UBS Group AG remains optimistic about the US stock market, rejecting the "bubble" theory, and has once again raised the target price of SPDR S&P 500 to 5400.

The AI ​​boom is driving the continuous rise of US stocks, with some analysts comparing the current trend to the "dot-com bubble." Amid market concerns, UBS Group AG has once again raised the target price of SPDR S&P 500, stating that "the previous optimism was not enough."

In its report last week, UBS Group AG raised the target price of the SPDR S&P 500 index to 5400 points, which is about 6% higher than the closing price of 5088 points last Friday.

It is worth noting that this is the second time UBS Group AG has raised its target price. The target price announced on December 11 last year was 4850 points, which was raised to 5150 points on January 16.

In the latest report, UBS Group AG strategist Jonathan Golub pointed out:

Although we are optimistic about the prospects of US stocks, it seems that the previous level of optimism was not sufficient. The strong US economy and rising inflation reflect strong demand, which is positive for stock prices.

At the same time, UBS Group AG has raised its earnings expectations and implied growth forecasts for the next two years, increasing the earnings expectations for 2024 and 2025 from $235 to $240 and from $250 to $255, respectively. This implies growth rates of 9.1% and 6.3% over the next two years.

Regarding the reasons for the upward adjustment, UBS Group AG has provided two points. First, inflation driven by demand is beneficial for stock prices and corporate profits:

• Higher inflation tends to be beneficial for stock prices. Although the market was sold off last week due to stronger CPI and PPI reports, our research shows that this demand-driven inflation is constructive for future returns.

• Greater inflation means enhanced pricing power, which is favorable for profit margins. Since the beginning of the earnings season, fourth-quarter earnings per share expectations have been soaring. Assuming that the growth rate for the remaining time of this quarter exceeds expectations, the fourth-quarter earnings per share growth rate will reach 10.8%. Secondly, a strong economy is driving the U.S. stock market. UBS Group AG has listed a series of signs of a robust economy:

• Since August last year, market forecasts for GDP in 2024 have been on the rise;
• Despite the U.S. ISM index still being in the contraction zone, there has been some improvement, with new orders and payment prices entering a clear expansion zone;
• Non-farm employment increased significantly by 353,000 in January, the largest increase since January 2023;
• Loan standards have recently eased, which is a positive sign for the economy;
• The U.S. consumer confidence index has risen for the third consecutive month, reaching the highest level since 2021;
• Economists believe that there is a 45% chance of a recession in the next 12 months, lower than 50% in December last year and 65% in June this year.

In addition, UBS Group AG has upgraded financial stocks from neutral to overweight and changed the rating of healthcare stocks to neutral. They stated that due to the continued strength of the economy, there are greater opportunities in cyclical sectors. Financial stocks benefit from rising interest rates, a recovery in M&A activities, and relaxed loan standards.