UBS Bullish on S&P 500 Earnings Growth and US Economic Outlook

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UBS projects strong earnings growth for S&P 500 in 2025, driven by tech and AI investments, despite interest rate volatility.


UBS Bullish on S&P 500 Earnings Growth and US Economic Outlook for 2025

UBS maintains a positive outlook on US equities, stating that the bull market remains intact despite rising interest rates and increasing market volatility. The investment bank forecasts strong earnings growth, particularly from the technology sector, driving market expansion into 2025. While acknowledging risks like a stronger US dollar and tariff concerns, UBS expects S&P 500 earnings to grow by 9%, reaching $270 per share, supported by favorable macroeconomic conditions and solid corporate profits.

Strong Economic Conditions Support S&P 500 Earnings Growth

UBS's positive outlook is backed by solid economic data, including a strong labor market recovery and stronger-than-expected holiday sales. According to the Atlanta Fed's GDPNow model, the US economy grew by 2.7% in Q4 2024, signaling continued economic expansion. This provides a strong foundation for corporate earnings growth as businesses benefit from favorable macroeconomic conditions.

Rebound in US Labor Market

After a slowdown earlier in the year, the labor market showed significant recovery in the fourth quarter. The three-month moving average of job gains reached its highest level since May 2024, signaling that employers continue to hire despite broader market uncertainties. This trend is particularly important for consumer-driven sectors that rely on strong disposable incomes, a trend expected to continue into 2025.

Strong Holiday Sales and Manufacturing Recovery

Holiday sales exceeded expectations, with consumer spending continuing to rise. Additionally, the manufacturing sector has shown signs of recovery, with the New Orders component of the ISM Manufacturing Index expanding for two consecutive months, marking its first growth in over two years.

These positive indicators point to continued economic strength, driving corporate profits in 2025. UBS believes that this combination of solid employment data and consumer spending, along with manufacturing recovery, will fuel earnings growth for S&P 500 companies.

Mega-Cap Technology Stocks as Key Earnings Drivers

UBS's bullish outlook for 2025 relies heavily on the continued dominance of mega-cap technology stocks. UBS predicts that these stocks will account for more than two-thirds of S&P 500 earnings growth, driven by ongoing investments in artificial intelligence (AI) infrastructure and the growing adoption of AI technologies. This trend is expected to accelerate as companies across industries leverage AI to optimize operations and improve efficiency.

AI Investment Boosts Tech Sector

Investors have increasingly recognized the potential of AI to drive long-term growth, prompting technology companies to invest heavily in AI infrastructure and research. UBS expects strong earnings results for technology companies in 2025 as they capitalize on growing demand for AI-powered products and services, solidifying the sector’s leadership in the market.

UBS's confidence in technology stocks is supported by recent earnings results from S&P 500 companies, with the median company surpassing earnings-per-share (EPS) estimates by 4.5%. Additionally, 66% of companies exceeded sales estimates, and 76% surpassed EPS estimates, demonstrating that the market remains resilient despite external challenges.

Importance of Large-Cap Stocks in 2025

UBS emphasizes that large-cap stocks, particularly in the technology and communication sectors, will continue to be the key drivers of earnings growth in 2025. These companies stand to benefit from growing demand for AI products and services, offering investors strong growth potential.

Risks and Challenges to S&P 500 Earnings Growth

While UBS is optimistic about the market, it recognizes several risks that could impact earnings growth. A stronger US dollar is a key concern, as it could negatively affect multinational companies’ earnings by reducing profits from overseas operations. UBS estimates that a stronger US dollar could lower S&P 500 EPS growth by approximately 1.5% in 2025.

Tariff Concerns Under the Incoming Trump Administration

Another potential risk stems from tariff concerns, especially under the incoming Trump administration. Trade disputes and tariff hikes could introduce uncertainty in sectors dependent on global supply chains, potentially slowing earnings growth in some industries. However, UBS believes these risks are manageable and unlikely to disrupt the overall market trajectory.

High Equity Market Valuations

UBS also acknowledges that high equity market valuations could present challenges, with the S&P 500’s forward P/E ratio currently at 21.5x. While this is higher than historical averages, UBS argues that these valuations are justified by the current macroeconomic environment, including low inflation and low unemployment. The bank believes earnings growth will remain the primary catalyst for stock performance in 2025 and that valuations will not significantly hinder further market gains unless there’s a major negative catalyst, such as a downgrade to earnings expectations.

UBS's Investment Strategy for 2025

UBS’s investment strategy for 2025 focuses on large-cap stocks, particularly those poised to benefit from AI investments and strong earnings trends. The bank has a "Most Attractive" view on Information Technology, Communication Services, and Consumer Discretionary sectors, and an "Attractive" view on Financials and Utilities.

Emphasis on Growth and Value Stocks

UBS also sees opportunities in both growth and value stocks. While the bank is especially bullish on growth stocks within the technology sector, it also believes that value stocks in sectors like Financials and Utilities will perform well in 2025. Investors seeking a balanced portfolio may find opportunities across both growth and value equities as market conditions continue to evolve.

UBS’s Positive Outlook for 2025: What Investors Should Know

UBS’s forecast for 2025 suggests a strong year for US equities, with earnings growth continuing to drive market performance. While risks like a stronger US dollar and tariff concerns exist, favorable economic conditions are expected to support corporate profits. Investors seeking to capitalize on these trends should focus on sectors poised for growth, such as technology, communication services, and consumer discretionary, while also considering value opportunities in financials and utilities.

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  1. Economic Reporter2025년 1월 16일 AM 10:18

    UBS maintains a bullish outlook for the S&P 500 in 2025, expecting 9% earnings growth driven by AI investments and a favorable economic environment. Despite risks like a stronger US dollar and tariff concerns, large-cap stocks, particularly in technology, will lead the market’s growth.

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