UBS Global Research on Tuesday raised its year-end target for the benchmark S&P 500 index to 5,850 points from an earlier projection of 5,600, boosted by corporate profit growth, supportive macro-economic backdrop and interest rate cuts.
The index, which has gained 22.85% so far in 2024, jumped to a record closing high of 5,859.85 points a day earlier.
“Rate cuts should lower interest expense and default risk, adding to both EPS (earnings-per-share) and valuations,” analysts led by Jonathan Golub said.
“Financial conditions point to less stress/more liquidity, a positive for valuations,” they added.
UBS also raised its 2025 year-end target for the S&P 500 to 6,400 from 6,000 earlier. Strength in technology stocks could help the index further, it said.
The U.S. central bank in September kicked off an anticipated series of interest rate cuts with a larger-than-usual half-percentage-point reduction that Federal Reserve Chair Jerome Powell said was meant to show commitment to sustaining a low unemployment rate as inflation had eased.
UBS expects the Fed to cut rates by 250 basis points through 2026 and said a sharp decline in interest rates could likely lift profit margins by 20 basis points.
Wall Street’s major stock indexes closed lower on Tuesday, with a 1% drop in the technology-heavy Nasdaq leading losses as chip stocks tumbled on demand concerns while the energy sector fell 3% as oil prices dropped.
Earnings reports were a mixed bag with positive reactions to some financial services results contrasting with an 8% slump in shares of UnitedHealth after the health insurer forecast 2025 profit below Wall Street estimates.
The Nasdaq came under particular pressure from market heavyweight Nvidia, the leading chip maker for artificial intelligence. Nvidia shares fell 4.7% after scoring a record-high close on Monday and after a media report that the Biden administration is considering capping AI chip exports by U.S. companies.
Chip stocks lost ground broadly after results of chip-equipment-maker ASML Holdings showed downbeat expectations for 2025 sales. ASML’s U.S.-listed shares tumbled 16% and helped drag down the Philadelphia semiconductor index 5.3% for its biggest one-day drop since early September.
“There seems to be a lot more stress concentrated in chips. This is putting downward pressure on technology as a sector,” said Kevin Gordon, senior investment strategist at Charles Schwab.
But while Gordon saw weaker-than-expected earnings as an excuse to sell off chip stocks, he was encouraged that there were roughly as many stocks advancing as declining on the Nasdaq.
“It’s not a broad-based washout,” he said, noting that stocks that were selling off on the day had previously outperformed. “It’s indicative of megacap stocks pulling down the indexes.”
The energy industry index finished down 3% for its biggest one-day percentage decline since early October 2023 as crude prices fell on weaker demand expectations after a media report suggested Israel would not strike Iranian oil targets.
The Dow Jones Industrial Average fell 324.80 points, or 0.75%, to 42,740.42, the S&P 500 lost 44.59 points, or 0.76%, to 5,815.26 and the Nasdaq Composite lost 187.10 points, or 1.01%, to 18,315.59.
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