Morgan Stanley says US stocks will soar 10% by mid-2021 as V-shaped economic recovery boosts profit growth

• Morgan Stanley on Monday updated its base case for S&P 500 growth through June 2021, citing a swift economic recovery.
• The bank raised its base case for the S&P 500 to 3,350 from 3,000 through June 2021, implying a 10% jump from Friday's close, according to a Monday note from strategists led by Mike Wilson.
• "A faster re-opening than expected along with a powerful combination of fiscal an monetary stimulus all support an economic and earnings recovery," Wilson wrote.
• Read more on Business Insider.

Morgan Stanley just boosted its price target for the S&P 500 on optimism that a V-shaped economic recovery from the coronavirus pandemic will lead to profit growth.

The bank raised its base case for the S&P 500 to 3,350 from 3,000 through June 2021, implying a 10% jump from Friday's close, according to a Monday note from strategists led by Mike Wilson. Morgan Stanley also increased its S&P 500 bear case to 2,900 from 2,500 and its bull case to 3,700 from 3,250.

"Ultimately our new risk reward range skews positively with greater upside to our bull case than downside to our bear case," Wilson wrote.

The firm expects a swift, V-shaped economic recovery from the shock of the coronavirus pandemic to drive slightly better-than-expected results this year and a material rebound of 20% in 2021.

"A faster re-opening than expected along with a powerful combination of fiscal an monetary stimulus all support an economic and earnings recovery," Wilson wrote.

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The firm has maintained a positive outlook on US equity markets from March lows as it's a new economic cycle and bull market, according to the note.

"Similar to the exit from the financial crisis, we expect a combination of base effects, stronger revenue growth, and return of positive operating leverage from reduced cost structures to all contribute to earnings growth in 2021," said Wilson.

The updated price target assumes a multiple of 20x forward 12-month earnings of $168, moved higher factoring in a lower range for rates and a normalized equity risk premium, according to the note. The bank's earnings forecast moved higher as well, largely because they were rolled forward to include the first half of 2022.

The bullish forecast comes as other banks also boosted price targets for the S&P 500. On Friday, JPMorgan said that global equities could surge 47%, following Thursday's sell-off.

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