UBS Group’s global wealth management business has raised its year-end target for the S&P 500 index to 5,200, citing a surge in investment in artificial intelligence and better-than-expected corporate profits.
The S&P 500, the U.S. large-cap index, rose above 5,100 on Friday morning, boosted by AI-beneficiary Nvidia.
NVDA
The index hit a closing high of 5,087.03 on Thursday, according to FactSet data. Around noon on Friday, the index SPX was trading slightly higher at around 5,097 as NVIDIA’s stock price continued to rise following the outperformance.
“More than a year after ChatGPT was first introduced, it has sparked an AI arms race that shows no signs of slowing down,” said David Lefkowitz, head of U.S. equities at UBS Global Wealth Management. said David Lefkowitz, head of U.S. equities at UBS Global Wealth Management. The market is closed on Thursdays. “Our revised price target suggests modest upside through the end of the year, and our tactical asset allocation maintains a neutral allocation to U.S. equities.”
UBS’s new year-end target for the S&P 500 index of 5,200 is 200 points higher than the previous benchmark, a bank spokeswoman said. The “upside scenario” for the U.S. stock index in December is now 5,500, up from 5,300, a spokesperson said in an email.
“While recent economic indicators have been mixed, we believe the backdrop for U.S. stocks remains supportive given healthy economic growth, suppressed inflation, the Fed’s focus on lowering interest rates, and rapid growth in AI investment,” Lefkowitz said. ” “We expect three rate cuts in 2024, with the first rate cut starting in June.”
The Fed’s benchmark interest rate is currently within its target range of 5.25%-5.5%.
read: Goldman Sachs expects first U.S. interest rate cut in June, but only four cuts in total in 2024
Under UBS’s “central scenario” for this year’s S&P 500 index, Lefkowitz expects “consumer spending should continue to be supported by healthy labor market dynamics.” He cited manufacturing and construction as a base case, with first-time claims for unemployment benefits remaining low and jobs continuing to be added in “the most cyclical sectors of the labor market.” He said there was.
The S&P 500 index is up 6.9% so far this year and has soared 24.2% in 2023, based on trading levels around noon Friday, according to FactSet data.
“While U.S. stocks have performed very well in recent months, we believe the key drivers of the market remain supportive,” Lefkowitz said. “Not only did the fourth quarter performance itself exceed our expectations, but the guidance was solid,” he said of the company’s earnings.
Under UBS’s “upside scenario,” AI is a “game changer” in that its impact on productivity and profit growth will be “significant and emerge sooner than investors expected,” according to the memo. That’s what it means. Also, in UBS’s S&P 500 “up” case, inflation will cool faster than expected.
Meanwhile, “some sentiment and positioning indicators” for the U.S. stock market appear to be “up”, with UBS warning of “increasing risk of modest declines in the coming months,” Lefkowitz said. said. “It could provide investors with a better opportunity to increase their stock positions.”
U.S. stock markets were mostly up around midday Friday, with the S&P 500 up 0.2%, the Dow Jones Industrial Average DJIA up 0.4% and the Nasdaq composite COMP almost flat, according to FactSet data. FactSet data shows that there was. All three benchmarks were trending upward on a weekly basis.
