Global investment bank (IB) UBS raised its outlook for the U.S. Standard and Poor's (S&P) 500 index. However, UBS assessed that the valuation of U.S. stocks is at a burdensome level and maintained a 'neutral' investment opinion.
According to Shinyoung Securities on the 22nd, UBS has raised its year-end S&P 500 index outlook to 6,600. This is 3.6% higher than the previous day's closing price of the S&P 500 index (6,370.17).
UBS also raised its outlook for June 2026 to 6,800. It noted that there is also a possibility that the S&P 500 index could rise to 7,500 by June 2026 under a bullish scenario.
UBS cited the strong performance of corporations as the main reason for raising its outlook. For the second quarter (April to June) of this year, the earnings per share (EPS) of companies within the S&P 500 index is estimated to have increased by 8% year-on-year, surpassing the expected 5%.
UBS said, "The EPS of the Magnificent 7 (seven large tech stocks) grew by 30% compared to the same period last year, greatly exceeding estimates and driving overall market performance improvement."
UBS assessed that the policy environment is also favorable to the stock market. It anticipated that most imported semiconductors would be exempt from tariffs following U.S. President Donald Trump's announcement of waiving tariffs for large domestic investments. Additionally, easing U.S.-China trade tensions and the possibility of a rate cut by the U.S. Federal Reserve in September were also seen as positive for the market.
However, UBS said it maintains a 'neutral' view on U.S. stocks. It noted that the market has already reflected much of the uncertainty regarding tariffs, and there is limited upward momentum for further growth. UBS diagnosed that corporations' advance stockpiling may lead to a temporary demand gap in the coming months.
Most importantly, UBS explained that the valuation burden is at a burdensome level even excluding the Magnificent 7 corporations. UBS said, "The current situation, where the combination of interest rate cuts and the AI investment boom exists, has similarities to the late phase of the dot-com bubble in 1998."