The stock market is set for a big lift in 2025, with UBS predicting the S&P 500 could hit 6,600 by the end of the year – a 13% gain from current levels. But what’s driving this optimism? It all ties back to a new economic outlook: the so-called “no landing” scenario.
What’s a ‘No Landing’ Anyway? 🤔
Unlike a “hard landing” (recession) or “soft landing” (slowing economy with no crash), a no landing means the US economy keeps growing steadily with low inflation and a strong job market. Basically, no one’s pulling the brakes! 🛑 This scenario keeps interest rates just high enough to maintain inflation control but low enough to give stocks room to run.
Why UBS is Feeling Bullish 🐂
UBS is upgrading its outlook on US stocks for a few key reasons:
- Strong economic growth: GDP grew 3% year-over-year in Q2, and retail sales beat expectations in September, growing 0.4%.
- Resilient job market: The US added 254,000 jobs in September, way more than expected, with unemployment at just 4.1%.
- Inflation cooling: Prices are inching closer to the Fed’s 2% target. The consumer price index (CPI) grew 2.4% annually in September, while the Fed’s favorite measure, PCE inflation, came in at 2.2% in August – the lowest since 2021.
With inflation under control, the Fed might cut interest rates again soon, which is great news for stocks. Markets are already pricing in a 72% chance of a 50 basis point cut by the end of the year.
What About the 2024 Election? 🎢
While the upcoming US presidential election might cause some market jitters, UBS doesn’t see it derailing the market’s overall momentum. Even with potential volatility, the positive economic backdrop, driven by Fed rate cuts, strong growth, and secular trends like artificial intelligence (AI), should keep stocks on track. 🎯
The Flip Side ⚠️
Even though UBS is optimistic, it’s important to remember that some forecasters, like the New York Fed, still see a 57% chance of a downturn by September 2025. So, while the no landing scenario is looking solid right now, there’s always a risk of turbulence ahead. ✈️
TL;DR: Buckle Up for Gains! 🚀
With a no landing economy, solid growth, and cooling inflation, UBS expects the S&P 500 to rise 13% in 2025, fueled by rate cuts and a resilient job market. Sure, election volatility could cause some bumps, but overall, the market seems ready for takeoff. ✈️