U.S. stocks have been reaching new highs this year, with the S&P 500 index up more than 23%. The ongoing bull market has sparked discussions on whether it's nearing an end. However, UBS remains optimistic, forecasting further gains. UBS strategists predict the S&P 500 will hit 6600 points by the end of next year, driven by the U.S. economy's promising "no-landing" scenario.
In this scenario, economic growth continues alongside a robust job market, with inflation and interest rates slightly higher than previously expected under hard or soft landing outcomes. UBS's forecast suggests a nearly 13% rise from current levels for the S&P 500.
Recently, on a Monday, the major U.S. stock indices showed mixed performance, with the S&P 500 slightly down by 0.18% to 5853.98 points. Despite this minor dip, the index reached an all-time high last Friday, marking a six-week streak of gains.
UBS strategists have upgraded their rating for U.S. stocks from neutral to attractive, citing improved U.S. macroeconomic conditions as a key factor for increased confidence in the market. Data indicate strong economic fundamentals in the U.S.
The U.S. job market shows resilience despite tightening financial conditions and rising interest rates. The U.S. Labor Statistics Bureau reported a gain of 254,000 jobs in September, significantly exceeding expectations of 147,000, while the unemployment rate fell to 4.1%, near historic lows.
Economic activity remains robust, with retail sales in September rising by 0.4% and the second-quarter GDP growing by 3% year-over-year.
Inflation rates are approaching the Federal Reserve's 2% target, with September's consumer price index (CPI) rising 2.4% year-over-year, and the Fed's preferred inflation gauge, the personal consumption expenditures price index (PCE), increasing 2.2% year-over-year in August, the lowest since 2021.
UBS notes that cooling price increases lay the groundwork for the Federal Reserve to continue cutting interest rates, which would benefit the stock market. According to CME's Fedwatch tool, there is a 72% probability of a 50 basis point rate cut by the Fed before the end of the year.
UBS strategists acknowledge potential volatility ahead of the November elections, but they believe it will not derail positive market catalysts. They expect increased market volatility due to a lack of clear advantage for either party in key swing states. However, this election occurs alongside favorable long-term trends, such as Fed rate cuts, strong economic momentum, and advancements in artificial intelligence.
Considering the recent start of the Fed's rate-cutting cycle, Wall Street strategists generally have a positive outlook for U.S. stocks. Major international banks, including Goldman Sachs, UBS, and Deutsche Bank, have recently raised their year-end target prices for the S&P 500.
