A team of strategists at UBS Group’s wealth-management arm has lifted its 2024 price target for the S&P 500, joining a growing chorus on Wall Street that expects stocks to reach record territory before the end of the year.
“We now have higher conviction in our base case of an economic soft landing and see the Fed cutting rates four times this year, likely starting in May. We have raised our December S&P 500 target to 5,000, providing 6.4% upside from Friday’s closing price of 4,697,” said Mark Haefele, chief investment officer at UBS Global Wealth Management, in a note shared with MarketWatch on Monday.
That would mark a gain of around 6.5% from Friday’s close. The S&P 500 rose more than 24% in 2023, finishing Dec. 29 just 0.6% below its record close of 4,796.56 set on Jan. 3, 2022.
Haefele and his team based their revision in part on Friday’s jobs report. Although the data showed the U.S. economy added more than 200,000 jobs in December, numbers from the prior two months were revised lower by 71,000. And while average hourly earnings rose by more than expected, the data showed the average number of hours worked declined, bolstering expectations that rising wages won’t contribute to a reacceleration of inflationary pressures.
“We see reasons to expect wage growth to fall further. Data released earlier last week showed the share of workers quitting their jobs fell to 2.2% in November, based on the JOLTS survey, below its prepandemic level. This may suggest that workers are becoming less confident in their ability to jump to better roles with higher pay,” the UBS team said.
With unemployment still below 4%, UBS expects consumption to remain strong. Economists had expected the unemployment rate to tick up to 3.8% in December, but it came in steady at 3.7%. This is an important factor in UBS’s economic calculus.
“We still expect a moderate rise in the jobless rate in 2024, but we don’t expect an increased fear of unemployment to cause a sharp rise in rainy-day savings and a correspondingly sharp reduction in household consumption,” Haefele and his team said.
Despite the strong headline reading on job creation, the UBS team said “we continue to see a trend toward gradual cooling. This helps explain why Friday’s initial negative reaction in bond and equity markets was later reversed.”
The team advised UBS clients who are still holding a substantial amount of their portfolio in cash to put their money to work quickly, recommending long-dated bonds featuring yields that are attractive relative to recent history.
What’s more, the UBS team favors corners of the stock market that are likely to outperform during a period of tepid economic growth. They recommended investors focus on quality stocks, investing in companies with strong balance sheets and a reputation for delivering earnings growth.
U.S. stocks fell last week, snapping a nine-week winning streak that was the longest for the S&P 500 in nearly 20 years, according to Dow Jones Market Data. Analysts have blamed several factors for driving stocks’ pullback during the first trading week of 2024.
See: How the 2023 ‘everything rally’ is unwinding in the new year
U.S. stocks opened mixed on Monday, with the S&P 500
SPX
up 0.2% at 4,704, and the Nasdaq Composite
COMP
up 0.7% at 14,620. The Dow Jones Industrial Average
DJIA
was off by 186 points at 37,282, as shares of Boeing Co.
BA,
slumped, weighing on the blue-chip gauge.
See: Shares in Boeing slump, supplier Spirit AeroSystems tanks, after panel blows out
