Goldman and UBS Raise S&P 500 Outlook... 'Wall Street Record High' 5400

Following Goldman Sachs, a leading investment bank on Wall Street, UBS also raised its year-end forecast for the S&P 500 index. The newly proposed 5400 by UBS is the highest level among the forecasts released by major Wall Street investment banks so far.

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On the 20th (local time), UBS announced that it would raise its year-end forecast for the S&P 500 index from the previous 5100 to 5400. Jonathan Golub, UBS's Chief U.S. Equity Strategist, explained the background in an investor memo, saying, "Despite our (previous) bullish outlook, we believed it was not bullish enough." This implies there is about an additional 8.5% upside potential from the closing price on that day. Earlier, in January, UBS had also raised its year-end forecast for the S&P 500 index from 4850 to 5150.

Recently, optimism has been spreading on Wall Street that the New York stock market will rise further, based on improving corporate earnings and expectations of a soft landing for the U.S. economy. Earlier, Goldman Sachs raised its year-end forecast for the S&P 500 index to 5200, joining the ranks of bullish investors, and some other investment banks, including Bank of America (BoA), are reportedly considering upward revisions as well.

The common reason these investment banks cite for their upward revisions is corporate earnings. According to FactSet, the earnings growth rate for S&P 500 listed companies in the fourth quarter of last year was forecasted to be 1.9% just a month ago but is now estimated at 3.2%. On an annual basis for this year, earnings growth is expected to exceed 10%.

Additionally, UBS provided an analysis suggesting that even inflation, which fuels concerns about prolonged high interest rates, is not necessarily bad for corporate earnings. Golub, the chief strategist, said, "Earnings are measured in nominal dollars. In other words, high inflation tends to have a positive effect on stock prices." He also noted that the market sell-off confirmed by last week's higher-than-expected Consumer Price Index (CPI) and other data is positive from the perspective of future returns. Highlighting recent economic indicators that suggest consumer resilience and economic recovery, he added, "If inflationary pressures intensify, (corporate) pricing power increases, which also helps margins."

The UBS forecast released that day is the highest among 14 major Wall Street investment banks compiled by Yahoo Finance. Following UBS, Goldman Sachs, Oppenheimer Asset Management, and Fundstrat Global Advisors each proposed 5200. Citi forecasted 5100, and BoA forecasted 5000. The lowest forecast was given by JP Morgan at 4200. The average forecast among these 14 investment banks was 4951.

After recently hitting an all-time high, driven by the AI rally and expectations of a shift in the Federal Reserve's monetary policy, the S&P 500 index has fallen back below the 5000 level. The market is awaiting the release of the January Federal Open Market Committee (FOMC) minutes and Nvidia's earnings the following day.