The S&P 500 (SPX) has climbed 17% year-to-date, although UBS believes that more upside is on the way for the benchmark index as the new year approaches.
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UBS points out that December is the second-best month for the S&P 500 with an average return of 1.3%, trailing July at 1.7%. In addition, earnings estimates have continued to rise, with the firm forecasting 10% earnings growth for the index next year.
UBS Sees Lower Rates Driving Stock Market Rally
UBS also highlights lower interest rates as a major positive catalyst and expects a rate cut during the first quarter of 2026. With lower rates, consumer and business spending tends to rise, providing a tailwind for stocks.
“So, we believe investors should position to gain from the expected equity rally in the coming year, adding exposure to tech, health care, utilities, and banking for those underallocated to the US market,” said UBS.
The firm expects the S&P 500 to reach 7,300 by June 2026 and 7,700 by the end of 2026.
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