ab20 February 2024Global Research and Evidence LabUS Equity StrategyIncreasing S&P 500 Target to 5400Bullish, but Not Bullish EnoughLast December, we published S&P 500 to 4850 by YE 2024, Risks to the Upside, which highlighted the strength of earnings and the economy. On January 16, we increased our target to 5150 as the backdrop improved even further. Despite our bullish outlook, it appears we were not bullish enough. Demand-Driven Inflation Positive for StocksReturns and profits are measured in nominal dollars. Put differently, higher inflation tends to be a positive for stock prices. 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.Economic Data Robust Economic data has been particularly strong since the start of the year. Key takeaways:Consumer Confidence - U. Michigan survey has risen 3 months in a row Payrolls - 353k NFPs vs.185k surveyISM Manufacturing - 1 month change: 47.1 to 49.1, new orders 47.0 to 52.5Economic Surprise - Vertical move higher in surprises since mid-January1Q24 GDP - GDPNow forecast of 2.9% growth 2024 GDP - Consensus forecast from 1.3% in December to 1.6% todayTarget from 5150 to 5400, 2024 EPS from $235 to $240We are increasing our 2024 S&P 500 target from 5150 to 5400. This new target represents 7.9% potential upside through year end. We are also increasing our 2024-25 EPS estimates from $235 to $240, and $250 to $255, implying 9.1% and 6.3% growth over the next 2 years (vs. consensus estimates of 10.5% and 13.2%).NewOldTarget54005150Upside2023 EPS$220$2212024 EPS$240$2352025 EPS$255$2507.9%2.9%Financials from Neutral to Overweight, Health Care from Overweight to NeutralWhile Health Care remains our preferred group within defensives, we see greater opportunity in cyclical sectors given continued economic strength. Financials benefit from rising interest rates, the potential for resurgent M&A, and easing lending standards. This report has been prepared by UBS Securities LLC. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES, including information on the Quantitative Research Review published by UBS, begin on page 13. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Equity StrategyAmericasJonathan GolubStrategist jonathan.golub@ubs.com +1-212-713 8673Patrick PalfreyStrategist patrick.palfrey@ubs.com +1-212-713-2000Will JacksonAssociate Strategist will.jackson@ubs.com +1-212-713-2000Nicholas SamoyednyAssociate Strategist nicholas.samoyedny@ubs.com +1-212-713-2000 US Equity Strategy 20 February 2024ab 2US Equity StrategyUBS ResearchMarket Target & EPS Forecast...
