UBS analysts would not be surprised to see a moderate pullback in shares in the coming months, the bank said in a statement on Friday.
Despite recent mixed economic signals, the investment bank still believes four key equity market factors remain largely intact. These are sustainable growth, falling inflation, a reversal of the Fed and unprecedented investments in artificial intelligence.
“Recent ‘higher’ inflation data may suggest the Fed may be able to keep rates higher for longer, but labor market trends support our view that the Fed will likely begin cutting rates midway through year,” UBS said.
Earnings remain favorable, with the fourth-quarter earnings season beating expectations and the first-quarter 2024 guidance consistent with historical patterns.
“While Mag 7 now accounts for a significant portion of EPS growth, growth expectations are beginning to expand,” the company added.
Despite the positive, UBS said that after rising more than 20% from its October low, some sentiment and positioning indicators suggest a moderate pullback in the coming months.
“Our target prices for June 2024 and December 2024 are 5100 and 5200 respectively. We maintain a neutral preference for US equities in our tactical asset allocation and highlight that there may be better opportunities to add to equity positions,” they concluded.