UBS remains constructive on U.S. equities, arguing that the overall environment continues to favor further gains and projecting the S&P 500 will climb to 7,700 by December 2026.
The bank reiterated its Attractive stance on U.S. stocks, pointing to “good profit growth, supportive Fed policy, and the rollout of AI” as the main pillars underpinning its outlook. UBS set a mid-2026 S&P 500 target of 7,300 for June, while keeping its year-end 2026 forecast at 7,700.
Strategists at the firm anticipate steady earnings expansion, estimating S&P 500 earnings per share of $277 in 2025 and $310 in 2026, implying growth of 11% and 12%, respectively.
For the fourth quarter, profit growth is tracking at around 14% year over year. However, the scale of earnings beats has narrowed somewhat, and forward guidance has been “a touch cooler than in recent quarters but still encouraging,” according to strategists led by David Lefkowitz.
They noted that divergences beneath the surface of the market reflect a shift in leadership during the current bull cycle. While mega-cap technology stocks have powered much of the advance in recent years, earnings growth is now expanding beyond the so-called Magnificent 7. That group drove nearly two-thirds of profit growth in 2025 but is projected to account for roughly half this year.
UBS also cautioned that growth in AI-related data center capital expenditures is likely to slow after increasing more than fourfold over the past three years. The strategists observed that the scale of current investment is now absorbing nearly all operating cash flow generated by hyperscalers.
They warned that intense competitive pressures are fueling heavy spending that may not ultimately produce compelling returns on capital. The trend is “more vulnerable to downside risks if outside investors start to worry” as companies rely more heavily on external funding sources.
“We think this makes the risk-reward less appealing for the model developers and some of the companies that have benefited from the capex,” the strategists wrote. Consequently, UBS lowered its rating on the Information Technology and Communication Services sectors to Neutral.
Even so, the team emphasized that “current trends remain supportive and we are not anticipating downside risks in the near term.”
Looking ahead, UBS expects the Federal Reserve to implement two additional 25-basis-point rate cuts this year, noting that equities have historically performed well when the Fed is easing and the economy avoids recession.
“We think this bull market has further to go and maintain our year-end S&P 500 price target of 7,700,” the strategists said.