It’s the season for new stock-market price targets, and Morgan Stanley joined the upper echelon of Wall Street forecasts for the S&P 500 with its new outlook released Wednesday.

Morgan Stanley bumped its year-end target for the U.S. index to 8,000 from 7,800 — matching Deutsche Bank, and only trailing an improved outlook from Yardeni Research — as it established a mid-year 2027 target of 8,300.

The S&P 500 finished Tuesday at its second-highest level ever, of 7,400.96, and it’s gained 17% from its March 30 closing low.

Strategists led by Mike Wilson say the first half of this year was actually quite a bit like the first half of 2025.

“In several respects, the path of equities over the past few months has followed a script we’ve seen many times—markets weakening under the surface well ahead of the headlines, many focusing on the ‘new’ risk after prices have already adjusted, and sentiment deteriorating just as the forward setup is quietly improving,” the strategists said.

Wilson and team argue that the market isn’t ignoring the risks of the Iran war, but that it’s priced them in.  “Much has been made of the fact that the S&P 500 decline was less than 10% on a price basis at the March lows. However, that view overlooks the more important adjustment that took place—namely, a significant reset on valuations and breadth,” they say.

Roughly half the stocks in the Russell 3000 experienced drawdowns of at least 20%, and the forward price-to-earnings multiple on the S&P 500 compressed by 18% from its peak.

“That’s not complacency, in our view, but a market that did a substantial amount of work to price in the numerous risks that appeared over the past 6 months—Iran war/oil spike, AI disruption and private credit concerns being the most significant,” they say.

As for the risk of a recession or even a growth scare, oil would have to sustainably move above $130 to $150 per barrel and earnings trends would have to deteriorate, neither which the firm expects.

The Trump administration, they argue, is trying to grow out of the debt problem, through what they call a triple rebalancing, in trade, investment and inequality. They say there’s evidence this rebalancing is happening, through a smaller trade deficit relative to GDP, a big increase in fixed investment and by real wage growth stabilizing or improving for low-end service jobs and physical work. They also noted rising private-sector jobs at the same time that government jobs are declining.

“While there is still a long way to go here for the average American to feel like they are getting ahead, the policy changes provide a more productive path as wage increases are preferable to subsidies from an economic standpoint,” they say.

As Kevin Warsh takes over leadership of the Fed, the strategists say the market doesn’t need rate cuts to increase from here. “History is supportive in this sense as our backtest shows that multiple expansion is fairly uncommon in periods where the Fed is on hold and earnings growth is strong, but price returns are quite robust in this outcome, driven by resilient EPS growth—the historical median performance in these prior periods is 14%,” they say.

The strategists also noted that revenue growth is positively correlated to goods inflation, over time. “Thus, rising pricing power (i.e., inflation) as a result of strengthening demand is a positive tailwind for equities as long as it’s not a driver of a Fed hiking cycle, which isn’t our view over the next 12 months,” they say.

While the market doesn’t need Fed cuts, actual hikes are the threat to its bullish view. The bear-case scenario of the S&P 500 falling to 5,900 is predicated on hot inflation forcing hikes as Warsh lays out plans to reduce the size of the central-bank’s balance sheet. Valuations could be hit by bond volatility and funding market stress rises, while earnings growth could slow from yields rising.

“This scenario is very unlikely to play out before year end but ironically its probability increases if our bull case plays out in the second half of this year and an inflation impulse lags a historic demand recovery,” they say.

In the bullish scenario where the S&P 500 climbs to 9,400, earnings expansion exceeds their estimates, perhaps by AI-driven productivity or even by companies hiring less in advance of the technology being fully implemented.