UBS is "relatively constructive" on the outlook for US equities in 2017, saying the benchmark index could rise to 2,325 over the next six months.
In its annual equity sector outlook research note published on Tuesday, the Swiss investment bank shared its view that the incoming Presidential regime would support prices.
"The team expects the Trump administration to adopt reflationary policies, increasing our conviction that earnings growth can accelerate given expected healthy consumer spending and improving energy sector fundamentals," read the note.
The analysts also commented on the favorable macroeconomic backdrop for consumers with the labor market approaching full employment and household balance sheets boosted by stock market highs and buoyant house sales. The bank also opined that anticipation of tax cuts and improving economic growth would offset concerns over increasing mortgage rates and gas prices.
Turning to sectors, UBS says it expects the energy sector to continue on from its solid performance in 2016, a year in which it delivered the highest returns of any S&P 500 sector, rather than its 2015 result which saw it deliver the poorest results.
And while a boost from OPEC cooperation would help prices,it was not necessarily essential in reaching the bank's $60 per barrel price estimate for WTI over the next three months.
"Our oil supply/demand models indicate a balanced market in mid-2017 with no help from OPEC. If we see high levels of OPEC compliance early this year, equilibrium could be achieved sooner, and oil prices could reach their highest levels of the year in the next three months," the note explained.
UBS posited that commodity price inflation would be the largest driver of improving profitability for the sector and that many details still needed to be firmed up regarding the impact of the incoming administration.
The Swiss bank also retains a bullish outlook for financials despite recent outperformance.
"Although financial sector stocks have rallied post-election to reflect expected improvement in the broader operating environment, we see significant potential earnings leverage in prospective tax reforms and higher interest rates," according to the note.
In terms of preferred stocks, UBS nominated universal banks including Bank of America, Citigroup, JP Morgan, and Goldman Sachs as well-positioned to benefit from a stronger economy and higher interest rates.
Looking towards the other end of the spectrum, UBS sounded a particularly cautious note over telecoms, saying it saw limited opportunities for revenue growth given a saturated market.
"While the US telecom sector is a likely beneficiary of potential corporate tax reform, the ultimate outcome is still unknown, the timing is far from certain, and much of any potential benefit has already been priced into the large telecom service companies, in our view," read the note.
The analysts also warned that expectations for impactful consolidation among the largest players could prove unrealistically optimistic.
UBS also has a skeptical view of utilities, warning of the risk of lower returns and declining capital spending.
"Utilities face the risks of slowing earnings growth,potentially rising inflation, and above-average relative valuation. Electricity and water demand growth trends remain poor."