Investing.com – UBS is maintaining its constructive stance on U.S. equities, saying the fundamental drivers of the bull market remain in place and that signs of de-escalating conflict in the Middle East should limit the potential downside.
“We retain our Attractive view on U.S. equities. The conflict in the Middle East is ongoing, but signs of de-escalation should prevent stocks from experiencing a material pullback,” strategists led by David Lefkowitz said in a note.
“Therefore, we believe the macro drivers of the bull market remain in place: healthy profit growth, supportive Fed policy, and the adoption of AI,” they added.
UBS, which holds a 2026 price target of 7,500 for S&P 500, forecasts 17% earnings growth for the index, which would mark the fastest pace in four years.
Strategists see technology and AI capital expenditure-related segments continuing to account for a significant share of that growth, with the Magnificent 7 plus and on pace to drive roughly two-thirds of total earnings growth.
The other 491 stocks in the index have also been contributing to growth, and UBS expects that broadening trend to continue in the current quarter.
The bank’s full-year 2026 EPS estimate stands at $310, implying 11% growth.
On the macro side, strategists point to resilient consumer spending, stable labor market data, and an ISM Manufacturing index that has moved back into expansionary territory after more than three years in contraction.
Company guidance, they added, is expected to come in better than feared. “This is consistent with the message from the companies that have reported so far. Anecdotal
comments from management teams also suggest no material change in trends due to the war in the Middle East,” the team wrote.
In its base case, UBS assumes that traffic through the Strait of Hormuz resumes gradually but does not return to pre-crisis levels until the second half of the year. The bank said it is closely monitoring risks that could derail the bull market, including a prolonged disruption of from the Middle East or any setbacks to AI adoption or monetization.
Strategists also pointed to elevated volatility as a potential tailwind for stocks. At the end of March, the closed above 31, a level higher than 93% of all historical observations.
When volatility has been at similar levels in the past, forward returns have tended to be better than normal, and strategists said that if the conflict continues to de-escalate and energy flows resume, they expect investors to further engage with the market, driving the S&P 500 toward UBS’s 7,500 year-end target.