UBS Global Research has increased its year-end target for the S&P 500 index to 5,850 points, up from its previous estimate of 5,600. This revision is attributed to corporate profit growth, a favourable macroeconomic environment, and expected interest rate cuts.
The index, which has risen by 22.85 per cent so far in 2024, reached a record closing high of 5,859.85 points the previous day.
“Rate cuts should reduce interest expenses and default risks, which will contribute to both earnings-per-share (EPS) and valuations,” said UBS analysts led by Jonathan Golub.
They added that improved financial conditions suggest less stress and greater liquidity, which would benefit valuations.
UBS also revised its 2025 year-end target for the S&P 500 to 6,400 from its earlier prediction of 6,000, stating that strength in technology stocks could further boost the index.
In September, the US Federal Reserve began a series of anticipated interest rate cuts, including a larger-than-expected reduction of half a percentage point. Federal Reserve Chair Jerome Powell indicated that this move was aimed at maintaining low unemployment levels as inflation eased.
UBS forecasts that the Federal Reserve will reduce interest rates by 250 basis points by 2026, noting that this sharp decline in rates could likely increase profit margins by 20 basis points.
