Markets Signal a Fresh Growth Cycle as Morgan Stanley Sees U.S. Stocks Running Hotter Before Cooling

After three years of relentless gains that have pushed U.S. equities to record territory, Wall Street is once again confronting an uncomfortable question: how much further can this rally realistically go?

Morgan Stanley’s answer is unambiguous. The market, in its view, is not nearing exhaustion but entering a fresh phase of expansion, one defined by stronger cyclical activity, resilient earnings, and a global economic backdrop that is quietly improving.

Andrew Sheets, Morgan Stanley’s global head of fixed income research, says recent market turbulence should not distract investors from what he describes as a broader and more durable signal. Speaking on the bank’s Thoughts on the Market podcast, Sheets said the early weeks of the year have been noisy, but the underlying evidence continues to support a view that growth assets still have room to run.

“We think the core message remains in place,” he said, adding that the current cycle may yet “burn hotter before it burns out.”

That outlook underpins one of the most optimistic forecasts on Wall Street. Morgan Stanley expects the S&P 500 to rise 13% in 2026, a projection that places it at the upper end of bank estimates. The thesis rests on earnings momentum and what the firm has long described as a rolling recovery in the U.S. economy. Instead of a synchronized downturn, weakness has appeared in isolated sectors at different times, from housing to manufacturing to technology spending, without tipping the broader economy into contraction. As those pressures ease in sequence, growth reasserts itself.

One of the clearest signals, Sheets argues, is coming from commodities, particularly copper. Prices for the metal surged about 44% in 2025, marking their strongest annual performance since the global financial crisis. Copper demand is tightly linked to industrial production, construction, and manufacturing, making it a long-standing proxy for economic momentum.

This rally has been driven not only by supply constraints but also by structural demand tied to data centers, power infrastructure, and electrification, all of which sit at the center of the AI-driven investment boom. For Morgan Stanley, copper’s strength suggests that the global industry is preparing for expansion rather than retrenchment.

Equity markets outside the United States are telling a similar story. South Korea’s stock market delivered a standout performance last year, with the Korea Composite Stock Price Index soaring 75%, far exceeding gains in most major markets and comfortably outpacing the S&P 500’s 17% rise. Sheets points out that Korean equities are heavily skewed toward cyclical sectors such as semiconductors, autos, and industrial manufacturing.

These stocks tend to perform well when global growth expectations improve. The outperformance of Korean small-cap stocks, which are especially sensitive to economic conditions, further strengthens that signal.

Financial stocks add another layer of confirmation. In both the U.S. and Europe, banks and other financial firms have been among the strongest performers. In the U.S., financial stocks in the S&P 500 rose about 14% over the past year, according to State Street Investment Management. Historically, the sector benefits from expanding credit demand, stable loan performance, and improving business confidence. Their gains suggest investors are positioning for sustained economic activity rather than bracing for widespread stress in the financial system.

Taken together, these indicators span regions, asset classes, and sectors, yet they appear to be pointing in the same direction. Sheets acknowledges that any single signal can fail, but argues that the consistency across markets deserves attention.

“These are different assets in different regions that all appear to be saying the same thing,” he said, noting that global cyclical activity has been improving for some time.

The broader Wall Street consensus is also tilting in that direction. Major banks expect equities to post another strong year, supported by anticipated interest rate cuts, steady corporate earnings, and an economy that continues to show resilience. Morgan Stanley, RBC, and Deutsche Bank all forecast gains of at least 10% for the S&P 500, a pace that would exceed the index’s long-term average return.

Still, the optimism is not built on the idea of unlimited upside. Morgan Stanley’s framework suggests a cycle that intensifies before it ultimately cools, rather than one that collapses abruptly. That distinction matters for investors navigating stretched valuations and rising geopolitical risks.

For now, the bank’s message is that the signals flashing across markets are consistent with acceleration, not decline, and that the next phase of the rally may be driven less by speculative enthusiasm and more by a synchronized pickup in global economic activity. In that sense, the current moment looks less like the end of a long journey and more like a second wind.