The S&P 500 index is expected to reach 5,850 points by the end of the year, according to UBS Global Research. This is an increase from their previous estimate of 5,600 points.

The adjustment is based on strong corporate earnings growth, a favorable macroeconomic environment, and anticipated interest rate cuts. The index has already experienced a significant increase of 22.85% in 2024, reaching a record closing high of 5,859.85 points.

UBS analysts, led by Jonathan Golub, believe that rate cuts will lower interest expenses and default risks, leading to improved earnings per share and overall valuations. They also expect improved financial conditions to reduce stress and increase liquidity, further supporting positive valuations. UBS has also raised its year-end target for the S&P 500 in 2025 to 6,400 points, citing the strength of technology stocks as a key driver.

The US central bank has already initiated interest rate cuts, starting with a half-percentage-point reduction in September. Federal Reserve Chairman Jerome Powell emphasized that this decision is aimed at maintaining low unemployment amid slowing inflation. UBS predicts that the Fed will implement a total of 250 basis points in rate cuts by 2026, potentially boosting profit margins by 20 basis points.