UBS recently highlighted in a report that the U.S. stock market outlook remains optimistic, supported by resilient economic growth, declining interest rates, and sustained enthusiasm for artificial intelligence (AI) investments. The report, led by David Lefkowitz, Chief Investment Officer and Head of U.S. Equities at UBS, reaffirmed a "positive view" on U.S. equities, noting that "the macro backdrop for U.S. stocks remains favorable, driven by resilient economic expansion, Federal Reserve rate cuts, and the AI investment wave."
UBS projects the S&P 500 to reach 7300 by June 2026, climbing further to 7700 by December 2026. The bank also forecasts earnings per share (EPS) for S&P 500 constituents to hit $277 in 2025, reflecting an 11% year-over-year increase, followed by a 10% rise to $305 in 2026.
The bank attributes its bullish outlook to a combination of earnings growth, accommodative monetary policy, and AI monetization. It also observed that U.S. stock performance this year has aligned with fundamentals, with "a notably strong positive correlation between bottom-up EPS revisions and market returns" amid the Fed's pause on rate hikes.
Looking ahead, UBS expects supportive market conditions in 2026, citing a "very low" likelihood of further rate hikes and sustained corporate earnings growth around 10%. The report emphasized additional tailwinds from fiscal and monetary policies, including tax relief measures and recent Fed rate cuts, which should benefit consumers and businesses.
However, UBS flagged three key risks: weaker-than-expected earnings, higher-than-anticipated inflation, and signs of overinvestment in AI infrastructure. Still, the bank noted that "the probability of these risks materializing remains relatively low."
Under its base-case scenario, UBS believes the core drivers of the current market rally "will persist, propelling stocks higher through 2026."
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