UBS Stays Constructive on S&P 500 Despite Fed Hike Bets

UBS has reiterated a constructive view on U.S. equities inits latest daily update note on Monday, saying it expects the S&P 500 to move higher even as investors ramp up bets on Federal Reserve rate hikes.

The bank’s Chief Investment Office noted sentiment turned cautious as August inflation data strengthened the case for tightening, with core consumer prices up 0.3% month over month, above forecasts.

Futures now price a near 90% chance of a 25-basis-point hike this week and about 90 basis points of increases over the next 12 months.

While higher rates, calls to slow AI model development and rising oil prices pose risks, UBS said these are likely to drive volatility rather than derail the rally.

“We maintain our constructive outlook and expect the S&P 500 to move higher,” it wrote.

The firm argued that “Fed hikes alone do not undermine equity fundamentals,” noting they historically weigh on stocks only when growth falters.

It pointed to a resilient economy, with manufacturing activity expanding for eight straight months, and forecast S&P 500 earnings growth of 25% this year and 14% in 2027. A shallow hiking cycle also makes a near-term recession unlikely, it said.

On AI, UBS said growing demand and monetisation keep the story intact, expecting investment to continue as adoption rises. It noted token volumes have jumped about 176% since the end of June even as pricing fell around 42%, and retained a forecast for AI capital spending to rise 33% to $1.2 trillion in 2027.

The bank advised staying positioned for further gains through diversification.