UBS highlights a positive outlook for the U.S. stock market

UBS

UBS indicated in a recent communication to clients that the perspective for U.S. equities continues to be positive, bolstered by a robust economy, reduced interest rates, and sustained momentum in artificial intelligence investment. In a note from David Lefkowitz, the bank reaffirmed its “Attractive view on US equities,” stating that “the backdrop for US stocks remains favorable, driven by resilient economic growth, Fed rate cuts, and a boom in AI investment spending.”

UBS anticipates that the S&P 500 will attain a level of 7,300 by June 2026 and 7,700 by December 2026. The bank’s projections indicate that S&P 500 EPS will reach $277 in 2025, reflecting an 11 percent increase, followed by a further 10 percent rise to $305 in 2026. The company asserts that its positive outlook is based on the interplay of profit expansion, a more accommodative monetary policy, and the continuous integration of AI into its operations.

UBS observes that this year’s market behavior aligns with fundamental principles, highlighting the “reasonably good correlation between changes in bottom-up consensus EPS estimates and market returns” during periods when the Fed is not increasing rates. UBS indicates that the environment is likely to remain supportive in the coming year, with the likelihood of a rate hike deemed “very low” and profit growth anticipated to approach 10 percent.

The note emphasizes that fiscal and monetary policy in 2026 is expected to deliver further support, with reductions in taxes on tips and overtime, an increased federal deduction for state and local taxes, and recent Federal Reserve cuts all contributing to the benefits for consumers and businesses. The bank identifies three significant risks. Profit disappointments, elevated inflation rates, and indications of excessive investment in AI infrastructure are present; however, UBS emphasizes that the probability of these risks coming to fruition remains relatively low. UBS anticipates that the factors propelling markets upward “should remain in place, pushing stocks higher in 2026.”