UBS Upgrades U.S. Stock Outlook on Strong Economy and AI Investment
UBS has upgraded its view on U.S. equities to Attractive from Neutral, citing a supportive macroeconomic backdrop. The bank said resilient economic growth, ongoing monetary easing, and strong AI investment continue to drive positive sentiment across markets.
According to UBS strategists, the risk of tariffs triggering a major downturn has eased. This improvement comes as the Federal Reserve shifts toward further rate cuts, offering additional support to equities.
AI and Earnings Drive Long-Term Growth
UBS believes that AI investment trends remain highly favorable and that the current supportive environment for stocks could last longer than expected. The bank raised its S&P 500 earnings per share (EPS) forecast by $5 for both 2025 and 2026, now expecting EPS of $275 in 2025 (up 10%) and $295 in 2026 (up 7%).
UBS also lifted its S&P 500 year-end target to 6,900, with a June 2026 target of 7,300, reflecting confidence in continued growth.
Economic Resilience and Fed Tailwinds
While U.S. stocks recently pulled back amid renewed trade tensions with China, the bank notes that the economy remains resilient. Analysts pointed to low household and corporate debt, ample liquidity, and stable employment levels as signs that growth can continue.
UBS expects economic activity to strengthen into 2026 as the temporary impact of tariffs fades and Fed rate cuts boost interest-rate-sensitive sectors.
Strategists highlighted the Federal Reserve’s policy pivot as a key market tailwind. Historically, when the Fed eases policy and forward earnings estimates rise by more than 5% within a year, equities have delivered strong returns with low downside risk, the report noted.
UBS Maintains Bullish Outlook, Cautions on Risks
“Overall, we believe the bull market for U.S. stocks remains intact,” said David Lefkowitz, head of U.S. equities strategy at UBS. “We are upgrading our preference for U.S. equities from Neutral to Attractive.”
UBS warned, however, that risks include slower-than-expected AI adoption, persistent inflation, or trade-policy disruptions. Still, the firm argued that with tech companies committed to AI spending growth and the Fed in easing mode, near-term downside risks appear limited.
The bank added that it does not expect the U.S. government to introduce tariffs that could trigger a recession, suggesting any trade-related volatility would likely be short-lived.
