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Investing.com - Investors appear to be pricing in a substantial de-escalation in both trade tensions and geopolitical frictions, according to analysts at UBS.
In a note to clients taking a "neutral" view on U.S. equities, the strategists predicted that the upcoming second-quarter corporate earnings season will likely be "resilient," while a tax-and-spending package currently making its way through Congress will boost company cash flows.
As a result, they lifted their 2025 S&P earnings per share estimate to $265, implying growth of 6%. For 2026, the figure was raised to $285, or 7.5% expansion versus the prior year.
Their targets for the benchmark S&P 500 index were also increased to 6,200 for the end of 2025 and 6,500 for June 2026. On Thursday, the average closed at 6,141.02, hovering near a fresh all-time high despite having gone through deep ructions earlier this year.
"U.S. equities have continued to recover from the tariff induced sell-off in March and April," the UBS analysts said. "We think the recovery makes sense, considering that most large-cap companies should weather the tariffs reasonably well."
However, they flagged that stocks could still experience some volatility -- either to the upside or downside -- in the next few months as traders react to developments around sweeping U.S. tariffs. Crucially, a delay to President Donald Trump’s aggressive reciprocal levies is due to expire early next month, with uncertainty lingering over whether the White House will ultimately extend the deadline.
The analysts noted that goods that have been impacted by other tariffs that currently in place will hit store shelves soon, possibly leading to "a slowdown in economic growth and an uptick in inflation through the summer."
"While investors are already expecting this outcome, any softening in the data beyond expectations could be a headwind for U.S. stocks," the analysts wrote. "Management team commentary and guidance during second-quarter earnings season -- which starts in mid-July -- will likely be a key driver."
Against this backdrop, the brokerage said it prefers the communication services, financials, health care, information technology and utilities sectors.