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Closely watched Wall Street strategist Mike Wilson of Morgan Stanley is turning more bullish on the stock market.
In a Monday note, the CIO and chief US equity strategist set a 2025 year-end S&P 500 price target of 6,500, representing potential upside of 11% from current levels.
The call is notable considering that Wilson has been largely bearish on stocks over the past few years, correctly calling the 2022 bear market but remaining bearish throughout much of the stock market's advance that began in October 2022.
Wilson previously had a mid-year 2025 S&P 500 price target of 5,400. The S&P 500 traded at around 5,900 on Monday.
According to Wilson, interest-rate cuts from the Federal Reserve, combined with improving economic growth and the potential for a wave of deregulation under the incoming Trump administration, means investors should lean bullish on stocks.
"A potential rise in corporate animal spirits post the election (as we saw following the 2016 election) could catalyze a more balanced earnings profile across the market in 2025," Wilson said.
Wilson had previously been skeptical of stock market upside due to elevated valuations. While he admits they're still "rich," they could be justified as long as the economy holds up.
And looking under the surface, valuations aren't hitting extremes, according to the note.
"The S&P 500 median stock multiple is less extended at 19.0x and should stay supported if the earnings recovery broadens out in 2025 as we expect," Wilson said.
Wilson recommended investors own high-quality cyclical stocks, with a particular focus on stocks found in the financials sector.
On the flipside, Wilson recommended investors take an underweight position on consumer discretionary and consumer staple stocks due to limited pricing power and the potential risk of tariffs.
While Wilson shifted to a more bullish tone on stocks, he said investors should "stay nimble" amid changing market leadership and uncertainty around President-elect Donald Trump's policies related to immigration, global trade, and government spending.
"We are potentially going through another sea change in policy outcomes that could have both short and longer term implications for markets," Wilson said.
