As the US stock market engine "stalls", UBS once again raises the target price for the S&P 500 index
UBS once again raised its target price for the S&P 500 index, expecting the index to reach 5900 points by the end of this year and 6200 points by mid-2025. They believe that the fundamentals of the US stock market are favorable, with a solid economic growth foundation, a healthy labor market dynamic, and further growth in consumer spending. It is expected that the Federal Reserve will begin cutting interest rates in September. The UBS team believes that there is strong demand for artificial intelligence infrastructure, with technology companies leading the competition in the emerging artificial intelligence ecosystem, and companies in various industries hoping to deploy artificial intelligence tools. They are maintaining the earnings target for the S&P 500 index at $250 per share, with next year's target adjusted to $270 per share. The UBS team believes that valuations are reasonable, and stocks typically perform well in the 12 months before and after the first rate cut by the Federal Reserve in the context of a soft landing
Amid concerns that the sudden "car crash" of tech giants may signal the beginning of a major rotation, UBS has once again raised its target price for the S&P 500 Index (SPX).
UBS's Chief Investment Office remains optimistic about the outlook for US stocks, expecting the S&P 500 Index to reach 5900 points by the end of this year and 6200 points by mid-2025. This is an increase from their previous forecast of 5500 points by December and 5600 points by June 2025.
The S&P 500 Index has retraced 2% from its historical high, while the Nasdaq Composite Index is 4% below its peak.
UBS stated that the fundamentals of US stocks are favorable due to robust earnings growth, sustained downward trend in inflation, the Fed's shift to rate cuts, and surging investments in artificial intelligence.
Despite a slight slowdown in economic growth, UBS believes that the foundation for growth remains solid. Healthy dynamics in the labor market will continue to support further growth in consumer spending.
Like many others, the UBS team expects the Fed to begin cutting rates in September. They believe that the second quarter earnings season has started off well, even though large tech companies have not yet reported earnings.
They stated, "We believe that with tech companies vying for leadership in the emerging AI ecosystem and companies across industries looking to deploy AI tools in their business processes, the demand for AI infrastructure will be strong, thus the trend in this area will remain robust."
Therefore, UBS is maintaining its earnings target for the S&P 500 Index at $250 per share, but has raised next year's target from $265 to $270 per share.
Is the high valuation of US stocks worth questioning? In response to this, the UBS team answered, "From a macro perspective, valuations are reasonable. Historically, when the Fed cuts rates in the context of a soft landing, stocks tend to perform well in the 12 months before and after the first rate cut."
In their bullish scenario, if the Fed's rate cuts stimulate an investment and innovation boom, the S&P 500 Index will soar to 6500 points this year. In the bearish scenario, if inflation remains subdued, rising rates drag on economic growth, and/or geopolitical tensions escalate, the S&P 500 Index will decline to 4800 points