S&P 500 Outlook: UBS Says These Key Factors Point to Further Upside

UBS’s Chief Investment Office believes the S&P 500 has further room to climb, arguing that “constructive fundamentals” continue to underpin the rally despite recent bouts of volatility tied to leveraged position unwinds.

In its most recent CIO Daily Update, UBS pointed to a sharp improvement in investor sentiment after hyperscalers reported accelerating cloud growth and signalled fresh increases in AI capital spending.

The Philadelphia Semiconductor Index jumped 8.2% in a single session — its best day in over 15 months — while the S&P 500 gained 1.7%. Amazon posted its fifth consecutive quarter of cloud revenue acceleration, following Microsoft’s fastest cloud growth in four years, reinforcing UBS’s bullish stance on the AI investment cycle.

The bank now expects total AI spending to reach $900 billion in 2026 and $1.2 trillion in 2027, though it advises selectivity within semiconductors and hardware given a higher bar for spending to extend into 2028.

On monetary policy, UBS noted the Federal Reserve held rates steady, with Chair Kevin Warsh favouring “watchful thinking” over urgency to act. Core PCE inflation rose just 0.1% month-on-month in June, the smallest gain since March 2025, supporting UBS’s view that fading tariff effects will drive further disinflation and keep the Fed from tightening aggressively.

Despite second-quarter US GDP growth slowing to an annualised 1.5%, below expectations, UBS highlighted resilient consumer spending and robust AI-related business investment as key growth drivers. The bank still forecasts 20% earnings-per-share growth for the S&P 500 this year.

UBS concluded that investors should maintain broadly diversified equity exposure, favouring financials, health care, consumer discretionary, industrials, and utilities to capture the widening set of opportunities as the bull market broadens beyond mega-cap tech.