By Sagarika Jaisinghani

(Bloomberg) — Robust corporate earnings will power the US stock rally in 2026 as risks around an uncertain rates outlook prove short-lived, according to some Wall Street strategists.

Morgan Stanley’s Michael Wilson said there were “clear signs” that an earnings recovery was underway and that US firms were enjoying better pricing power. He also pointed to a trough in earnings revisions, which is the number of analysts downgrading versus upgrading estimates.

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“While overhangs from Federal Reserve guidance and the shutdown have weighed on recent price action, these are temporary headwinds on the way to a solid 2026 driven by earnings growth,” Wilson wrote in a note.

The strategist has remained among the more bullish voices this year even as equities were roiled by a ramp up in US trade tensions, and more recently, a prolonged government shutdown. A cautious tone on interest rates by Fed Chair Jerome Powell had also dented sentiment.

However, US stock futures rallied Monday as the Senate took a major step toward re-opening the government. Meanwhile, the earnings season has been much stronger than expected, with S&P 500 companies posting a nearly 15% jump in third-quarter profits, according to data compiled by Bloomberg Intelligence.

The S&P 500 remains 14% higher in 2025, tracking a third straight year of gains.

A Citigroup Inc. index showed more analysts have raised rather than cut estimates since mid-October. The focus now turns to Nvidia Corp.’s results due next week for clues on the trends in artificial intelligence.

UBS Group AG strategists said they expect tech companies to again drive a bulk of US earnings growth next year. Overall, they forecast the S&P 500 to hit a record 7,500 points by end-2026, implying gains of over 11% from current levels.

At Oppenheimer Asset Management, strategist John Stoltzfus said it was too early to “give up on” chipmakers and the outlook for AI.

“The softening in stock prices reflected in the major indexes at present looks like something between a ‘haircut’ and a ‘trim’ rather than the beginning of a more serious period of decline,” Stoltzfus said.

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