- UBS increased its S&P 500 year-end price target to 5,900, marking the fourth increase from the bank this year.
- UBS said favorable market conditions remain due to profit growth, disinflation, and AI investments.
- It added that the S&P 500 could surge 17% to 6,500 by year-end in a bull-case scenario.
UBS is once again raising its year-end price target for the S&P 500.
For the fourth time this year, UBS raised its price target on Thursday, with the bank expecting the S&P 500 to finish the year at 5,900, representing potential upside of 7% from current levels.
The bank also set a bull-case scenario target of 6,500 for the end of the year, representing potential upside of 17%.
UBS initially had a year-end price target of 4,850. The bank raised it to 5,150 in January, to 5,400 in February, and to 5,600 in May.
"We believe the market backdrop remains favorable due to: 1) solid and broadening profit growth, 2) disinflation, 3) a Federal Reserve pivoting to rate cuts, and 4) surging investment in AI infrastructure and applications," UBS CIO head of US equities David Lefkowitz said in a note.
Lefkowitz said the stock market's strong 16% year-to-date rally has been supported by solid earnings growth, and that trend should continue well into 2025.
UBS expects S&P 500 earnings per share to hit $250 this year, representing year-over-year growth of 11%, followed by 8% growth to $270 in 2025.
Those earnings and price target estimates would represent a historically high price-to-earnings multiple for the S&P 500, but it's warranted, according to Lefkowitz.
"The market P/E is high, but reasonable in the context of the favorable macro environment," Lefkowitz said.
And the stock market's P/E multiple can surge even higher if the bull-case scenario outlined by Lefkowitz materializes.
That scenario is predicated on three things happening.
- The continued advancement of AI technologies
"The impact of artificial intelligence on productivity and earnings growth is larger and comes sooner than investors expect."
- Stronger-than-expected economic growth
"High wages attract even more workers into the labor force, and demand for labor stays strong. Real incomes continue to grow, and household cash cushions remain."
- Cooler-than-expected inflation
"Lingering inflationary pressures dissipate quickly, and the Fed cuts rates more than we expect, lifting estimates for economic growth and corporate earnings."
Finally, Lefkowitz said that despite the recent cooling in economic growth trends, "growth remains on solid footing," with the labor market remaining healthy at 1.2 job openings for every unemployed worker and rising real wages.
And that solid jobs market is what should ultimately support further gains in stock market going forward, according to the bank.