Overall reading of the 2026 projections
Morgan Stanley’s thesis is built on three pillars: continued policy accommodation, sustained earnings strength, and a supportive micro backdrop driven by AI-related capital expenditure. Broadly, these elements are plausible given current structural trends. However, the degree of certainty implied by such forecasts should always be treated with caution, especially once the horizon extends beyond twelve months.
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What is most likely to come true
1. AI-related capital expenditure will remain a dominant force
This is the most credible component. Demand for compute, model training, data infrastructure and edge deployment is likely to continue. Cloud hyperscalers, semiconductor firms, network providers and AI-driven software ecosystems are still in the early part of a multiyear investment cycle. Even if growth rates moderate, the direction is unlikely to reverse. This micro trend has strong structural backing and is already embedded in corporate budgets.
2. The United States will continue to be the main engine of global growth
The relative strength of the US economy is not accidental. Population dynamics, productivity advantage in tech-heavy sectors, capital availability, and a resilient labour market all contribute to its leadership. Fiscal willingness remains high, and the corporate sector is unmatched in scale and adaptability. While slower growth is possible, no major region currently appears capable of overtaking the US as the primary driver of global market returns by 2026.
3. Earnings resilience in large cap US companies
Mega-cap firms have diversified revenues, high margins, and strong pricing power. Even in softer macro conditions, they tend to maintain profitability. This part of the forecast is sensible, although valuation dispersion means gains may be concentrated within a narrow group.
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What is most likely to fail
1. The idea that policy will remain uniformly supportive
This is the weakest assumption. Fiscal policy in the US is sustainable only up to a point before political constraints appear. Monetary easing is also not guaranteed if inflation proves sticky. Deregulation may advance in some sectors but tighten in others. The assumption of a consistently friendly policy environment can break easily once any shock appears.
2. Expectations of smooth, broad-based rally across all risk assets
Risk assets can perform well, but not all at the same pace. High-yield credit, emerging market equities, speculative tech and crypto tend to behave differently under varying liquidity regimes. The notion that every major risk segment will benefit equally is overly optimistic.
3. The belief that global markets will cleanly follow the US lead
While the US may continue to lead in returns, the transmission to Europe, China, ASEAN and other regions is not automatic. Structural issues in China, demographic challenges in Europe and geopolitical tensions may create significant divergence. Global breadth is the part most likely to disappoint.
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Final view
Morgan Stanley’s outlook is reasonable as a directional narrative: AI capex, US exceptionalism and earnings strength are the most reliable threads. The weakest assumptions are those relying on policy smoothness and global synchronisation. For a 2026 horizon, it is better to treat the supportive factors as drivers for selective exposure rather than a blanket bull case.
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