UBS said in a note Friday that, in their view, S&P 500 valuations are full, and stocks will likely consolidate.
Analysts at the investment bank told investors the combination of better-than-expected growth and a meaningful improvement in inflation, which gives the Fed flexibility to cut interest rates, gives them greater conviction in their base case for an economic soft landing.
And, while this outcome is "mostly priced into equity markets," they think market gains can extend a bit further.
"Our June and December S&P 500 price targets are 4,900 and 5,000, respectively. We maintain a neutral preference for US equities in our tactical asset allocation," said the bank.
However, "with S&P 500 valuations full, in our view, we look for a pickup in earnings growth to be the primary driver of the somewhat modest upside that we expect," they added.
The firm's S&P 500 EPS estimates are $240 (+8% year-over-year) in 2024 and $255 (+6% year-over-year) in 2025.
"After the strong gains over the last two months of 2023, stocks will likely enter a period of consolidation, and there could be more attractive entry points to add exposure to equities," UBS concluded.
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