UBS lifts U.S. equities view on favorable macro backdrop, strong AI spending

UBS has upgraded its outlook on U.S. equities to Attractive from Neutral, citing a favorable macro environment characterized by resilient economic growth, anticipated monetary easing, and robust AI investment. The bank raised its S&P 500 EPS forecasts to $275 for 2025 and $295 for 2026, and increased its year-end S&P 500 target to 6,900, with a June 2026 target of 7,300. UBS believes the bull market remains intact, supported by the Federal Reserve's pivot towards rate cuts and sustained tech sector commitment to AI, which limits near-term downside risk despite potential trade friction.

Analysis

UBS has upgraded its stance on U.S. equities to Attractive from Neutral, driven by a constructive macro backdrop featuring resilient economic growth, anticipated monetary easing, and robust AI investment. The firm highlights an easing risk of tariff-induced downturns and expects favorable AI investment trends to prolong the supportive equity environment.

The bank significantly raised its S&P 500 EPS forecasts, projecting $275 for 2025 (10% growth) and $295 for 2026 (7% growth). Concurrently, UBS increased its year-end S&P 500 target to 6,900 and set a June 2026 target of 7,300, underpinned by historical data showing strong equity returns when the Fed eases and forward earnings estimates rise over 5%.

While acknowledging risks such as weaker AI spending, higher inflation, or trade policy-induced slowdowns, UBS maintains that near-term downside risk is limited. This assessment is based on tech companies' firm commitment to AI spending growth, the Federal Reserve's rate-cutting cycle, and the expectation that any trade-related volatility would be short-lived.

Key Decisions for Investors

• Evaluate increasing U.S. equity exposure, aligning with UBS's upgrade to Attractive and higher S&P 500 targets, particularly in AI-centric and economically resilient sectors.
• Monitor key macroeconomic indicators, including inflation data and the pace of Federal Reserve rate cuts, as these are critical drivers of the sustained bull market.
• Assess portfolio resilience against potential, albeit short-lived, trade policy volatility and ensure AI investment themes remain robust, as these are identified risks to the bullish thesis.