UBS Sets Year-End 2025 Price Target of 900 for Global Equity Benchmark - What Does This Mean for Your Investments?
In a recent report, UBS has set a year-end 2025 price target of 900 for the global equity benchmark, implying a modest 6% upside from current levels. But what factors are driving this outlook and how can it impact your investments?
1) UBS notes that tactical indicators are only "middling." The UBS risk appetite indicator shows risk assets performing close to economic momentum, with U.S. GDP growth aligned with a moderate 1%. However, soft data macro surprises are now emerging, with Atlanta Nowcast now standing at 3% for the third quarter.
2) According to UBS, equities tend to perform well when the U.S. Federal Reserve cuts interest rates without a hard landing. Historically, after rate cuts, equities have gained around 20% over an eight-month period. UBS expects an additional rise of approximately 13%.
3) UBS anticipates that generative AI (Gen AI) will boost productivity starting in 2028, raising the U.S. equity risk premium (ERP) to 4.9%. This could support about 10% upside potential for equities, driven by defensive sectors like healthcare, utilities, and tech.
4) Strategists expect a limited margin squeeze in 2025, as wage growth in the U.S. should slow to around 3%. Despite this, UBS remains 8% below consensus estimates for 2025 earnings growth, forecasting 5% versus a 13% consensus.
5) The credit environment remains a crucial factor. UBS highlights that credit and equities “are tied at the hip,” noting that major shifts in equity performance are often preceded by changes in credit spreads. While UBS sees a central case of a 6% upside, the firm also highlights a 25% chance of a more bullish scenario, driven by a potential market bubble. In contrast, downside risks include a 25% chance of a 10% market decline, driven by factors like U.S. recession risks and China's potential drag on global growth.
In conclusion, UBS's outlook for the global equity benchmark suggests a potential 6% upside by year-end 2025, with additional opportunities for growth driven by factors like AI productivity boosts and credit environment shifts. However, investors should also be cautious of potential downside risks, such as market declines and recession risks. It is important to stay informed and regularly review your investment strategy to navigate these uncertain market conditions.