Investing.com -- UBS raised its target on the S&P 500 from 5,800 to 6,000 and initiated a June 2026 target of 6,400. The move follows better first-quarter earnings results and expectations of higher GDP growth in the second half of 2025. The new targets represent 2.7% upside through year-end and 9.6% upside through mid-year next year.
The firm’s CIO, David Lefkowitz, made the move despite downgrading U.S. equities from Attractive to Neutral on May 12th, following the sharp bounce-back in stocks following the tariff de-escalation. Despite the downgrade, the firm is not negative on stocks and believes the bull market is intact.
“We believe the bull market is intact, and stocks will likely rise further over the next year,” Lefkowitz said. “But the economy will have to adjust to higher tariffs, and this could lead to a period of weaker economic data, which could be a modest headwind for equities.”
Stocks are far from cheap, however, the strategist notes. The S&P 500’s forward price-to-earnings ratio now stands above 21 times, surpassing its five-year median, signaling potentially stretched valuations.
Despite the higher market levels, tariffs have been reduced across all major trading partners as the U.S. enters a phase of negotiation. This reduction in tariffs suggests that trade-related upside catalysts may be diminishing. However, there is also the potential for trade tensions to re-escalate during these talks. Moreover, the economy is expected to experience a period of adjustment to the higher tariffs that remain in place.
Lefkowitz notes that while the economy may face some softening in the coming months due to these adjustments, they do not foresee a significant downside risk to U.S. equities, rather a possible modest headwind. They maintain that the bull market is still in progress and anticipate that stock prices will continue to rise over the next year. Economic data is expected to improve later in the year, bolstered by real wage growth, clarity on tax policy, deregulation, and possible Federal Reserve rate cuts.
The conclusion of the first quarter earnings season has also shed light on the ongoing strength of AI investment. Companies like Meta (NASDAQ:META) have increased their capital spending plans for 2025, while Microsoft (NASDAQ:MSFT) reported exceptional cloud revenue growth and confirmed increasing data center capital expenditures. Industrial and power companies serving data centers have echoed this positive sentiment.
In light of a strong earnings season and a slightly more optimistic GDP growth forecast for the latter half of the year, analysts have revised their S&P 500 earnings per share (EPS) estimates. They have increased the 2025 EPS forecast from $250 to $260, reflecting a 4% growth, and the 2026 estimate from $275 to $280, an 8% growth. These adjustments reflect confidence in continued investment spending and AI adoption as key factors driving U.S. equities forward.