The stock market has made an impressive recovery from its April low, and Morgan Stanley sees one strong sign that the gains are set to continue.
With trade concerns and geopolitical conflicts easing, the market made new highs again on Monday, adding to gains amid fresh progress on trade.
Here’s where major indexes stood at 11:50 a.m. ET on Monday:
S&P 500: 6,190.75, up 0.23%
Dow Jones Industrial Average: 44,027.87, up 0.37% (+160.76 points)
Nasdaq Composite: 20,338.95, up 0.25%
As headwinds from earlier this year, such as tariffs and fears of an AI spending slowdown, begin to ease, a key source of strength for the stock market has rebounded
Earnings revisions breadth, or the proportion of analysts who have raised their estimates minus the proportion who have lowered them, has improved significantly in the past few months.
In April, Bloomberg Intelligence data found that estimates for earnings-per-share growth had fallen from 11.4% to 6.9% since the beginning of 2025.
At the April bottom, earnings revision breadth stood at -25%. It’s since improved to -5%, and its recovery has been swift. Earlier in June, earnings revisions breadth was at -10%.
Going forward, Morgan Stanley anticipates a bullish rate of change on EPS revisions to be a key factor in further stock market gains, especially as earnings revisions breadth ticks closer to a positive number.
“On that score, specifically, the message is crystal clear. The ERB bottomed on April 17th around MSFT’s earnings report and has not looked back since,” Morgan Stanley analysts led by chief investment officer Mike Wilson wrote. “As we have noted for the past couple of months, the recovery in this metric has been more about positive revisions rather than fewer negative ones and when that is the case, the forward equity market returns tend to be stronger,”
More upward revisions have typically led to 12% S&P 500 stock gains in the next 12 months, while fewer negative revisions have led to only 8% gains over the same time period, they added.
Morgan Stanley
Morgan Stanley expects the S&P 500 to end the year at 6,500, implying a gain of about 5% from current record levels. With analysts growing more bullish on corporate earnings, the outlook points to a potentially sustainable growth trajectory.
The bank attributes the plunge in earnings estimates earlier this year largely to perceived weakness in the Magnificent Seven stocks. But now, earnings growth is on track to outperform overall economic growth, something that wasn’t the case in the 2022 to 2024 bull market.
The bank expects a weaker dollar and tax incentives from the Big Beautiful Bill to continue encouraging positive earnings outlooks, and also contribute to a broadening market.
“As we head into the second half of the year, the equity market is likely to be driven by more bullish rate of change on EPS revisions, monetary policy expectations, and back-end rates/term premium,” Mike Wilson, the bank’s chief equity strategist, wrote. “This is a notably different environment than large parts of 2023-2024 when prospects of easier monetary and fiscal policy drove markets higher despite stagnating EPS revisions.”
