Morgan Stanley 2026 Outlook: Global Economy to See Mild Growth and Deflation, Uncertainty Remains High, but US Stocks to Outperform Global Markets

According to Reuters, Morgan Stanley predicts that US stocks will outperform global markets in 2026, favoring global equities over credit bonds and government bonds, supported by growth in AI-related capital expenditures and policy improvements. With the combined push of microeconomic fundamentals, accelerated AI capital expenditures, and favorable policies, risk assets are poised for a strong performance in 2026, as highlighted in the global economic and strategic outlook report released by the Wall Street investment bank on Monday. Despite the Trump administration's fluctuating tariff policies causing continued volatility in global financial markets this year, most trade uncertainties are gradually dissipating as 2026 approaches. The bank forecasts mild global economic growth and deflation in 2026, emphasizing that uncertainty remains high, with results likely to vary significantly, with the US being a key variable. Additionally, Morgan Stanley predicts the S&P 500 index will reach 7800 points by the end of 2026, representing approximately 16% upside potential from current levels, driven by steady corporate profit growth and AI-driven efficiency improvements. Under the influence of the dovish Fed policy, US small-cap stocks will outperform large-cap stocks, and cyclical sectors will outperform defensive sectors. The US dollar index is expected to fall to 94 in the first half of the year, then rebound to 99 by the end of 2026. The bank also forecasts that the price of gold will reach $4500 per ounce in 2026.

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