TSX runs higher on rate cut expectations
Investing.com -- UBS analysts have set a near-term target of 5300 for the S&P 500 but warned in a note to clients Thursday that ongoing tariff uncertainty could drive the index below 5000.
According to UBS, the newly proposed tariffs "are larger than expected" and could raise the weighted average tariffs on U.S. imports from 2.5% to 24%, levels not seen since the 1920s.
The firm’s U.S. economic team estimates that if these tariffs remain in place, real GDP could decline by 1.5 to 2 percentage points in 2025, while inflation could approach 5%.
UBS states that this scenario "has the potential to considerably worsen the growth inflation mix in the US and the global economy in the coming year."
Despite deteriorating sentiment, investor flows into equities remain strong, with UBS noting that "investors have continued to buy the dip," extending strategies that worked in prior sell-offs.
However, the firm sees downside risks, as slowing economic growth and rising credit spreads could negatively impact equity valuations. UBS estimates that "every 100 bps widening in US credit spreads has brought down the equity multiple by 1.5x," which could pressure stock prices further.
UBS acknowledges that productivity gains from AI could provide long-term support for equities but maintains that tariffs present an immediate headwind.
While 5300 remains the target, the firm warns that "if tariff uncertainty persists or negotiations with trading partners don’t go well, risks of downside through 5000 become real."
It also notes an increasing probability that U.S. stocks could enter a bear market.