Strategists at UBS Global Wealth Management project that the S&P 500 could climb to 7,700 by the end of 2026, marking a 16% increase from current levels, primarily driven by the "Magnificent Seven" tech giants and accelerating AI influence.
Mark Haefele's team highlights that strong consumer demand, supportive monetary policy, and fiscal stimulus reinforce the optimistic market outlook.
The 7,700 target for the S&P 500 represents the base-case scenario. In a bullish scenario, the index could reach 8,400, while a bearish scenario might see it drop to 4,500.
Key assumptions in the base case include: - The 10-year U.S. Treasury yield declining from 4.14% to 3.75%. - The EUR/USD exchange rate rising from 1.15 to 1.20, as U.S. rate cuts weigh on the dollar.
Strategists forecast S&P 500 earnings per share (EPS) to reach $305 in 2026, reflecting 10% growth.
UBS has upgraded its rating on European equities to "attractive," with a focus on the Eurozone. - Profit growth is expected to accelerate to 7% in 2026 and 18% in 2027.
AI-related stocks are poised for further gains in 2026, supported by a "strong trend" in capital expenditure (capex) and faster adoption driving additional upside. - Global AI-related capex is projected to accumulate an additional $4.7 trillion from 2026 to 2030, with $2.4 trillion already planned. - Estimated spending in 2026 is $571 billion, in line with prior forecasts, compared to $423 billion in 2025.
The firm recommends allocating no more than 30% of equity portfolios to AI, power & resources, and longevity industries. While AI investments hold significant revenue potential, monetization currently lags behind capex growth.
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