On Monday, Eastern Time, Morgan Stanley Michael Wilson, chief U.S. equity strategist, said that the U.S. stock market will enter a "bull market" in 2026, driven by stronger leadership, improved profitability, and only moderate weakness in the labor market.
I'm optimistic about two niche sectors.
Wilson stated that Morgan Stanley remains optimistic about the prospects of the consumer discretionary and small-cap sectors—despite these sectors not being favored by mainstream Wall Street, Morgan Stanley firmly believes that these two sectors will lead the market rally next year.
Wilson reiterated that since Morgan Stanley upgraded the ratings of these two sectors to "overweight" on November 17, they have "demonstrated relative strength," and he expects this strong performance to continue into next year.
The upward revision for the non-essential consumer goods sector was driven by a combination of factors, including "stabilizing commodity prices, signs of a shift in the consumption share between services and goods, improved corporate profit expectations, a return to an early cyclical environment, lower interest rates, strong overall household balance sheets, and still insufficient market sentiment/positioning."
He added, "The better-than-expected Black Friday sales" and "the better-than-expected third-quarter revenue results of U.S. companies... both support our view."
Meanwhile, Wilson wrote that small-cap stocks are expected to benefit from positive factors such as "early market cycle backdrop", "stable earnings expectation revisions", "positive operating leverage" and "lower interest rates".
The Federal Reserve will be a key factor.
Wilson stated that the Federal Reserve remains a key factor in the market's next move.
This week, the Federal Reserve will hold its December interest rate decision meeting and announce its latest decision. Meanwhile, starting in late November, the Federal Reserve, under the leadership of New York Fed President Williams... Several Federal Reserve officials have hinted that an interest rate cut may be made in December, which has fueled a recent rebound in U.S. stocks.
Wilson said, "Based on our conversations, many investors expect a 'hawkish rate cut' at this week's December FOMC meeting."
Wilson said:
"While we respect this view, we believe it has gradually become a consensus. Furthermore, we continue to observe that the U.S. labor market is trending towards weakness."
"As we have discussed in detail over the past few months, we believe there is a high probability of moderately weak, lagging US labor market data in the coming months, but a low probability of sharp weakness (i.e., a non-linear rise in the unemployment rate)... This is a bullish scenario for the stock market."
(Article source: CLS)
