UBS sees only 5% upside in S&P 500 by the end of 2024

UBS strategists see the ending next year at roughly 4,600. UBS’ target implies a modest upside of just 5% from current levels.

The analysts point to the expectation of weaker growth affecting revenues and potential headwinds for profit margins, including negative operating leverage, stagnant wages, declining pricing power, and rising interest expenses.

Previously at Credit Suisse, these analysts have been some of the most vocal bulls on the Street in recent years.

The investment banking giant sees a significant acceleration in tech sector earnings, which could contribute 2-3% to S&P 500 earnings per share next year.

However, the European strategists at UBS highlight an increased probability of a regional economic downturn, citing deteriorating leading indicators.

Their model suggests that European revenues may hold up reasonably well, but margins could weaken, potentially resulting in 2024 earnings expectations being 10% lower than in 2023.

UBS prefers UK equities to Italian ones, and they recommend sectors like pharmaceuticals, software, staples, and utilities, as well as investment styles focused on growth and quality.

Moreover, the analysts express greater optimism about Asian tech sectors, including Chinese internet companies.