A team of strategists at UBS Group’s wealth-management arm has increased their price target for the S&P 500, aligning with the growing sentiment on Wall Street that anticipates stocks reaching new record highs before the end of 2024.
Raised Price Target
In a note shared on Monday, Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, expressed a higher level of confidence in their base case scenario of an economic soft landing. Haefele stated that they now anticipate the Federal Reserve to cut interest rates four times this year, beginning in May. As a result, UBS has raised their December target for the S&P 500 to 5,000, representing an upside potential of 6.4% compared to Friday’s closing price of 4,697.
Positive Outlook Based on Jobs Report
UBS’s revision is partly based on the recently released jobs report. Although the data indicated the addition of over 200,000 jobs in December, there were downward revisions of 71,000 jobs for the previous two months. Furthermore, while average hourly earnings increased more than expected, there was a decline in the average number of hours worked. This strengthens the belief that rising wages will not contribute to a resurgence of inflationary pressures.
Expectations of Falling Wage Growth
The UBS team also expects further declines in wage growth. Data from the JOLTS survey revealed that the share of workers quitting their jobs fell to 2.2% in November, below pre-pandemic levels. This indicates that employees are becoming less confident about finding better roles with higher pay.
Strong Consumption Amid Low Unemployment
UBS predicts that consumption will remain robust while noting that the unemployment rate remains below 4%. Economists expected the rate to increase to 3.8% in December, but it remained steady at 3.7%. This is a crucial factor in UBS’s economic assessment.
In summary, UBS has raised their price target for the S&P 500 based on their expectation of an economic soft landing, multiple interest rate cuts by the Federal Reserve, and positive employment data. They anticipate stocks reaching record territory by the end of 2024.
Economic Outlook and Investment Recommendations
The UBS team predicts a moderate rise in the jobless rate in 2024, but does not anticipate this to result in increased fear of unemployment impacting savings and household consumption. While job creation appears strong on the surface, the team notes a trend toward gradual cooling that was reflected in bond and equity markets’ initial negative reaction before a later reversal.
To capitalize on the current market conditions, UBS advises clients with a significant cash portfolio to invest quickly. They suggest long-dated bonds with attractive yields compared to recent history as a viable option. Additionally, the UBS team recommends focusing on quality stocks, particularly those from companies with strong balance sheets and a proven track record of earnings growth.
The previous week saw a break in the S&P 500’s nine-week winning streak—the longest such streak in nearly two decades, according to Dow Jones Market Data. Multiple factors have been cited as the drivers behind the pullback in stock prices during the first trading week of 2024.
Looking at the current market situation, U.S. stocks opened mixed on Monday. The S&P 500 recorded a 0.2% increase to reach 4,704, while the Nasdaq Composite climbed 0.7% to 14,620. On the other hand, the Dow Jones Industrial Average slipped by 186 points to 37,282, mainly due to a significant decline in Boeing Co.’s shares which weighed on the blue-chip gauge.
