UBS is looking past rising interest rates and getting more bullish on stocks for the year as lawmakers get close to passing a new stimulus package and pent-up consumer spending is unleashed. The bank hiked its S & P 500 target to 4,250 from 4,100 on Tuesday. UBS also raised its earnings estimate for the benchmark for 2021 and 2022 to $188 per share and $218 per share, respectively. The firm previously expected an S & P 500 profit of $178 per share for 2021. "As equities de-rate amidst the jump in rates, much better than expected earnings should drive further S & P 500 upside through 2021," UBS Chief U.S. Equity Strategist Keith Parker told clients in a note. The bump in earnings stems from greater stimulus, an acceleration in consumer spending and stronger-than-expected fourth quarter earnings, Parker said. House Democrats aim to pass the $1.9 trillion fiscal stimulus bill on Wednesday, with President Joe Biden expected to sign it before key unemployment programs expire on Sunday. Parker said the prospect of growth now outweighs the risk of rising rates. The U.S. 10-year Treasury yield briefly broke above 1.6% in recent weeks. This sparked concern among investors that stocks could lose their premium over bonds. "With vaccinations, stimulus, GDP growth acceleration and earnings upgrades likely hitting their respective zeniths in Q2 or early Q3, we see equity gains as frontloaded," Parker said. "We see the upside case of even stronger consumption (+5%), pricing power (+6%) and higher 3-5 yr growth expectations (+10%), offset by even higher rates (-6%) and less liquidity (-4%) as still pointing to net > 10% incremental returns," he added. UBS' new target is above the Wall Street average, but it's still below those from JPMorgan, Goldman Sachs, Credit Suisse and Oppenheimer, according to CNBC's Market Strategist Survey . JPMorgan strategist Dubravko Lakos-Bujas has a Street-high S & P 500 target of 4,400 for 2021. The target upgrade from UBS assumes a price-to-earnings ratio of 19.5 for the S & P 500. — with reporting from CNBC's Michael Bloom.
The Charging Bull near Wall Street is pictured in New York.
Carlo Allegri | Reuters
UBS is looking past rising interest rates and getting more bullish on stocks for the year as lawmakers get close to passing a new stimulus package and pent-up consumer spending is unleashed.