UBS’s Lefkowitz says U.S. stock valuations are ‘reasonable’

UBS — UBS analyst David Lefkowitz sees a positive outlook for U.S. equities, describing current valuations as “reasonable in light of the macro environment.”

Despite high absolute valuations, Lefkowitz highlights a favorable backdrop of improving inflation, Federal Reserve rate cuts, and robust earnings growth as key drivers of continued market gains.

In the firm’s latest note, UBS maintained an “Attractive” view on U.S. equities, setting a price target of 6,300 for the S&P 500 by mid-2025 and 6,600 by year-end.

The index recently hit all-time highs, boosted by September and November rate cuts, a Republican sweep in the U.S. elections, and strong third-quarter earnings.

“S&P 500 EPS growth is coming in at 7% and guidance has been in line with historical patterns,” Lefkowitz wrote, with guidance consistent with historical patterns.

UBS expects further growth, forecasting 11% EPS growth to $250 in 2024 and 8% growth to $270 in 2025.

While uncertainties remain—particularly around tariffs and inflation under the new administration—UBS believes a soft landing for the U.S. economy is achievable.

“Healthy labor market dynamics should continue to support further gains in consumer spending,” Lefkowitz noted, citing strong job growth, low unemployment claims, and rising real wages.

The analyst also pointed to AI investment as a key catalyst, with robust spending in the technology sector despite mixed trends in PCs and smartphones.

The firm expects further Fed rate cuts to ease pressures on consumers and stimulate corporate borrowing and housing activity.

“Historically, when the Fed is cutting rates in the context of a soft landing, equities rise 18% on average in the 12 months after the first Fed rate cut,” Lefkowitz added.

UBS believes the environment remains constructive for U.S. equities, supported by durable consumer spending and broadening earnings growth.