Morgan Stanley’s chief U.S. equity strategist Mike Wilson, and team, raise their 12-month target for the S&P 500 to 7,800 from 7,200 previously, around 16% from current levels, making Wilson (who came in second behind Michael Kantrowitz at Piper Sandler in this year's voting for top portfolio strategist) one of the most bullish forecasters on Wall Steet.

“We’re in the midst of a new bull market and earnings cycle, especially for many of the lagging areas of the index,” Wilson wrote in a note. “In short, we believe a new bull market and rolling recovery began in April which means it’s still early days, and not obvious, especially for many lagging parts of the economy and market,” says Wilson.

His call is underpinned by expectations of 17% and 12% earnings growth in the next two years, respectively, after seeing 12% in 2025. “Our forecasts reflect this upside to earnings which is another reason why many stocks are not as expensive as they appear despite our acknowledgement that some areas of the market may appear somewhat frothy—i.e., certain unprofitable, speculative growth areas,” Wilson says.

He cites improved pricing power for companies, efficiency driven by artificial intelligence, accommodative tax and regulatory policies and stable interest rates.

Wilson also thinks the market currently is underestimating how accommodative the Federal Reserve will be. “While there’s uncertainty around this dynamic in the short term, over the next 6-12 months, we think that moderate weakness in lagging labor data and the administration’s desire to ‘run it hot’ will lead to an accommodative monetary policy backdrop involving both rates and the balance sheet,” says Wilson.

Wilson did warn of near-term risks if the Federal Reserve’s policy remains more hawkish than expected. In the longer term, a “hot” economy could also revive inflation, he added.