UBS analysts believe the U.S. equity rally remains firmly in place and could stretch into next year, though they caution that current valuations may already be factoring in “a lot of optimism.”
In a note adopting a neutral stance on U.S. stocks, strategist David Lefkowitz and his team stressed that their view is not a “’negative’ stance,” but argued that traders may be overestimating clarity around global trade issues. The analysts pointed out that while stocks continue to climb, the near-term catalyst picture looks thin, leaving valuations looking stretched.
UBS reaffirmed its year-end target of 6,600 for the S&P 500, while projecting the index to rise to around 6,800 by June.
“Historically, the S&P 500 has performed well when the Fed is cutting rates during non-recessionary periods. We think this makes sense, as lower rates tend to stimulate the economy and bolster the outlook for earnings growth,” the analysts said.
They added: “Our base case remains that the U.S. economy will remain resilient and that it is unlikely to spiral into a recession. […] We therefore believe stocks are poised for further gains.”
The S&P 500 closed Thursday at 6,631.96, setting a new record high, as markets continued to absorb the Federal Reserve’s latest interest rate cut. The Dow Jones Industrial Average and Nasdaq Composite also finished at fresh peaks.
For the week so far, both the Dow and the S&P 500 are tracking gains of about 0.7%, while the Nasdaq has advanced 1.5%.
On Wednesday, the Fed lowered its benchmark rate by 25 basis points, setting a new range of 4.00% to 4.25%. The move, described by Fed Chair Jerome Powell as a “risk-management cut,” was paired with projections for two additional quarter-point reductions this year and another in 2026. Powell emphasized that future rate moves would be data-dependent, pointing to sticky inflation and uneven economic indicators while ruling out a rapid cutting cycle.
UBS also highlighted a bright spot: growing investor enthusiasm around artificial intelligence. They noted that major tech companies remain committed to heavy AI investment through 2026. This momentum has pushed valuations of the “Magnificent 7” stocks back toward the upper end of their three-year range.
“So although this may mean there is less scope for above-average returns, we aren’t negative and reiterate that our constructive view on AI bolsters the outlook for U.S. equities,” UBS concluded.
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