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According to UBS' Tuesday note, the S&P 500 has more room for year-end.
The bank increased its S&P 500 year end price target to 4,650, which represents a potential upside of 3%.
UBS predicts that the S&P 500 will rise 7% to 4,850 by 2022 because of these five factors.
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According to UBS' Tuesday note, stocks in the United States have more potential to continue to rise despite recent record highs.
The bank increased its year-end S&P 500 target price to 4,650. This is a potential upside of 3% compared to current levels. UBS previously had a previous year-end target at 4,400. UBS also stated that it expected the S&P 500's rise to 4,850 in 2022, an increase of 7%.
Investors are anticipating higher yields, tax increases, slower data, and more volatility in the coming weeks, which will cause equity prices to fall. UBS stated that peak growth does not necessarily mean a slowdown, and added that the risk-reward ratio in the near term is common at this stage.
These are five reasons UBS is more bullish than ever on stocks for the remainder of 2021.
1. "A 10%+ increase in forward earnings [over] 6 months."
"Q2 actual earnings were higher than consensus expectations for Q3,Q4, and Q1. UBS stated that S&P EPS in Q3 will be 10%+ higher than consensus. It also predicts that upgrades to the next quarters will continue to build on the strong earnings momentum.
2. "An eventual drop in COVID cases."
"The pace at which new cases are being reported peaked in August was alarming, but vaccines + immunity should ensure that cases fall eventually. UBS stated that the full reopening of the hospital has been completed with an increase in spending.
3. 3.
"Growth peaked but is still high, and near-term economic growth is very cheap. The US GDP growth rate is expected to rise by more than 5% over the next three quarters. However, inventories are low and consumption growth remains strong. Fear is what happens after peak growth. UBS stated that NTM EPS growth was relatively low and that stocks on PEG are more affordable than the stock market. However, this has led to stronger earnings momentum."
4. "Much more fiscal spending than taxes."
"Fiscal spending exceeding $2 trillion is not fully valued, but there are upsides for certain cyclicals. Stocks have been driven by fiscal sentiment. UBS stated that while we assume that spending will reach $2 trillion, there are still risks. However, the upside is possible, although it remains uncertain.
5. "The ability to absorb an increase in real yields of 30-50 bps."
"Every 50bp increase in the 10y is an 3% headwind for the P/E ratio, but our work shows that the S&P can absorb rates increases of 30-50bp as equities did not rerate up in the summer. UBS stated that equity internals also price in higher rates with a more catch up for stocks positive and a less catch down for stocks hurt.
