S&P 500: UBS Sees Further Gains Ahead

The S&P 500 rose 0.6% yesterday to its first record close since August, and UBS expects US equities to keep climbing. In a note today, UBS’s Chief Investment Office said the index is up 14.2% so far this year.

The record came with the conflict in the Middle East ongoing and US Treasury yields, the return on government debt, still at multi-decade highs. UBS expects volatility but believes the rally will continue, citing AI investment, earnings and economic growth.

UBS pointed to Marvell, which raised its fiscal 2028 revenue forecast above Wall Street estimates and gave an upbeat long-term outlook on custom data centre chips. UBS reads that as a sign of continued demand for AI compute and infrastructure.

UBS expects global AI-related capital spending to grow 33% to USD 1.2tr in 2027. Consensus estimates, the average of analyst forecasts, have the Nasdaq 100 growing earnings 43% this year and 28% next.

UBS estimates S&P 500 earnings will grow 25% this year and 14% in 2027, with consumer discretionary, financials, industrials, health care and utilities among the sectors it favours. It forecasts US GDP growth of 2.2% this year and 2% in 2027.

That, UBS argues, should help the economy withstand modest Federal Reserve tightening. Across the 16 hiking cycles since 1954, the S&P 500 gained an average 10.8% in the year after the first Fed hike, and UBS believes earnings growth can offset some of the valuation pressure.

UBS forecasts the S&P 500 at 8,400 by June next year. It stresses diversification, and says capital preservation strategies can be considered for more defensive positioning. The forecasts are UBS’s own.