US Stocks Will Stand Out in 2026!

Morgan Stanley predicts that U.S. stocks will outperform those in other countries in its global stock market forecasts for 2026. Additionally, factors such as strong corporate performance, pro-cyclical policy, and potential efficiency gains driven by artificial intelligence are among the fundamental elements behind these expectations.

Morgan Stanley stated in its 2026 Global Strategy Outlook report that these factors have led to an improved expectation for earnings per share (EPS) over the next two years compared to previous forecasts.

Japan is the investment bank's second favorite market, with the positive narrative in this country noted to be similar to that of the U.S. It is expressed that there are less supportive winds for Europe and emerging markets, except for Brazil and India.

Morgan Stanley recommends extending maturities in early 2026 and expects yields to remain within a range. It also notes that the Federal Reserve is likely to lower interest rates by 50 basis points in the first half of 2026, paving the way for an initial rise.

For 10-year Treasury bonds, it is expected that yields will decrease to 3.75% by mid-year and reach 4.05% by the end of 2026. The European Central Bank is forecasted to decrease and remain at 1.50%, while U.K. bonds are expected to move towards 2.75% and finish at around 3.90%.

FX markets may be subject to volatility. Morgan Stanley anticipates a challenging year ahead. It expects the DXY index to drop to 94 in the first half, then climb to 99 by the end of the year. Additionally, the USD/JPY exchange rate is projected to decline to 140 as U.S. interest rates fall.

Emerging market fixed income securities continue to receive support. Morgan Stanley expects "attractive returns" in the first half of 2026 by investing in bonds rated at least BB. In commodities, the bank indicates that metals are preferred over energy, with gold standing out as "the best choice," and highlights issues with copper and aluminum supply.