UBS Wealth expects S&P 500 to touch 5,000 by 2022; growth, inflation may stay above historical norms
Wall Street equity index S&P 500 currently sits at its all-time highs of 4,479, gaining more than 21% this year already. However, the rally may not be over as analysts UBS Wealth Management expect the index to scale 5,000 by the end of next year, gaining another 12% from current levels. “Our read is that growth will stay strong for at least the next four quarters,” said Mark Haefele, Global Chief Investment Officer, UBS Wealth Management. Meanwhile, the global brokerage firm reiterated its Nifty 50 target of 15,500 in June this year, seeing a small downside to the target. After the covid induced scare in March 2020, S&P 500 has nearly doubled, jumping 94% to date.
“We now expect 45% growth in S&P 500 earnings in 2021 and think consensus forecasts for 2022 are likely to be revised upward by nearly 10%. As this earnings trajectory is confirmed, we expect the S&P 500 can reach 5,000 by the end of 2022,” Mark Haefele said. The Chief Investment officer further added that he expects rates of growth and inflation to stay well above historical norms for the next six to 12 months, and this should continue to fuel robust corporate earnings growth.
So far consumption in the US has been pushed higher by the excess savings that consumers accumulated during 2020 and have been spending since reopening. The same has started to fade away now. However, UBS analysts believe that now rising employment figures will turn up to support consumer spending. In the previous month, nonfarm payrolls was above expectations with 943,000 new jobs. Payrolls, according to UBS are below pre-pandemic levels, and could grow further.
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Further, while manufacturing is at full pace and inventories at the manufacturer level are above the pre-pandemic average, the same is not true for retail inventories. “This suggests that retailers’ need to restock will be a source of real economic growth in the coming quarters,” UBS said. “The customer inventory component of the ISM Manufacturing index is currently at a record low of 25. Historically, when this measure has been below 39, the headline ISM index has remained above 54 for over a year, indicating strong business sentiment and real growth,” they added.
For the current year, UBS Wealth Management has increased its target for S&P 500 for 2021 to 4,600 from 4,500 earlier, according to MarketWatch. This increase comes on the back of solid economic and corporate profit growth, in union with a US Fed that is still-accommodative.
Meanwhile, in India, benchmark indices have scaled fresh all-time highs recently and hover around the record highs. The Nifty 50 is above 16,600 and inching closer to the all-time high of 16,701. In the base case, UBS had pegged Nifty 50 at 15,500 while the bear case scenario expects the index to fall to 13,100 levels. On the other hand, the bull case scenario given by UBS analysts sees the Nifty 50 at 16,700.