Morgan Stanley thinks the bottom is in for stocks, saying a rough first half of the year can give way to a better second half as investors move past tariffs. The firm is sticking by its 12-month S & P 500 target of 6,500. "Coming into 2025, we were of the view that the first half of the year would be more challenging as policy was likely to be sequenced in a more risk-off way initially ahead of a more constructive 2H 2025/2026," chief U.S. equity strategist Michael Wilson wrote on Wednesday. "While we've been surprised by the magnitude and speed of the growth headwinds in 1H tied to tariffs, the cadence of our view around policy sequencing still holds." .SPX 1Y mountain S & P 500 over the past 12 months "From our perspective, the level of tariffs announced on ' Liberation Day ' was so dramatic, it led to what can only be described as capitulatory price action," Wilson added. "As a result, we think that the price lows are in assuming we don't experience a deep recession." Of course, there's plenty that remains to challenge the stock market, including the spike in longer maturity yields that is most immediately pressing to investors. On Thursday, the 30-year Treasury bond yield topped 5.14% as the House pushed forward with a tax bill that many worry will add to a ballooning deficit. However, Wilson said markets are likely to look past the near-term hurdles to better news on the horizon, namely tax breaks and deregulation that will be more stimulative for markets. What's more, the equity strategist expects that a more accommodative central bank, which the firm's economists expect will cut seven times in 2026, will also be supportive for equities. "If back-end yields remain elevated, they can keep a lid on multiples for now, and keep the S & P 500 in our 1H25 range of 5500-6100, tactically, before upward progress continues to our 12-month price target of 6500," Wilson wrote. Wilson's S & P 500 price target of 6,500 — which he has kept unchanged even as the tariff-induced market frenzy spurred changes from many of his peers — is now the highest on the Street, according to CNBC's 2025 market strategist survey . On average, strategists expect the broader index will end the year at 5,946. The strategist's 6,500 target is roughly 11% above where the S & P 500 closed Wednesday. His bull case target of 7,200 implies more than 23% upside. His bear case target of 4,900 suggests a 16% drop, accounting for a recession.
