UBS says U.S. stock market backdrop remains favorable

Investing.com -- UBS said in a note to clients this week that the outlook for U.S. equities remains constructive, supported by a resilient economy, lower interest rates and ongoing strength in artificial intelligence investment.

In a note headed by David Lefkowitz, UBS’s CIO and Head of US Equities, the bank reiterated its “Attractive view on US equities,” writing that “the backdrop for US stocks remains favorable, driven by resilient economic growth, Fed rate cuts, and a boom in AI investment spending.”

UBS forecasts the S&P 500 will reach 7,300 by June 2026 and 7,700 by December 2026.

The bank’s earnings estimates call for S&P 500 EPS of $277 in 2025, up 11 percent, and $305 in 2026, a further 10 percent gain.

The firm says its optimism is rooted in the combination of profit growth, looser monetary policy and ongoing monetization of AI.

UBS notes that market behavior this year is consistent with fundamentals, pointing to the “reasonably good correlation between changes in bottom-up consensus EPS estimates and market returns” when the Fed is not hiking rates.

UBS also says the environment should stay supportive next year, with the odds of a rate hike “very low” and profit growth expected to run near 10 percent.

The note highlights that fiscal and monetary policy in 2026 should provide an additional boost, as lower taxes on tips and overtime, a higher federal deduction for state and local taxes, and recent Fed cuts all help consumers and businesses.

The bank flags three key risks. These are profit disappointment, higher-than-expected inflation and “signs of over-investment in AI infrastructure,” but UBS stresses that “the likelihood of these risks materializing is relatively low.”

In UBS’s base case, the forces driving markets higher “should remain in place, pushing stocks higher in 2026.”

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