The Wilson Pivot is Complete
Mike Wilson is no longer the market’s loudest skeptic. As of December 10, 2025, the Morgan Stanley Chief U.S. Equity Strategist has officially raised his S&P 500 base-case target to 7,000 for the end of 2026. This represents a seismic shift from the defensive posture he maintained throughout 2023 and much of 2024. The data is undeniable. The U.S. economy has avoided the long-forecasted hard landing, and corporate earnings are entering a high-octane recovery phase. Per current S&P 500 data, the index is hovering near 6,415, fueled by a relentless 13 percent expansion in blended earnings per share (EPS) over the last four quarters.
Earnings are the New Alpha
Valuation multiples are stretched but sustainable. Wilson’s bull case now targets 7,400, premied on the assumption that AI-driven productivity gains will finally manifest in the bottom lines of non-tech companies. We are moving past the ‘hardware phase’ of the AI cycle. The 2025 fiscal year has proven that the real winners are the firms successfully integrating large language models into operational workflows to slash SG&A expenses. Morgan Stanley’s current forecast suggests an EPS of $285 for the S&P 500 in 2026, a figure that would have seemed delusional eighteen months ago.
Sector Performance in 2025
The market is no longer a one-trick pony. While Information Technology continues to lead, the breadth of the rally has expanded significantly into Financials and Utilities. High interest rates, which many feared would crush the banking sector, have instead provided a windfall in net interest margins as the Federal Reserve maintains a ‘higher for longer’ floor at 4.25 percent. According to the latest Reuters market analysis, the rotation into ‘Quality Growth’ is the defining trade of this December.
Dan Skellys Quality Playbook
Momentum is a trap for the unwary. Dan Skelly, Head of Morgan Stanley’s Wealth Management Strategy, is currently advising a heavy tilt toward ‘Quality’ factors. This isn’t generic advice. Skelly is specifically targeting companies with a Return on Invested Capital (ROIC) exceeding 15 percent and a net debt-to-EBITDA ratio below 2.0x. In an environment where the 10-year Treasury yield is anchored at 4.15 percent, the cost of capital is too high for ‘zombie’ companies to survive. The era of free money is dead. The era of operational excellence has begun.
The Technical Mechanism of the 2025 Melt-Up
Passive inflows are creating a floor. The structural shift toward target-date funds and automated 401k allocations has reached a tipping point, where every market dip is met with an immediate, algorithmic bid. This isn’t just retail enthusiasm; it is a mechanical feature of the modern market. However, investors must distinguish between price action and fundamental value. The current forward P/E ratio of 22.4x for the S&P 500 is in the 90th percentile historically. This requires perfection in the upcoming January earnings season. Any miss on guidance will be punished with extreme volatility, as seen in the 8 percent intraday drop in select semiconductor stocks last month.
The immediate catalyst to watch is the January 14, 2026, Consumer Price Index (CPI) release. If core inflation remains sticky above 2.7 percent, the Fed’s projected March rate cut will be off the table, forcing a violent re-pricing of the 7,000 target. Watch the 2-year Treasury yield for the first sign of a crack in the narrative.
