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 forecast of 5,600 points.

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

UBS analysts, led by Jonathan Golub, believe that the rate cuts will have a positive impact on earnings per share and overall valuations by reducing interest expenses and default risks. They also expect improved financial conditions to enhance liquidity, further benefiting market valuations. UBS has also raised its year-end target for the S&P 500 in 2025 to 6,400 points, citing potential strength in technology stocks as a contributing factor.

The Federal Reserve has initiated a series of interest rate cuts, with UBS anticipating a total reduction of 250 basis points through 2026. This could potentially lead to a 20 basis point increase in profit margins for companies.