UBS raises annual S&P 500 forecast on strong consumption, demand in AI

UBS Global Wealth Management raised its forecast for the S&P 500 index .SPX at the end of 2026 to 7,900 from 7,500, citing consumer resilience and strong demand for data center infrastructure.

In recent weeks, a growing number of brokerages have raised their forecasts for the S&P 500.

Morgan Stanley, for example, predicts 8,000 points by the end of 2026, driven by strong investments in artificial intelligence and optimism regarding profits.

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However, the entity largely ignored the inflation risks arising from the rise in oil prices, linked to the conflict in the Middle East.

The wealth manager's current target implies an appreciation of around 6% in relation to the index's last close of 7445.72 points.

The company also set an 8,200 target for the index in June 2027, maintaining its "attractive" view on US stocks, and raised its 2026 earnings per share estimate to $335 from $310.

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"We continue to believe that the factors driving the bull market remain intact: resilient economic and earnings growth, a supportive Federal Reserve and the implementation of AI," UBS strategists said in a note released on Thursday (21).

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The increase in earnings estimates is concentrated, with about half driven by demand for semiconductors, especially memory chip prices.

Another quarter comes from higher profits in the energy sector, along with increased investment in data centers, they said.

S&P 500 first-quarter profits were on track to rise nearly 29% from a year earlier, with much of that growth driven by AI-related Wall Street giants, according to LSEG data as of May 15.

However, UBS said the lack of a resolution around the Strait of Hormuz could begin to undermine these bullish drivers, with recent increases in oil prices and interest rates putting pressure on some sectors.

Source: CNN