UBS ratchets up S&P 500 outlook on positive economic data

NEW YORK: UBS Group AG raised its end of the year forecast for the S&P 500 Index for the second time since December, as Wall Street strategists struggle to keep pace with the market’s strong start to 2024.

The bank, in a Tuesday, note cited the sturdy economy and inflation data that reflects solid demand, which it sees as supporting equity prices.

The update came a few days after Goldman Sachs Group Inc also boosted its view on US equities for the second time since late last year.

At UBS, strategists Jonathan Golub and Patrick Palfrey now expect the S&P 500 to end 2024 at the 5,400 level, implying roughly 8% upside from last Friday’s close of 5,005.57.

The target ties for the highest on Wall Street along with Ed Yardeni’s firm, Yardeni Research.

Golub and Palfrey lifted their forecast to 5,150 on Jan 16, from a call of 4,850 originally published Dec 11.

“Despite our bullish outlook, it appears we were not bullish enough,” the UBS strategists wrote in a note to clients. While the market sold off on robust consumer and produce price data last week, “our work indicates these demand-driven readings are constructive for future returns”.

US equities fell on Tuesday, extending last week’s decline as data, including the hotter-than-forecast inflation readings, dented speculation around the prospect of imminent interest rate rate cuts.

The S&P 500 is still up roughly 4% this year, buoyed in part by optimism around artificial intelligence.

UBS also increased its earnings expectations for the next two years, boosting its S&P 500 earnings-per-share forecasts to US$240 from US$235 in 2024, and to $255 from US$250 in 2025.

Separately, it turned overweight from neutral on financials and switched to neutral on healthcare, citing greater opportunity in cyclical sectors, given the robust economy.

The strategists also said financials will benefit from factors including higher interest rates and the potential for resurgent M&A activity.

Bank of America Corp is among other Wall Street firms signalling an inclination to increase end of the year targets.

Savita Subramanian said that the firm’s target “is probably too low in the near-term”.

The average S&P 500 target from sell-side strategists tracked is 4,833, roughly 3% below last Friday’s close. — Bloomberg