Despite Market Fluctuations, This Firm Boosts S&P 500 Target – Here’s Why

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Correction: Thursday’s Need to Know newsletter incorrectly reported the Nasdaq Composite’s performance. The decline on Wednesday was the sharpest since mid-December 2022.

Despite recent market turbulence, the S&P 500 is only 2% away from a record high, and the Nasdaq Composite is just 4% from a new peak.

Taking an optimistic stance, the UBS chief investment office has raised its S&P 500 target to 5,900 by the end of the year and 6,200 by mid-2025. Previous targets were 5,500 for December and 5,600 for June 2025.

UBS cites several positive factors for U.S. equities: strong earnings growth, disinflation, the Fed’s anticipated rate cuts, and increasing investments in artificial intelligence.

“While economic growth readings have cooled, we believe growth remains on solid footing. Healthy labor market dynamics should continue to support further gains in consumer spending,” said strategists led by David Lefkowitz.

UBS, like many others, expects the Fed to start cutting rates in September. They note that the second-quarter earnings season has started well, though the mega-cap tech companies have yet to report. “We think trends in this segment will remain favorable with strong demand for AI infrastructure as tech companies jockey for leadership positions in the emerging AI ecosystem, and companies across the economy look to deploy AI tools into their business processes,” they say.

Consequently, UBS has maintained its S&P 500 earnings per share target at $250 and raised next year’s target to $270 from $265.

Addressing concerns about high valuations, UBS argues that they are reasonable given the macro environment. “Historically, when the Fed is cutting rates in the context of a soft landing, equities tend to perform well in the 12 months before and after the first Fed rate cut.”

In their optimistic scenario, UBS sees the S&P 500 surging to 6,500 this year if the Fed cuts rates amid an investment and innovation boom. Their downside scenario predicts the S&P 500 could drop to 4,800 if inflation remains stubborn, higher rates weigh on growth, or geopolitical tensions escalate.

Markets

U.S. stock-index futures (ES00, YM00, NQ00) are inching up, with benchmark Treasury yields mixed. The dollar index is higher, oil prices (CL) have slipped, and gold (GC00) is trading around $2,417 an ounce.