UBS also sings the "no landing" tune: US stocks may have double-digit returns next year!

UBS believes that the US stock market is expected to achieve double-digit growth again next year.

The bank's strategist is bullish on the US stock market in a report last Friday, predicting that the S&P 500 index will reach 6,600 points by the end of next year.

The strategist stated that this forecast implies a roughly 13% upside potential for the benchmark index from its current level, with the economy avoiding a "hard landing" serving as a catalyst for this uptrend.

In this scenario, economic growth continues, and the job market remains strong. In the event of an "hard landing" or "soft landing" for the economy, inflation and interest rates may still be slightly higher than the market's previous expectations.

"Most importantly, the improvement in the US macroeconomic outlook has increased our confidence in a positive view on stocks. We have upgraded our rating on US stocks from neutral to attractive," the strategist wrote in a report last Friday, pointing out that data indicates the US economy is on a solid footing.

Indeed, despite tightening financial conditions and high interest rates, the job market remains resilient. According to data from the US Bureau of Labor Statistics, the US added 254,000 jobs in September, well above the expected 147,000. Meanwhile, the unemployment rate dropped to 4.1%, still near historic lows.

Economic activity also remains robust. US retail sales grew by 0.4% in September, beating expectations, and second-quarter GDP grew by 3% year-on-year.

At the same time, the inflation rate is approaching the Federal Reserve's 2% target. In September, the Consumer Price Index (CPI) recorded a year-on-year increase of 2.4%, while the Fed's preferred inflation gauge, Personal Consumption Expenditures (PCE), rose by 2.2% year-on-year in August, the lowest level since 2021.

UBS stated that the slowdown in price growth lays the foundation for the Fed to continue cutting interest rates, which is beneficial for the stock market. According to CME's Fedwatch tool, the market prices in a 72% probability of the Fed cutting rates by another 50 basis points before the end of the year.

The strategist added that while investors may see some volatility before the November election, this is unlikely to offset more positive market catalysts.

"The US presidential election is unlikely to disrupt the positive fundamentals. We expect increased market volatility leading up to the election, as both parties have no clear advantage in key swing states that could decisively impact the election outcome. However, this election is taking place against the backdrop of Fed rate cuts, strong momentum in the US economy, and supportive long-term trends such as artificial intelligence (AI)," the report added.

Other forecasters suggest that given the potential strength of the US economy, the likelihood of avoiding a "hard landing" seems greater. Nevertheless, the New York Fed believes that by September 2025, there is a 57% chance of the economy entering a recession