US mega cap stocks are positioned for further gains, supported by the recent fiscal spending bill and an improving earnings outlook, according to Morgan Stanley strategists.
Michael Wilson and his team highlighted that the new $3.4 trillion tax and spending package will likely boost cash flow, particularly benefiting sectors like technology, communication services, health care, and energy.
Additionally, the sharp rise in earnings revisions breadth—the gap between analysts raising vs. cutting earnings estimates—has fueled investor confidence, even amid trade tensions.
“We see strong support for large-cap indices from both the tax bill and positive earnings revisions,” Wilson said in a note.
US stocks recently hit new record highs, driven by optimism that resilient economic growth will sustain corporate profits. Analysts expect S&P 500 earnings to rise 2.5% in Q2, the smallest gain since mid-2023, according to Bloomberg Intelligence.
Wilson remains bullish, citing a favorable stock-picking environment as sectors show divergent earnings trends, especially in financials and industrials where profit upgrades have accelerated.
Still, risks remain. President Trump’s trade war is keeping pressure on profit margins, with a new 30% tariff threat on Mexico and the EU raising concerns.
Goldman Sachs warned that shrinking margins could lower its forecast for 7% S&P 500 EPS growth in 2026, though fiscal stimulus may offset this by driving revenue expansion.