S&P 500 Set For 9% Gain To 5,400, UBS Ups Target: 'Higher Inflation Tends To Be A Positive For Stock Prices'

UBS has raised its S&P 500 target to 5,400, citing demand-driven inflation as a positive factor for stocks.

What Happened: UBS has increased its S&P 500 target to 5,400, the most bullish forecast yet, representing a 9% increase from current levels, reported Business Insider.

Despite the recent stock market downturn triggered by higher-than-expected inflation, UBS analysts view this as a positive sign for equities, especially since it is driven by robust consumer demand.

“Higher inflation tends to be a positive for stock prices,” said analysts led by Jonathan Golub. “While the market sold off on more robust CPI and PPI reports last week, our work indicates that these demand-driven readings are constructive for future returns.”

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UBS pointed to strong consumer demand, backed by recent economic data such as consumer confidence, payrolls, and manufacturing data.

UBS had initially predicted a year-end figure of 4,850, which was then raised to 5,150 in mid-January. Goldman Sachs also revised their year-end target to 5,200, aligning with Wall Street bull Tom Lee‘s forecast.

On the contrary, JPMorgan has a bearish outlook, predicting the index will drop to 4,200 by the end of December.

“Despite our bullish outlook, it appears we were not bullish enough,” UBS wrote.

Why It Matters: This forecast comes in the wake of UBS’s earlier warning about potential risks that could trigger a 23% stock market plunge in 2024. This risk was outlined by UBS’ chief investment officer for U.S. equities, David Lefkowitz, who identified three significant risks that could potentially lead to a substantial downturn in the stock market in 2024.

Meanwhile, JPMorgan’s chief global strategist, Marko Kolanovic in January warned of a riskier reward environment and potential market turbulence due to high valuations and geopolitical tensions. The strategist said that "markets appear overbought and sentiment is in complacent territory."

At the end of Tuesday's trading day, the Nasdaq declined by 0.9% to 15,630.78. The S&P 500 dropped 0.6% for the day at 4,975.51 and the Dow Jones Industrial Average by 0.17% at 38,563.80, according to the data from Benzinga Pro.

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