(Reuters) -UBS Global Research on Tuesday raised its year-end forecast for the benchmark S&P 500 index to 5,400, marking the highest projection among major global brokerages.
The latest forecast indicates an upside of about 8% to the index's last close of 5,005.57.
The brokerage had raised its forecast previously to 5,150 in January on growing bets of the U.S. Federal Reserve cutting interest rates this year, a decline in inflation and resilient earnings expectations.
But earlier this month hot consumer prices and producer prices reports renewed fears of a pick-up in inflation after months of cooling that could potentially further delay interest-rate cuts.
"Higher (U.S.)inflation tends to be a positive for stock prices. Stronger inflationary pressures represent increased pricing power, a benefit to margins," UBS said, adding that economic data been strong since the start of the year.
The brokerage raised its earnings-per-share estimate for the benchmark index to $240 from $235 for 2024, implying a 9.1% growth compared to consensus estimate of 10.5%.
The benchmark index has seen on strong rally to breach the 5,000 mark, boosted primarily by the Magnificent 7 stocks and optimism around artificial intelligence.
Traders are betting on a 53.1% chance for the Fed to cut rates by 25 basis points in June, according to the CME FedWatch tool.
UBS also revised its ratings for a couple of sub-sectors of the S&P 500 index. It upgraded the financials sector to "overweight" from "neutral", supported by the resurgence in deals and easing lending standards.
UBS also downgraded the health care sector to "neutral" from "overweight."