UBS's CIO Head of US Equities sees S&P 500 earnings broadening out, providing an upside scenario of 5,500 for the major index this year.
Analysts expect 7-9% growth for S&P 500 companies in the first quarter and highlight that this growth is starting to broaden out behind the Magnificent 7 stocks. Non-Mag 7 stocks are expected to post positive growth for the first time since the fourth quarter of 2022. Further, analysts see this trend accelerating through the balance of the year.
The firm is maintaining its S&P 500 EPS estimate of 245, representing 9% year-over-year growth for 2024, and 260, representing 6% year-over-year growth for 2025.
While they warn that stocks could take a breather, given the substantial gains over the last six months, the firm maintains optimism due to solid earnings growth, anticipated Fed rate cuts, and increased investment in AI.
"In our base case, we expect the S&P 500 to end the year around 5,200. But if inflation improves more quickly or earnings are better than expectations, our upside scenario of 5,500 appears reasonable," they write.