Investing.com -- Despite a cautious end to 2024, UBS analysts project that the stock market rally will persist in 2025, driven by several positive factors.
The MSCI All Country World and the S&P 500 dipped 1.6% and 2.4%, respectively, in December, which UBS said was largely due to thin liquidity in the final trading days.
However, global stocks achieved an impressive 20.7% return for 2024, with the S&P 500 leading at 25%, marking the best two-year performance for US large-cap stocks this century.
Looking ahead, UBS remains optimistic about US equities, expecting the S&P 500 to reach 6,600 by the end of 2025.
They attribute this to "a mixture of lower borrowing costs, resilient US activity, a broadening of US earnings growth, further AI monetization, and the potential for greater capital market activity under a second Trump administration."
“We expect the S&P 500 to hit 6,600 by end-2025 and suggest that under-allocated investors consider using any near-term turbulence to add to US stocks, including through structured strategies,” wrote the bank.
The note also highlights the resilience of gold, which returned 27.8% in 2024, driven by central bank buying and geopolitical concerns. UBS expects continued demand for gold as a hedge, despite potential moderation in exchange-traded fund (ETF) demand if the Federal Reserve delivers fewer rate cuts than anticipated.
In fixed income, UBS sees high-grade and investment-grade bonds as appealing. Although the Fed’s hawkish stance has adjusted expectations for rate cuts, UBS believes cash rates could still fall if economic data weakens unexpectedly.
In the foreign exchange market, UBS says investors should sell further US dollar strength and diversify into other currencies like the British pound and Australian dollar, noting the US dollar’s stretched valuation.