UBS said it now expects the S&P 500 to hit 4,700 points only by December 2024, instead of the middle of the year as it forecast earlier, due to expectations of higher-for-longer U.S. interest rates.
The brokerage, in a note dated Oct. 13, said it now expects the benchmark index to hit 4,500 points by mid-2024, which implies an increase of about 4% from current levels.
“The delay ... is primarily related to the recent rapid move higher in interest rates and ... expectations that interest rates will remain higher for longer,” said David Lefkowitz, head of chief investment office, U.S. equities, UBS.
The Federal Reserve has raised the benchmark interest rate by 525 basis points since it started its aggressive battle against inflation in March last year.
The fear of higher-for-longer rates has pushed the S&P 500 down about 6% from this year’s highs hit late in July. Still, the index has clocked a 12% gain so far this year to close at 4,327.78 points on Friday.
“We still expect a soft-ish landing in the U.S. economy, which should drive a recovery in earnings growth and close to a double-digit total return in U.S. large-cap stocks over the coming year,” said Lefkowitz.
“While valuations are high relative to history, they are reasonable in the context of low unemployment and falling inflation.”
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