As the sudden "crash" of technology giants has raised concerns about whether the big rotation has begun, UBS has once again raised its target price for the S&P 500 index (SPX).

UBS's Chief Investment Office remains optimistic about the outlook for U.S. stocks, predicting that the S&P 500 will reach 5,900 by the end of this year and 6,200 by mid-2025. Their previous expectations were that the index would reach 5,500 in December and 5,600 in June 2025.

The S&P 500 is 2% away from its all-time high, while the Nasdaq Composite is 4% away from its all-time high.

UBS said the fundamentals for U.S. stocks are favorable due to solid earnings growth, a continued downward trend in inflation, the Federal Reserve's shift toward rate cuts and a surge in artificial intelligence investments.

Although economic growth has cooled, UBS believes that the fundamentals of growth remain solid. Healthy labor market dynamics will continue to support further growth in consumer spending.

Like many, the UBS team expects the Federal Reserve to begin cutting interest rates in September, and they believe the second-quarter earnings season is off to a strong start, even though big tech companies have yet to report.

“We believe trends in this area will remain favorable as demand for AI infrastructure remains strong as technology companies compete for leadership in the emerging AI ecosystem and companies across industries look to deploy AI tools in their business processes,” they said.

As a result, UBS maintained its S&P 500 earnings per share target at $250 but raised its target for next year to $270 from $265.

So is the high valuation of U.S. stocks worth questioning? In response, the UBS team said: "From a macro perspective, the valuation is reasonable. Historically, when the Fed cuts interest rates in the context of a soft landing, stocks tend to perform well in the 12 months before and after the first rate cut."

In their upside scenario, the S&P 500 surges all the way to 6,500 this year if the Fed cuts rates to spur a rush of investment and innovation. In their downside scenario, the S&P 500 slides to 4,800 if inflation remains subdued, rising rates weigh on growth and/or geopolitical tensions escalate.

Article forwarded from: Jinshi Data