Morgan Stanley 2026 Outlook: Global Economy to Experience Moderate Growth Alongside Deflation, Uncertainty Remains High, but US Stocks Will Continue to Outperform Global Markets

On November 17th, as per Reuters, Morgan Stanley anticipates that U.S. stocks will outperform global markets by 2026 and holds an optimistic stance on the performance of global equities in contrast to credit and government bonds. Its underlying logic stems from the growth in capital expenditure related to artificial intelligence and an improving policy landscape. "The risk assets are set to exhibit strong performance in 2026, driven by microeconomic fundamentals, accelerated AI capital expenditure, and favorable policies," the Wall Street investment bank pointed out in a series of global economic and strategic outlook reports released on Monday. Although the fluctuating tariff policy of the Trump administration has led to continuous volatility in global financial markets this year, most trade uncertainties are gradually fading away as 2026 approaches. The bank predicts that in 2026, there will be "moderate" global economic growth accompanied by deflation, but it emphasizes that "uncertainty remains high, and the outcomes may be highly divergent," with the "U.S. becoming a key variable." In addition, Morgan Stanley expects that the S&P 500 index will reach 7800 points by the end of 2026, indicating approximately a 16% upside potential from the current level, mainly driven by robust corporate earnings growth and AI-driven efficiency enhancements. Under the influence of the Fed's dovish policy, U.S. small-cap stocks will outperform large-cap stocks, and cyclical sectors will outperform defensive sectors. The U.S. dollar index is projected to decline to 94 in the first half of the year and 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.