As most Wall Street forecasters rushed to downgrade their stock-market outlooks during April’s chaotic selloff, Morgan Stanley’s Michael Wilson and former Wells Fargo Securities LLC strategist Christopher Harvey stuck to their bullish outlooks.
It turned out to be the right call.
Since then, U.S. stocks have virtually ignored the economic risks sowed by President Donald Trump’s trade war to march back to record highs, pushed up by bets on artificial intelligence advances and lower-than-feared tariff rates.
The latest leg higher was driven by an inflation report that cemented bets the Federal Reserve will resume cutting interest rates next month.
That 30% jump in the S&P 500 Index from its April lows has now forced sell-side strategists who capitulated on their bullish views in April to U-turn once again by lifting their predictions to keep up with the furious momentum that few of them saw coming.
“It’s tempting to flinch when the news flow turns negative, but that’s often when discipline matters most,” said Dave Mazza, chief executive officer at Roundhill Investments. “A good strategist trusts their process, not the whims of the market. And right now, that discipline is looking very smart for those who didn’t flinch.”
Wilson stuck to his 12-month S&P 500 target of 6,500 — just above where the index is now — and advised clients to buy the dip. And Harvey retained his year-end forecast of 7,007, one of the highest among Wall Street prognosticators, in anticipation that rate-cut bets and deregulation would propel stocks.
“We had seen Trump 1.0. We know his style — it’s to go out to the nth degree and then to come back in,” Harvey said in an interview last month with Bloomberg Surveillance, before he left Wells Fargo. “Furthermore, the underlying fundamentals were still fine,” he added, largely due to the outsized strength of the big technology companies.
Meanwhile, Wilson attributed his bullishness to a Morgan Stanley sentiment indicator that showed “clear capitulation” on April 7, as well as the sharp recovery in what’s known as earnings-per-share revisions breadth — a measure of the number of analysts increasing versus downgrading their EPS estimates.
“Combined, these two indicators suggested the rebound back would be sharp,” Wilson said in an email on Wednesday. “We also expected this selloff in our original forecast for 2025 — we thought the new administration would ‘kitchen sink’ the first half of the year. They did, it just happened even faster and more violently than we expected.”
The April rout rattled the faith of many forecasters who started the year on an optimistic note. In December, the 19 strategists tracked by Bloomberg predicted on average the S&P 500 would rise 13% to 6,614 this year.
By May, the group had slashed their outlook to project just a 2% gain — a faster pace of downgrades than at the start of the pandemic in 2020. As June began, many had reverted to being bulls again. The S&P 500 is trading near 6,460 on Wednesday, bringing this year’s rally to 10%.
Some well-known bulls including BMO Capital Markets strategist Brian Belski and Deutsche Bank AG’s Binky Chadha also correctly predicted that stocks would recover by the end of the year, but even they caved in April and revised their S&P 500 forecasts lower to account for deep losses as the gauge teetered toward a bear market.
Such changes are unusual, given that strategists try to take the long view by relying on models that aim to predict the market’s performance. That approach has proved vexing under Trump, whose abrupt policy shifts have been frequently altering the outlook.
The firm optimism from Wilson and Harvey now looks prescient, particularly as their counterparts at competing firms including Goldman Sachs Group Inc., Citigroup Inc., and Bank of America Corp. had to flip-flop on their outlooks.
“Thinking about the risk-asset market from a top-down perspective requires balancing two often competing frameworks: short-term volatility and medium-term fundamentals,” said Dan Greenhaus, chief economist and strategist at Solus Alternative Asset Management.
“It’s easy to suggest ignoring the former, except from time to time, the former impacts the latter. Knowing when it will — and more importantly when it will not — is quite often the difference between being a hero and an afterthought," he said.
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