods and major consumer goods stocks, as their pricing power is limited and they may face tariff risks.
Although Wilson has shifted towards a more bullish tone towards the US stock market, he stated that investors should "remain flexible" in the face of changing market leadership and uncertainty surrounding President elect Donald Trump's policies on immigration, global trade, and government spending.
We may experience another major change in policy outcomes, which could have both short-term and long-term impacts on the market, "he wrote.