This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:
Last week, fears over the US economy slowing more than initially thought took center focus as the major indexes experienced the worst single-day drop of the summer.
That was the headline takeaway from the busiest week of data releases slated for the summer of 2025.
But underneath the surface, there are still plenty of reasons to feel confident in the path higher for the S&P 500 (^GSPC), according to Wall Street strategists — a confidence that seemed to roar back on Monday as the S&P 500 jumped 1.5%.
Besides the dour jobs report, investors also learned that the S&P 500 is pacing for year-over-year earnings growth of 10.3%, well above the 5% expected entering the reporting period, per FactSet data.
On top of that, we heard Big Tech giants say they’re set to spend another $364 billion in AI investments during 2026, and third quarter earnings estimates for the S&P 500 weren’t slashed during the first month of the quarter for the first time in over a year.
In other words, while the US economic growth story is taking hits, the fundamental driver of the AI-driven bull market is absolutely cooking. That made Mike Wilson and the equity strategy team at Morgan Stanley declare “we’re buyers of pullbacks,” and that the team is bullish over the next 12 months.
“While there’s risk in the near-term, we are gaining confidence in our 12-month bullish view fueled by better earnings/cash flow growth,” Wilson wrote. “The drivers include positive operating leverage, AI adoption, dollar weakness, cash tax savings from the [One Big Beautiful Bill], easy growth comparisons, and pent up demand for many sectors in the market.”
BlackRock’s Investment Institute, led by Jean Boivin, wrote in a weekly market commentary note that there is a clear “tug-of-war” between the economic drag of tariffs and US corporate resilience driven by AI.
They, too, are taking their signal from the latter.
“Questions remain about who will pay for tariffs,” Boivin’s team wrote. “Early signs indicate a mix of consumers and companies. We think US corporate strength could cushion the blow and stay overweight the AI theme and U.S. stocks.”
In a research note summing up earnings reports seen from more than two-thirds of S&P 500 companies this quarter, Bank of America Securities head of US equity and quantitative strategy Savita Subramanian wrote that the “AI arms race is alive and well.”
