The usa stock market has experienced two wonderful years. $S&P 500 Index (.SPX.US)$ After rising 24% last year, it has increased another 23% so far this year.

Perhaps being late is better than missing out completely, as morgan stanley, a well-known bear, has joined the bullish camp for usa stocks—upgrading its rating on usa stocks to shareholding, expecting the s&p 500 index to reach 6500 points by the end of 2025, with a target price of 5400 points by June 2025.

In fact, the investment bank's baseline target price for the s&p 500 index at the end of next year is already above the previous 'bull market' scenario of 6350 points. Now, its target price for the index in a 'bull market' scenario next year has reached as high as 7400 points.

Why did morgan stanley change its mind? The firm stated in its 2025 outlook that it still believes stock valuations are high—indeed, higher than before. 'Valuations should be even higher than six months ago, as the market grows increasingly confident in good fundamentals. When investors see solid macroeconomic support for the fundamentals, valuations may be even higher in the next six months.'

morgan stanley believes the usa exceptionalism will continue. 'The pe of the s&p 500 index will slightly narrow from 22.2 times to 21.5 times over the next 12 months but will remain above the 10-year average. Our research shows that significant valuation compression is rarely seen during periods when earnings growth is above average and monetary policy is accommodative,' wrote the usa team led by mike wilson, who has been known for his bearish outlook on usa stocks in recent years.

They expect that the eps in 2025 will grow by 13% and will grow another 12% in 2026. "We expect that as the Federal Reserve lowers interest rates next year, the indicators of the business cycle will continue to improve, and recent earnings growth will continue to expand in 2025. The potential rise of corporate animal spirits after the election (as we saw after the 2016 election) may lead to a more balanced earnings situation in the entire market by 2025," the team said.

The Morgan Stanley team also has interesting views on the Department of Government Efficiency and its leaders, Elon Musk and Vivek Ramaswamy.

The team said: "While many doubt whether they can truly cut spending by improving efficiency, we believe it makes sense to take a more open attitude given the individuals involved and that this seems to be the focus of Trump's second term. Since the final outcome is still uncertain, we believe the term premium will illustrate how the bonds market views this issue." They referred to the excess return required by investors for taking on interest rate risk.

Morgan Stanley is also bullish on japanese stocks, whereas considering tariff risks, the company will downgrade its rating on european stocks to neutral. Trade tensions have made emerging markets stocks their least favored market.

The investment bank expects the yield on 10-year us treasury bonds to fall to 3.55% next year, down from the previous 3.75%, as they anticipate that the extent of the Federal Reserve's interest rate cuts will exceed market expectations.

Regarding csi commodity equity index, due to the supply growth from OPEC and non-OPEC countries, they set a target price of $66 per barrel for brent crude oil in 2025. They also expect limited upside for gold, as they set a target price of $2600 per ounce for gold in 2025.

Editor/rice