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Investing.com -- UBS told investors in a note Tuesday that it expects the equity rally to continue, supported by Federal Reserve policy easing, strong corporate earnings, and accelerating artificial intelligence (AI) investment.
“The Federal Reserve’s policy easing, robust corporate profits, and strong AI spending have been the key market drivers, in our view, and they should continue to support the equity rally,” UBS analysts, including Chief Investment Officer Ulrike Hoffmann-Burchardi and Global Wealth Management CIO Mark Haefele, wrote in a note.
The bank expects the Fed to deliver “two additional rate cuts between now and early 2026,” noting that recent inflation readings have not been strong enough to divert policymakers’ focus from “the weakening demand for workers.”
The bank added that “more evidence of a cooling labor market should clear the path for further Fed easing.”
On fundamentals, UBS believes “robust corporate earnings provide fundamental support.”
Companies representing over 80% of the S&P 500’s market capitalization have reported “solid results and favorable guidance,” with earnings beats “better than historical patterns.”
The firm added that consumer spending “remains resilient,” which should continue to underpin profits.
A third key driver is the “growing AI spending” that UBS believes will sustain further gains.
The firm noted that major U.S. tech companies have reported “accelerating cloud revenue growth” and “AI compute demand that exceeds expectations.” NVIDIA’s CEO recently told investors that suppliers have scaled up “tremendous capacity,” highlighting the strength of AI infrastructure growth.
UBS maintained a positive outlook on U.S. equities, forecasting the S&P 500 to reach 7,300 by June 2026, and advised investors to “add exposure to our preferred areas, including the Transformational Innovation Opportunities of AI, Power and resources, and Longevity.”