- With US indexes at all-time highs, investors shouldn't take it as a sign markets are peaking, UBS said.
- The S&P 500 has spent most of the past 60 years trading within 5% of its record highs.
- UBS holds the highest year-end target for the index at 5,400.
US stock indexes keep notching fresh records with few signs of a permanent stall out. For those worried that all-time highs signal an imminent peak, this is rarely the case, UBS wrote in a blog post on Wednesday.
For the past six decades, the S&P 500 spent 60% of that time within 5% of a record high, and pullbacks have seldom occurred on a long-term horizon.
"We continue to believe that investors should stay invested, and that a diversified, balanced portfolio remains the best way to preserve and grow wealth," UBS said.
This time around, stocks are gaining on bets that the US economy could avoid a recession, as consumers continue to spend and the labor market shows little signs of a meaningful slowdown.
This week, investors also shrugged off the latest inflation data, which slightly topped forecasts. However, it wasn't enough to shift interest rate outlooks, with traders still eyeing rate cuts to come this summer.
What's more, UBS has previously noted that higher inflation is typically a positive for stock prices, as demand-driven readings boost future returns.
Estimate-beating earnings were only another prop for bullish investors following the fourth quarter, while the frenzy around artificial intelligence isn't dying down. Tech stocks have led the way, drawing comparisons to the 1995 boom, when the dawn of the internet spurred a major bull run.
Since the start of this year, the S&P 500, Nasdaq, and Dow Jones Industrial Average have all hit a string of new records. In late February, UBS lifted its year-end target for the S&P 500 to 5,400, marking the highest forecast on Wall Street.
Bank of America has since followed with the same outlook. Behind them are Goldman Sachs, Morgan Stanley, and JPMorgan, with targets of 5,200, 4,500, and 4,200, respectively.
While UBS doesn't think investors should shy away from US equities, the bank touted diversification to hedge risk. In its blog post, it suggested a focus on global exposure. Compared to a singly-country investment, a capitalization-weighted, 21-country portfolio can reduce risk by 40%.
Otherwise, traders looking to diversify into fixed income can achieve enhanced returns from high-quality corporate bonds, as opposed to government debt.