On Friday, US stocks fell again, with the three major indexes all dropping. Both the Nasdaq and the S&P 500 index recorded their largest weekly decline since April. However, UBS does not seem to buy into the recent pullback in US stocks, and has once again raised its year-end target for the S&P 500 index.

In its latest report, UBS raised its target price for the index for the fourth time this year and now expects the S&P 500 index to be at 5,900 points this year, which means that the index can rise another 7% from current levels. In addition, the bank has set a bull market target of 6,500 points for the end of this year, which means there is a potential upside of 18%.

It's worth noting that UBS's initial year-end target price was only 4,850 points this year, but later, as the AI frenzy continued to boost the US stock market, the bank has raised its target price for the S&P 500 index four times this year: to 5,150 points, 5,400 points, and 5,600 points in January, February, and May, respectively.

David Lefkowitz, chief investment officer for equity Americas at UBS, said in the report, "We believe that the market background is still favorable for the following factors: 1) steady and expanding profit growth, 2) slowing inflation, 3) the Fed's shift to rate cuts, and 4) surging investment in AI infrastructure and applications."

He said that the strong 16% rally in the US stock market this year is supported by stable profit growth, and this trend should continue until 2025. UBS expects earnings per share for S&P 500 index constituents to reach $250 this year, up 11% year-on-year, and to grow 8% to $270 by 2025. Three major reasons.

Lefkowitz said that such earnings and target price valuations are historically high for S&P 500 index constituents, but this is justified.

He said, "The P/E ratio is high, but reasonable in a favorable macro environment." And if the bull market scenario he describes materializes, the stock market's P/E ratio could soar even higher.

The optimistic situation described above depends on the occurrence of three things:

1. Continuous improvement of AI technology.

"The impact of AI on productivity and profit growth is greater than what investors expected, and it's happening faster."

2. Economic growth stronger than expected.

"High wages attract more workers to join the workforce, and demand for labor remains strong. Real incomes continue to grow, and households still have cash buffers."

3. Inflation cools more than expected.

"The persistent inflation pressure quickly dissipated, and the Fed's rate cut was more than we expected, boosting expectations for economic growth and corporate profits."

Finally, Lefkowitz said that although economic growth trends have cooled recently, "economic growth still has a solid foundation," and the labor market remains healthy. UBS emphasizes that a stable employment market will ultimately support further gains in the stock market.

Editor/Somer