Morgan Stanley is leaning heavily toward equities going into next year, projecting that U.S. stocks will outperform global peers in 2026 on the back of accelerating artificial intelligence investment and a policy backdrop it believes is finally aligning in favor of risk assets.
“Risk assets are primed for a strong 2026, powered by micro fundamentals, accelerating AI capex, and a favorable policy backdrop,” the bank said in a set of global economic and strategy outlook notes released Monday.
The view caps a turbulent year in global markets, shaped in no small part by President Donald Trump’s shifting tariff approach. Much of that uncertainty has eased heading into 2026, giving investors clearer visibility even as Morgan Stanley cautioned that the next 12 months still carry a wide range of possible outcomes. The U.S., it stressed, remains the central swing factor for global markets.
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U.S. Outlook: AI, Earnings, and a Soft Dollar Cycle
Morgan Stanley’s baseline scenario sees the S&P 500 climbing to 7,800 by the end of 2026, implying roughly 16% upside from current levels. The bank attributes the projection to resilient earnings growth across major sectors and productivity gains tied to the rollout of AI-driven tools and infrastructure.
Small-cap stocks are expected to outperform large caps, while cyclicals should lead defensive sectors. The assessment reflects expectations of a Federal Reserve that remains dovish through much of 2026, enabling borrowing costs to stay supportive of growth.
On currencies, Morgan Stanley forecasts the dollar index sliding to 94 in the first half of next year before recovering to 99 by year-end as global growth patterns shift.
Europe: Riding the Coattails of a U.S. Upswing
The firm expects Europe to benefit from a widening U.S. recovery despite the region’s stubborn fiscal constraints and intensifying competition from China.
It raised its 2026 target for the MSCI Europe local currency index to 2,430, up from a prior forecast of 2,250. European stocks have already gained about 12.5% this year, buoyed by improved corporate earnings, easing inflation, and renewed optimism around Germany’s fiscal spending plans.
Still, Morgan Stanley noted that Europe’s structural challenges remain unresolved, making the region more dependent on U.S. momentum than in previous cycles.
Commodities: Gold Soars, Oil Anchored
The bank’s commodities outlook paints a sharply divergent landscape.
Gold is projected to hit $4,500 per ounce in 2026, reflecting expected demand for safe assets and a weaker early-year dollar. Copper is forecast at $10,600 per ton, supported by continued electrification demand and tight supply conditions.
By contrast, Brent crude is expected to hover around $60 a barrel. The brokerage anticipates a soft supply-demand balance through 2026, keeping oil prices capped even if global growth holds up.
A Wide Band of Possibilities
While the baseline is upbeat, Morgan Stanley flagged that uncertainty remains high as markets transition into a new policy and growth cycle shaped by AI, geopolitics, and post-pandemic economic rebalancing. The firm described the U.S. as the critical variable that could swing global markets either toward a sustained rally or back into volatility.
What remains clear, in its view, is that equities—not credit or government bonds—offer the most compelling opportunity next year, with artificial intelligence once again at the center of the global market story.