Investing Through an Uneasy Boom

May 15, 2026

AI Summary

5 min read

In this episode of Thoughts on the Market, Serena Tang presents Morgan Stanley’s outlook for the remainder of 2026. The central argument holds that macro and micro fundamentals continue to support risk assets, particularly U.S. equities, because earnings momentum remains intact and AI-driven capital spending has scaled faster than earlier projections. At the same time, the outlook incorporates clear limits: higher energy prices tied to Middle East developments and the financing needs of large-scale AI infrastructure could narrow the path for further gains.

Earnings Momentum and U.S. Equity Targets

Tang notes that U.S. growth should hold up, which underpins a preference for stocks over core fixed income. The S&P 500 target for mid-2027 is set at 8,300, based on expected earnings growth of 23 percent in 2026 and 12 percent in 2027. Recent results reinforce this view. The median S&P 500 company posted a 6 percent earnings surprise in the first quarter, the strongest reading in four years, while earnings revision breadth improved sharply. These figures indicate that the return profile for U.S. equities is currently driven more by improving profits than by valuation expansion alone. Europe and Japan receive more limited support in the outlook, with Europe carrying greater exposure to energy price shocks and emerging markets lacking a comparable broad-based earnings narrative.

Continue reading the full summary in the app — free to try.

Read Full Summary →

Free • No credit card required

Listen to Audio Summary Open in App

What you'll learn

1 (00:18) **Market Context and Core Thesis** - Energy prices and geopolitics create uncertainty, yet corporate investment and AI spending cycles remain supportive
2 (00:58) **Broad Support for Risk Assets** - Macro and micro fundamentals favor equities over core fixed income
3 (01:16) **US Equity Targets and Earnings Path** - S&P 500 mid-2027 target set at 8,300
4 (01:38) **First-Quarter Earnings Strength** - Median S&P 500 company delivered 6% earnings surprise, strongest in four years
5 (01:52) **AI as Primary Earnings Driver** - AI has shifted from hype to large-scale capital spending
6 (02:02) **Revised AI Capex Forecasts** - Combined hyperscaler capex raised sharply to roughly $800 billion in 2026 and $1.16 trillion in 2027
7 (02:43) **Credit Market Side Effects of AI Buildout** - Companies will borrow heavily rather than fund entirely with cash

+ Full timestamped outline available in the app

Show Notes

Our Chief Cross-Asset Strategist Serena Tang explains why investors should stay constructive in 2026, even as oil prices and geopolitics add volatility.

Read more insights from Morgan Stanley.

----- Transcript -----

Welcome to Thoughts on the Market. I’m Serena Tang, Morgan Stanley’s Chief Cross-Asset Strategist. Today: our mid-year market outlook across regions and asset classes.

It’s Friday, May 15th, at 10am in New York.

If you’ve winced at the gas pump, hesitated before booking a flight, or checked your 401(k) a little more often than usual, you already understand the forces driving markets now. Energy prices and geopolitics are creating real uncertainty. But underneath that uncertainty, companies are still investing, earnings are still holding up, and AI is becoming one of the biggest spending cycles in the global economy.

That’s why our message for the rest of 2026 is – be constructive, not complacent.

Let’s start with the constructive part. Across markets, macro and micro fundamentals support risk assets. In the U.S., growth should hold up. For investors, this suggests favoring stocks over core fixed income and developed-market equities — especially the U.S. – in particular. Our U.S. Equity Strategist’s S&P 500 target for mid-2027 stands at 8,300, supported by expected earnings growth of 23 percent in 2026 and 12 percent in 2027. The momentum in returns is coming from improving earnings.

Now, a striking data point: the median S&P 500 company delivered a 6 percent earnings surprise in the first quarter – the strongest in four years. Earnings revisions breadth also improved sharply.

AI explains a major part of that strength. It has become a capital spending story – and increasingly, a credit market story. A year ago, we projected combined capex for the biggest hyperscalers at around [$]450 billion in both 2026 and 2027. Now, that estimate has moved to roughly [$]800 billion in 2026 and [$]1.16 trillion in 2027. AI infrastructure – data centers, power, chips, networks – should shape equities, credit, rates and even commodities for years to come.

But here’s where the not complacent part matters.

There’s another side to the AI boom. Building all those data centers, chips, power systems and networks requires significant investment. And companies won’t fund all of it with cash. Many will borrow. That means more corporate bonds coming to market, especially from high-quality U.S. companies. Even if those companies look financially healthy, investors may demand better terms when they have so many new bonds to choose from. So, AI can support earnings, but it can also put some pressure on credit markets.

Energy prices also pose major risk. Our base case assumes de-escalation and a gradual reopening of the Strait of Hormuz, but the ra