S&P 500 Hits New Highs as Rally Gains Momentum
The S&P 500 surged to fresh record levels on Monday, extending its rebound by more than 13% since late March. According to analysts at UBS, the rally may still have further upside.
The bank reaffirmed its “Attractive” outlook on U.S. equities and maintained a year-end target of 7,500 for the S&P 500. This optimistic view is supported by three main factors: strong corporate earnings, favorable monetary policy, and sustained investment in artificial intelligence.
Strong Earnings Season Supports Market Optimism
So far, companies representing just over one-quarter of the index’s total market value have reported results. Nearly 80% have exceeded expectations for both revenue and earnings per share (EPS), with the size of these positive surprises also increasing.
While some pressure has been observed in travel-related sectors due to geopolitical tensions, overall corporate guidance has come in stronger than expected. Analysts also point to early signs of cyclical recovery, particularly in non-residential construction, including manufacturing, power, data centers, and infrastructure projects.
UBS continues to project 17% EPS growth for the current quarter, reinforcing confidence in the earnings outlook.
Federal Reserve Policy Remains a Key Driver
On the monetary policy side, attention is shifting toward leadership changes at the Federal Reserve. Kevin Warsh, nominated by Donald Trump to replace Jerome Powell, is expected to gain Senate approval.
UBS anticipates that the Fed will resume interest rate cuts later this year, forecasting around 50 basis points of easing. This comes despite short-term inflation pressures driven by rising energy costs, which could push headline inflation toward 3.8% before easing to approximately 3.3% by year-end.
Factors such as limited spillover into core inflation, a potentially weakening labor market, and slower economic growth in the second half of the year are expected to support this policy shift.
AI Investment Continues to Drive Growth
Another major pillar behind UBS’s bullish stance is the continued expansion of artificial intelligence (AI). Demand remains robust, with companies across semiconductors, power generation, and electrical infrastructure reporting strong earnings and raising their outlooks.
Texas Instruments recently highlighted improving conditions in the analog semiconductor cycle. At the same time, supply constraints have helped sustain momentum in chip stocks, with the Philadelphia Semiconductor Index rising more than 45% over the past month.
Risks Remain Despite Bullish Outlook
Despite the strong market performance, certain risks persist. Brent crude prices above $109 per barrel leave investor sentiment vulnerable to further geopolitical developments in the Middle East.
In addition, markets are closely watching upcoming policy decisions from major central banks, including the European Central Bank and the Bank of England, alongside key earnings reports from major technology companies.
These factors could introduce short-term volatility, even as the broader outlook for U.S. equities remains constructive.
