The stock market still has upside after a dramatic bounce-back from 2020′s pandemic sell-off and double-digit gains this year, according to UBS.
Strategist Keith Parker hiked his price target for the S&P 500 for the end of 2021 and 2022, saying Tuesday in a note to clients that the market should be able to overcome concerns about the pandemic and valuation to grind higher.
“The summer rally to a new S&P high, with potential headwinds like rising rates on the horizon, has left investors debating whether US equities can make meaningful new gains the rest of this year and into next year. Equities are likely to have a pullback at some point, likely driven by another reset in real yields higher, but other tailwinds should drive the S&P 500 to a new high by year end,” the note said.
The firm raised its S&P 500 price target for the end of the year to 4,650 and to 4,850 for 2022. UBS previously had estimates of 4,400 and 4,650, respectively. The broad market index closed at 4,520 on Tuesday, so the targets represent 2.9% upside until the end of 2021 and 7.3% through the end of 2022.
The positives for the market include the potential for higher-than-expected earnings in the third quarter and for Covid cases to decline, UBS said.
On a sector basis, UBS upgraded small caps to overweight and downgraded materials to underweight. The firm is expecting the sectors tied to economic growth to drive the market higher.
“As the expansion takes hold, our frameworks support staying long parts of growth and value while maintaining underweights in defensives, and actually reducing exposure in Healthcare,” the note said.
The S&P 500 is up more than 20% year to date.
The firm also included a list of buy-rated stocks that fit its bullish themes. The lists include Mastercard and Coca-Cola as companies with strong pricing power and Nike as a potential dividend hike candidate.