The Bears Are Extinct
The consensus was wrong. Just twelve months ago, the prevailing narrative was one of a forced recession and a ‘higher for longer’ interest rate trap that would choke corporate America. Today, December 9, 2025, the reality is starkly different. The S&P 500 is currently hovering near 6,145, fueled by a productivity boom that the skeptics failed to model. Morgan Stanley CIO Mike Wilson, once the most vocal bear on the street, has fully pivoted. His team now projects a 2026 year-end target of 6,350, underpinned by a massive expansion in earnings power that few saw coming during the 2024 volatility.
Wall Street is no longer debating if we will have a soft landing. We are living in a period of re-acceleration. According to the latest non-farm payrolls data released on December 5, 2025, the economy added 168,000 jobs, maintaining an unemployment rate of 4.1 percent. This ‘Goldilocks’ zone provides the Federal Reserve with the cover to continue its gradual easing cycle without triggering an inflationary rebound. The cost of capital is finally stabilizing, allowing for a resurgence in small-cap and mid-cap valuations that remained dormant for the better part of three years.
Visualizing the EPS Trajectory
The core of the Morgan Stanley thesis rests on Earnings Per Share (EPS) growth. The firm estimates that S&P 500 earnings will hit $283 by the end of 2026. This is not just a recovery; it is a structural shift driven by the integration of large language models into back-office operations, which has finally begun to show up in the margin data of the Fortune 500.
The Real Driver Behind Multiple Expansion
Valuations are high, but they are not irrational. The 10-year Treasury yield is currently sitting at 4.12 percent, down from the 2024 highs but still high enough to demand quality. Morgan Stanley strategists suggest that the market is willing to pay a premium for ‘quality growth’ because of the sheer volume of cash sitting on corporate balance sheets. Per the revised 2026 earnings forecasts, we are seeing a rotation away from the ‘Magnificent Seven’ and into the ‘Broadening 493.’ This is a critical distinction. The concentration risk that defined the early 2020s is dissipating as energy, financials, and industrials capture a larger share of the capital flow.
Why is this happening now? The ‘How’ is simple: fiscal policy. Government spending has not slowed, and the anticipated ‘fiscal cliff’ of 2025 was largely mitigated by private sector infrastructure investment. We are seeing a massive build-out in domestic chip manufacturing and power grid modernization. These are multi-year cycles that do not care about short-term interest rate fluctuations. When a company like Nvidia or Microsoft commits to $50 billion in CapEx, the ripple effect through the industrial supply chain is immense.
Market Performance Benchmark
To understand the current state of play, look at the year-to-date performance across asset classes as of this morning, December 9, 2025. The decoupling of tech from the rest of the market is the story of the year.
| Asset Class | YTD Return (Dec 09, 2025) | Morgan Stanley 2026 View |
|---|---|---|
| S&P 500 (Large Cap) | +18.4% | Overweight |
| Russell 2000 (Small Cap) | +22.1% | Bullish Reversal |
| 10-Year Treasury Yield | 4.12% (Current) | Neutral |
| Nasdaq 100 | +14.2% | Equal Weight |
Technical Mechanisms of the Current Rally
Institutional liquidity is the engine. We are tracking a significant surge in buyback authorizations. According to Section 13F filings and recent corporate announcements, over $1.2 trillion in share repurchases are slated for the 2026 calendar year. This creates a natural floor for stock prices. When Mike Wilson talks about ‘quality over quantity,’ he is referring to the ability of a firm to self-fund its growth without relying on high-interest debt markets. The companies that refinanced their debt in the 2020-2021 window are now the kings of the market, sitting on low-coupon paper while their cash earns 4 percent or more in money markets.
The technical mechanism here is an ‘earnings-driven multiple support.’ Even if the P/E ratio compresses slightly from 22x to 21x, the growth in the ‘E’ (earnings) more than compensates for the decline in the ‘P’ (price) multiple. This is the math that the bears missed. They expected a valuation collapse; instead, they got an earnings explosion. Retail investors who stayed on the sidelines waiting for a 20 percent correction have missed one of the most consistent wealth-building windows in recent history.
The next major hurdle for this bull market arrives on January 20, 2026. The market is already pricing in the policy shifts associated with the upcoming inauguration, specifically regarding trade tariffs and corporate tax renewals. Keep a close eye on the 10-year Treasury yield on that day. If it breaches 4.5 percent on fiscal concerns, the Morgan Stanley 6,350 target may be delayed, but the underlying earnings growth of $283 per share remains the primary anchor for every serious portfolio.
