Morgan Stanley: S&P 500 Pullbacks Shallow on Earnings Beats, AI Surge

Morgan Stanley chief equity strategist Mike Wilson reiterates in today's update that S&P 500 pullbacks will be shallow as market risks fade, driven by cyclical earnings recovery. Earnings surprises run at twice the long-term average, with April revisions boosting Q2 estimates by 2% and full-year 2026 by 3%; capex grows 10%, sales surprise by 2%, and AI exposure among constituents doubled to 25% in Q1 2026 from 13% a year ago. Morning note highlighted business cycle strength and passive investor under-allocation, supporting fleeting dips despite Fed or inflation volatility.