Morgan Stanley Tips Long US Bull Run and Softer Dollar

A note from Morgan Stanley, an investment bank, suggests that United States (US) stock markets may lead the world through 2026. According to the bank, a mix of government spending, lower interest rates, and lighter regulation is coming together in a way that rarely happens outside a recession, giving US shares unusually strong support.

Morgan Stanley argues that American stocks will beat markets in Europe, Japan, and China, helped by Federal Reserve rate cuts, efficiency gains from artificial intelligence (AI), and a reduction of over $100 billion in US corporate tax bills through 2026 and 2027 from the One Big Beautiful Bill Act [this is an economic omnibus bill that has been driven by the Trump administration].

The bank expects the US dollar to keep weakening in the first half of 2026, adding to the more than 10% drop seen in early 2025. For South Africa, that points to the rand strengthening towards 16.50 to the American dollar by midyear.

However, Morgan Stanley expects the dollar to recover in the second half of next year as interest rate cuts slow and investor sentiment adjusts. European currencies, which were strong in 2025, are expected to soften as the European Central Bank and Bank of England cut rates.

US government bonds are likely to rally early in 2026 as the rate cut cycle slows and central banks shift away from fighting inflation. The ten-year Treasury yield is expected to fall before rising again to just above 4% by year-end. Morgan Stanley’s preferred strategy remains overweight equities, equal-weight fixed income, and underweight commodities and cash, with a clear bias toward US markets.

Credit markets are expected to be shaped by huge funding needs for AI and data-centre infrastructure, with only a small share of the expected spending committed so far.

The bank is generally positive on commodities, favouring copper and aluminium because of tight global supply, while expecting Brent crude to trade near $60 a barrel as rising supply limits price increases. Gold is set to remain strong on solid physical demand and lower interest rates.

Overall, the bank believes global inflation will slow and growth will move toward a steadier path by 2027.