On Thursday, the key 5,000-point level was in the vicinity of the S&P 500.
Assuming a “Goldilocks” economic scenario, UBS strategists predicted that stocks would rise even further.
As inflation keeps declining and recent economic data has exceeded expectations, stocks will continue to rise.
A stellar year has just ended, and the stock market is continuing to rise.
UBS strategists stated they anticipate this strength to last in the upcoming months, with the S&P 500 currently circling around the 5,000 mark. After rising by more than 5% over the previous five weeks, the index has reached a number of record highs this year.
The Swiss bank believes that recent data and a positive macro environment have provided strong support for the rally.
UBS strategists stated in a note on Thursday that they “also see the potential for further gains in the event of a “Goldilocks” economic outcome, in which US growth is stronger than anticipated and tame inflation allows the Federal Reserve to cut rates aggressively.”
The central bank is expected to cut interest rates aggressively this year, and UBS thinks that the latest data is consistent with both that easing path and a positive outlook for the stock market.
These are the three main causes of the record-breaking performance of stocks.
The strength of the labor market, which was most recently demonstrated in the explosive January jobs report, has exceeded even the most sanguine forecasts and refuted calls for a recession that were widely held a year ago.
According to GDP data, the US economy expanded at an annualized rate of 3.3% in the fourth quarter of last year, surpassing the forecast growth of 2%. In the meantime, US consumers are still strong, with an average real spending power that is roughly $1,400 higher than pre-pandemic levels, according to Treasury research that UBS cited.
The possibility that growth will stay near to or even above the sustainable trend rate—a crucial component of a “Goldilocks” outcome—has increased as a result of these releases, according to UBS strategists.
lower trend in inflation.
Long-standing statements from Federal Reserve officials indicate that before reducing interest rates, they will need solid proof that prices are declining.
The January CPI report should provide additional insight into the trend, according to UBS, which believes that inflation is indeed heading in the right direction toward the Fed’s 2% target. On February 13th, a Tuesday, the inflation reading will be released.
Robust revenues.
As per FactSet data, over 75% of S&P 500 companies have disclosed their earnings, with the majority of them surpassing their projected profits.
After a nearly flat result for 2023 overall, the strategists stated, “A positive fourth-quarter earnings season has reinforced our view that US profit growth is rebounding.”
According to UBS, the S&P 500’s earnings per share will increase by 8% in 2024 and 6% in 2025, with profits from AI-driven technology expected to rise especially high. Not only that, but the “Goldilocks” economic scenario may cause small-cap stocks to surpass the market as well very soon.
According to the strategists, “[O]ur base case remains for a soft landing for the US economy, with the S&P 500 ending the year around current levels.” “Recent economic data, however, have indicated that a period of sustained stronger growth, controlled inflation, and quicker monetary easing is possible. In light of this, we think the S&P 500 could increase to about 5,300 this year.”