UBS says there is still room for the U.S. stock market’s strong rally in 2025 to continue into next year, with earnings growth, easy monetary policy and more policy clarity likely to keep stocks rising through 2026. The bank’s strategists argue that the market rally is being driven by profits, not frothy valuations. Corporate earnings this year, especially among technology companies, continue to beat expectations, with future price-to-earnings ratios only slightly higher than they would be in early 2025. UBS expects S&P 500 earnings per share to rise by about 10% in 2026, a pace that could lift the index to about 7,700 by year-end. “While some may be concerned that investor reluctance is indicative of deeper problems, a number of catalysts are likely to occur going forward that should rekindle equity market momentum into early 2026,” UBS said in a note to clients. UBS expects further rate cuts following the Fed’s third consecutive rate cut in December, with another rate cut likely in the first quarter of 2026. The bank said the appointment of a new Fed chair in January to replace outgoing Chairman Jerome Powell could strengthen the dovish shift, citing recent comments from nominees such as Kevin Hassett and Christopher Waller that suggest room for further easing. Investors could also get clarity from a Supreme Court ruling on President Donald Trump’s tariff powers expected early next year. UBS expects the relief from tariff cuts to be temporary, but says the decision reduces uncertainty and could impact near-term sentiment. UBS said the broader context argues that investors need to remain committed to equities, even if markets pause in the coming weeks. The bank maintained its “attractive” rating on U.S. stocks, saying investors should position for further upside into 2026. “We therefore believe investors should position for further stock market gains, regardless of whether December’s gains materialize or not,” UBS said.
