UBS raises S&P 500 target for 2024, sees nearly 8% gain from here

Published Tue, Jan 16 20242:36 PM ESTUpdated Tue, Jan 16 20242:55 PM EST

The S & P 500 is in for yet another strong year, according to UBS. The firm lifted its year-end target on the S & P 500 from 4,850 to 5,150, representing 7.7% upside for the benchmark stock index from Friday's close. The S & P 500 ended last week at 4,783.83. "Given the Fed's recent pivot, subsequent decline in rate expectations, and above-trend 2024 EPS revisions, we now embrace this upside scenario as our base case," strategist Jonathan Golub wrote in a Tuesday note. This year's more dovish Federal Reserve policy supports higher valuations, Golub said, upping his 2024 earnings-per-share estimate on the S & P 500 by $10 to $235. He also raised his EPS estimate for the following year by $4 to $250. In mid-December, central bankers penciled in at least three rate cuts in 2024, assuming quarter-percentage-point increments. Traders think the Fed will be even more aggressive, pricing in seven rate cuts this year, according to CME Group's FedWatch tool. "While earnings should drive 2024 returns, falling interest rates should support incrementally higher multiples," Golub said, adding that stronger tech earnings should offset a margin drag this year. In addition to these catalysts, Golub noted that the broad market index is approaching all-time highs: The S & P 500 on Friday had risen above 4,800 for the first time in more than two years, and almost beat its all-time high level set in January 2022. .SPX mountain 2021-12-31 SPX since 2022 The strategist added, however, that although the index is up more than 24% since the start of 2023, stock prices are "relatively flat" over the past two years. Earnings estimates are 10% higher while price-to-earnings ratios are 10% lower, he added. Still, Golub noted the S & P 500 has seen a leadership rotation in recent months toward cyclical names that indicates an uptick in market sentiment. That's a shift from last year, when growth names were the favorite. Technology stocks — notably the "Magnificent Seven" batch of big-tech names that each posted gains of at least 49% — led the index's 24% rally in 2023. Cyclical stocks, which include more discretionary names such as airlines and furniture sellers, tend to be more affected by systemic macroeconomic changes and are the most sensitive to an economic recovery. Recent flows into cyclical names indicate that investors think the market may have avoided a deeper recessionary period. "While the S & P 500 advanced throughout 2023, leadership has become more pro-cyclical over the past 3 months, an indication of investor optimism toward the economy," Golub said.