UBS expects U.S. equities to extend their gains, supported by a combination of Federal Reserve policy easing, strong corporate earnings, and accelerating artificial intelligence (AI) investment, according to a research note published Tuesday.
“The Federal Reserve’s policy easing, robust corporate profits, and strong AI spending have been the key market drivers, in our view, and they should continue to support the equity rally,” wrote UBS analysts, including Chief Investment Officer Ulrike Hoffmann-Burchardi and Global Wealth Management CIO Mark Haefele.
Fed policy to remain a tailwind
UBS anticipates that the Federal Reserve will implement two additional interest rate cuts between now and early 2026, pointing out that recent inflation data has not been strong enough to distract policymakers from “the weakening demand for workers.”
The bank added that “more evidence of a cooling labor market should clear the path for further Fed easing.”
Corporate earnings stay solid
On the fundamental side, UBS highlighted that “robust corporate earnings provide fundamental support.”
Companies accounting for over 80% of the S&P 500’s market capitalization have reported “solid results and favorable guidance,” with earnings beats stronger than historical averages. The firm also emphasized that consumer spending remains resilient, which should continue to sustain corporate profitability.
AI investment as a lasting growth driver
The third factor UBS identified as critical for the market’s momentum is “growing AI spending.”
The bank noted that major U.S. tech companies have seen “accelerating cloud revenue growth” and “AI compute demand that exceeds expectations.” NVIDIA’s CEO recently told investors that suppliers have scaled up “tremendous capacity,” underscoring the powerful infrastructure buildout driving the sector.
Maintaining its bullish stance on U.S. equities, UBS forecasted the S&P 500 to reach 7,300 by June 2026, encouraging investors to “add exposure to our preferred areas, including the Transformational Innovation Opportunities of AI, Power and resources, and Longevity.”