Good morning, especially if you have successfully managed to boot up your personal computer, because many around the globe have not. More on that later.
Thursday’s emailed Need to Know newsletter contained an error: the Nasdaq Composite’s decline on Wednesday was the sharpest since mid-December 2022.
While the market may feel turbulent, the S&P 500 is only 2% away from a record high, and the Nasdaq Composite is just 4% from a new peak.
Adopting a glass-half-full approach, the UBS chief investment office has now set its S&P 500 target at 5,900 by the end of the year and 6,200 by mid-2025. Their previous targets were 5,500 in December and 5,600 in June 2025.
UBS attributes this optimism to favorable conditions for U.S. equities, including solid earnings growth, disinflation, anticipated Fed rate cuts, and surging investments in artificial intelligence.
“While economic growth readings have cooled, we believe growth remains on solid footing. Healthy labor market dynamics should continue to support further gains in consumer spending,” said strategists led by David Lefkowitz.
Like many, the UBS team expects the Fed to begin cutting rates in September. They note that second-quarter earnings season has started well, although the mega-cap tech companies have yet to report. “We think trends in this segment will remain favorable with strong demand for AI infrastructure as tech companies jockey for leadership positions in the emerging AI ecosystem, and companies across the economy look to deploy AI tools into their business processes,” they say.
As a result, UBS has maintained its S&P 500 earnings per share target at $250, raising next year’s target to $270 from $265.
Regarding lofty valuations, the UBS team argues that they are reasonable given the macro environment. “Historically, when the Fed is cutting in the context of a soft landing, equities tend to perform well in the 12 months before and after the first Fed rate cut.”
UBS’s upside scenario sees the S&P surging to 6,500 this year if the Fed cuts rates amid an investment and innovation boom. Conversely, their downside scenario has the S&P sliding to 4,800 if inflation remains stubborn, higher rates weigh on growth, or geopolitical tensions escalate.
Markets
U.S. stock-index futures (ES00, YM00, NQ00) are inching up as benchmark Treasury yields are mixed. The dollar index is higher, while oil prices (CL) have slipped, and gold (GC00) is trading around $2,417 an ounce.
