UBS predicts that the S&P 500 could reach 7,500 by mid-2026. This growth is expected due to advances in AI, solid earnings, and increased consumer spending. The bank believes that U.S. stocks will remain strong as the Federal Reserve adjusts its policies without causing a recession. AI is a major factor in this growth. Companies like Intel and Oracle are already seeing benefits. UBS forecasts that global spending on AI will rise by 67% to USD 375 billion in 2025 and will increase by another 33% to USD 500 billion in 2026. This increase is driven by the high demand for computing power and better ways to profit from technology.

Earnings Momentum is Strong

Earnings are doing well, with S&P 500 profits increasing by 8% in the second quarter, beating the forecast of 5%. Almost 80% of companies exceeded sales expectations, and the average earnings per share (EPS) exceeded estimates by 4.3%. UBS predicts that S&P 500 EPS will hit USD 270 this year, an 8% rise, and USD 290 by 2026, a 7.5% increase. Consumer spending is also strong, with retail sales growing for three months straight, surpassing expectations for August. Although the job market has some weakness, household and corporate finances are still healthy, and deregulation efforts may encourage further growth. Even with high valuations, a stable period is expected. UBS’s main forecast suggests the S&P 500 could reach 6,800 by June 2026, while a more optimistic scenario could push it to 7,500. The bank recommends investors increase their exposure during market dips, focusing on IT, financials, healthcare, communication services, and utilities. Overall, the market outlook is positive, signaling significant growth into mid-2026. However, after a strong start this year, a period of stabilization or a slight pullback could occur soon. Traders should view market dips as buying opportunities, possibly by selling cash-secured puts in strong sectors.

Resilience in Consumer Spending

Artificial intelligence remains a key growth driver, with recent data supporting this trend. A September 2025 report indicates that global spending on AI is set to exceed $380 billion this year, confirming a strong investment cycle. As a result, bullish positions should focus on crucial technology companies involved in this growth. Corporate earnings are another solid support for the market. After the remarkable 8% profit growth in the second quarter of 2025, early announcements for the third quarter are already exceeding analyst expectations. This ongoing strength in earnings should help protect the market from major drops. The overall economy looks good, with consumer spending staying strong. Recent retail sales data from August 2025 showed a healthy rise, easing concerns about a slowdown. This resilience, combined with two interest rate cuts by the Federal Reserve earlier in 2025, creates a favorable environment for stocks. However, we need to be careful about high valuations. The S&P 500’s forward price-to-earnings ratio is now at 22, above its historical average. This elevated valuation may cause short-term fluctuations and make buying long call options risky. A smarter strategy in the coming weeks could be to use bull call spreads to capture potential gains while managing risk. Create your live VT Markets account and start trading now.

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