Investing Through an Uneasy Boom

Welcome to Thoughts on the Market. I'm Serena Tang, Morgan Stanley's Chief Cross-Asset Strategist. Today, our mid-year market outlook across regions and asset classes.

It's Friday, May 15th at 10:00 a.m. in New York. If you've winced at the gas pump, hesitated before booking a flight, or checked your 401k a little more often than usual, you already understand the forces driving markets now.

Energy prices and geopolitics are creating real uncertainty. But, underneath that uncertainty, companies are still investing, earnings are still holding up, and AI is becoming one of the biggest spending cycles in the global economy. That's why our message for rest of 2026 is be constructive, not complacent.

Let's start with the constructive part. Across markets, macro and micro fundamentals support risk assets. In the US, growth should hold up.

For investors, this suggests favoring stocks over core fixed income and developed market equities, especially the US in particular. Our US equity strategist S&P 500 target for mid-2027 stands at 8,300, supported by expected earnings growth of 23% in 2026 and 12% in 2027. The momentum and returns is coming from improving earnings.

Now, a striking data point. The median S&P 500 company delivered a 6% earning surprise in the first quarter, the strongest in four years. Earnings revision breadth also improved sharply.

AI explains a major part of that strength. It has become a capital spending story and increasingly a credit market story. A year ago, we projected combined CapEx for the biggest hyperscalers at around 450 billion in both 2026 and 2027.

Now, that estimate has moved to roughly 800 billion in 2026 and 1.16 trillion in 2027. AI infrastructure, data centers, power, chips, networks should shape equities, credit, rates, and even commodities for years to come. But, here's where the not complacent part matters.