Another Wall Street Bank Has Raised Its Target for the S&P 500. Here’s Why.

Investors returning from a long holiday weekend are facing a chilly start, not just from the winter cold, but also from dropping stock futures as bond yields rise. The market mood mirrors Monday's European trends, influenced by hawkish remarks from regional policymakers.

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On the political front, former President Donald Trump's anticipated victory in Iowa has stirred conversations about a potentially volatile election year ahead.

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However, amidst the cautious atmosphere, there's a dose of optimism on Tuesday, courtesy of a Wall Street bank that has revised its year-end stock outlook. UBS, led by Jonathan Golub and a team of strategists, is bullish on the S&P 500, raising its year-end target from 4,850 to 5,150.

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Last year, UBS's outlook had signaled favorable conditions for stocks, anticipating strong earnings, easing inflation, accommodative monetary policies, and an overall improved economic environment. Now, with the Federal Reserve's recent shift, a decline in rate expectations, and upward revisions in 2024 earnings per share (EPS), Golub and his team are embracing an even more optimistic scenario as their base case.

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The revised target reflects a 7.7% upside from current levels, with the bank also increasing their 2024-25 EPS estimates to $225 from $235 and $246 to $250, respectively. Despite concerns about investors rushing into stocks based on overly optimistic Fed rate-hike expectations, the S&P 500 is just 0.27% away from its January 2022 record close.

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Importantly, UBS's growth estimates for the next two years, at 6.3% and 6.4%, are notably below the consensus forecasts of 11.4% and 12.8%. Golub and his team emphasize that while earnings are expected to drive 2024 returns, falling interest rates should support higher multiples.

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UBS's new S&P 500 target positions it among the top forecasts on Wall Street for 2024. Yardeni Research leads the pack with a 5,400 target, while JPMorgan holds a more conservative estimate at 4,200. In late December, Goldman Sachs adjusted its forecast upward to 5,100 from 4,700, shortly after setting the initial target.

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As investors navigate the uncertainties of the market, UBS's optimistic outlook offers a contrasting perspective amid the recent challenges. The bank's confidence in a positive trajectory for the S&P 500 suggests a belief in the resilience of the market and its potential for growth in the coming months.