Investing.com – Recent signs of economic softening in the U.S. have raised expectations of looser financial conditions, according to UBS, which provides a healthy backdrop for equity markets.
The S&P 500 hit its 25th record high this year on Wednesday after several days of sideways trading when U.S. Treasurys staged a strong rally on increasing expectations for Federal Reserve rate cuts this year.
Recent data suggest the U.S. economy is gradually slowing down, including the job openings and labor turnover survey, which showed US job openings falling to the lowest level since February 2021. The ISM manufacturing index for May fell for a second consecutive month, and further into contraction territory, while the services sector snapped back into growth mode in May.
“Overall data remain consistent with an economy heading into a soft landing,” analysts at UBS said, in a note dated June 6. “While some may interpret weaker numbers as a deterioration in the growth picture, we believe they are more indicative of a healthy deceleration that should allow for further disinflation, enabling policymakers to cut rates.”
We continue to expect cumulative cuts of 50 basis points by year-end, with the first easing move likely at the September meeting, the bank said.
In our base case, we see the S&P 500 reaching 5,500 by year-end amid Fed rate cuts, robust profit growth, and the secular growth trend brought by artificial intelligence.
The S&P 500 index closed Wednesday at 5,354.03.