Wall Street 2026 Forecasts Released! Deutsche Bank Is the Most Optimistic, Morgan Stanley and UBS Call for a Bull Market

Wall Street institutions have begun releasing their outlooks and forecasts for 2026 as the New Year approaches. Despite recent concerns over tech stock valuations causing a pullback in major indexes, all three major indices have still performed well this year, each up over 10%. Deutsche Bank remains the most optimistic for 2026, setting a target of 8,000 points for the S&P 500, implying a potential upside of nearly 20%. Morgan Stanley targets 7,800 points, while UBS’s base case is 7,700 points.

Deutsche Bank’s Most Optimistic 2026 Forecast: AI Investments to Dominate the Market

Deutsche Bank is bullish on the S&P 500, with a target of 8,000 points next year and a potential upside of nearly 20%, making it the most optimistic forecast among global investment banks. “Equity positions have rebounded sharply from April lows but are currently at neutral levels. Despite strong corporate earnings growth and upward revisions that suggest equity exposure should be increased, active (fundamental-based) investors remain cautious, keeping position limits at neutral,” said Binky Chadha, Deutsche Bank’s Chief US Equity Strategist, in a report released Monday.

These investors, who make decisions on behalf of clients (such as portfolio managers), are “a source of potential upside,” he added, while the stock market will also continue to benefit from “a cross-asset inflow boom.” According to Deutsche Bank’s 2026 forecast, the S&P 500’s earnings will remain robust, with EPS expected to reach $320 (an annual growth of 14.2%), and share buybacks will also continue to provide growth momentum.

Although the current S&P 500 P/E ratio is 25x—well above the historical average of 15.3x—he believes equity valuations will remain elevated. “Given the strong supply-demand backdrop in equities, we expect P/E ratios to remain at current levels, if not move higher,” he said. This view challenges traditional valuation theory, suggesting that in the context of the AI revolution, the market is willing to pay a greater premium for tech stocks.

A strong US economy is also a key reason for Deutsche Bank’s bullish outlook on US equities; however, the bank expects US GDP growth to slow slightly from 3.2% this year to 3.1% in 2026. In its base case, unemployment will rise moderately in the short term and return to current levels next year, while corporate cost-cutting and the labor market remain risk factors for the 2026 forecast.

Large tech stocks like Nvidia, Microsoft, and Google remain the main engine of this rally, with AI-driven spending supporting record levels of capital expenditures. Deutsche Bank’s 2026 global outlook report states: “We believe that (US) investors’ discretionary allocations are a potential source of market upside momentum.”

Deutsche Bank believes that as AI investment and applications continue to advance rapidly and dominate market sentiment, 2026 will be “anything but a dull year.” “Given the pace of technological advancement, we have reason to believe this will translate into significant productivity gains in the future. However, the ultimate winners and losers will depend on a complex interplay of multiple dynamic factors, many of which may not become apparent until after 2026,” the bank notes. Volatility will not subside—something that will become increasingly evident as 2025 draws to a close. Next year, the market may “swing dramatically between boom and bust narratives,” closely tied to the AI theme.

Morgan Stanley: Rolling Recovery Theory Supports 7,800-Point Target

Morgan Stanley has set a 12-month target of 7,800 points for the S&P 500, with a potential gain of 18%. The Fed’s dovish shift and recent liquidity tightening have disrupted market stability and caused real damage to returns. However, for Morgan Stanley’s Chief Equity Strategist Michael Wilson, this weakness has only reinforced his bullish outlook, allowing him to seize buy-the-dip opportunities and reaffirm his “rolling recovery theory.”

Wilson and his team outlined their 2026 forecast in a strategy report and further elaborated on it in a weekly report released Monday. The 7,800-point target for the S&P 500 is based on a more optimistic 17% EPS growth forecast, compared to Wall Street analysts’ and fund managers’ current consensus of 14%.

The “rolling recovery theory,” which underpins the constructive view on equities, is first supported by Morgan Stanley’s observation that EPS revision breadth picked up again last week. The theory is also backed by the view that the US is still in the early stages of a growth cycle (contrary to most institutions’ late-cycle view), and that forward net profit expectations for the major indices are broadly positive over the next year.

Morgan Stanley notes that net profit expectations for the next 12 months are rising, with small-cap stocks showing the strongest growth trend. Meanwhile, Wilson believes that the weakness in risk assets, tighter liquidity, and an overall soft labor market may increase the likelihood of the Fed deciding to cut rates earlier. This further strengthens Wilson’s confidence in the market’s medium-term trend.

Large-cap tech stocks are notably absent from Morgan Stanley’s recommended portfolio. One reason may be that the “Magnificent 7” could fall in tandem with other market sectors, but another key factor is Wilson’s insight into potential US economic trends: improved EPS revisions, stable pricing, consumer spending shifting from services to goods, falling rates, and pent-up demand being released. These trends all benefit investments in consumer discretionary, small caps, healthcare, financials, and industrials. Wilson adds that small caps have recently shown the most significant upside inflection in higher earnings expectations.

Other Institutions’ 2026 Forecasts and Consensus Focus

2026 Forecasts from Major Wall Street Institutions

Deutsche Bank: 8,000 points (approx. 20% upside)—most optimistic

UBS Bull Case: 8,400 points (highest target)

Morgan Stanley: 7,800 points (18% upside)

UBS Base Case: 7,700 points

HSBC: 7,500 points

Barclays: 7,400 points

UK-based HSBC has set a year-end 2026 S&P 500 target of 7,500 points, also betting on the strong performance of the AI sector. “Whether or not there’s a bubble—history shows rallies can last quite a while (the internet bubble and housing boom each lasted 3-5 years), so we believe there’s still room to run and recommend expanding AI-related trades,” the European bank wrote.

Barclays expects the S&P 500 to reach 7,400 points in 2026 and raised its EPS target from $295 to $305. The firm sees large-cap tech stocks as resilient in a low-growth macro environment, with no signs of a slowdown in the AI race, and rate cuts by the Fed as drivers for the index to move higher.

UBS Global Wealth Management said in a recent report that its base case is for the S&P 500 to reach 7,700 by the end of 2026, with a bull case of 8,400 points. It expects EPS of $305 that year, up 10%, with about half the gains coming from capital sectors.

Three Major Risk Factors to Watch

It’s worth noting that while the above institutions are bullish, they also highlight several risks. The first is downside risk to the economy: rising inflation and unemployment could drag down overall activity and consumption, with consumer confidence currently at multi-year lows. Although 2026 forecasts are generally optimistic, whether a soft landing can be achieved remains the greatest uncertainty. If the Fed makes a policy error, a hard landing could result, putting pressure on both corporate earnings and the stock market.

The second risk is the impact of the US midterm elections. Historically, midterm election years tend to weaken stock market returns. 2026 is a midterm year, and political uncertainty could disrupt market sentiment, especially if the election results significantly alter the balance of power in Congress, potentially creating policy uncertainty and impacting business confidence and investment decisions.

The third risk is the valuation bubble debate: the current forward P/E for the stock market is close to 22x, well above the five-year average. There are concerns that AI investment mania could be fueling a bubble, and the key is whether AI-driven productivity gains can be transmitted to non-tech firms. If the real-world applications of AI fail to meet market expectations, the valuation bubble may burst, resulting in a sharp correction.

In summary, Wall Street’s 2026 forecasts for the S&P 500 cluster between 7,400 and 8,400 points. The core driver is seen as profit growth in tech stocks driven by AI, with expectations of Fed rate cuts also providing support. Investors should seize opportunities while closely monitoring economic data, the midterm elections, and valuation levels.