UBS Tips S&P 500 to 7,500 on 2026 Earnings Boom

UBS pins 7,500 target on earnings, not multiple mania

UBS Tips S&P 500 to 7,500 on 2026 Earnings Boom in a call that puts profits, not fresh valuation excess, at the center of the next leg higher. In a new strategy note, the bank tells clients the index can climb to 7,500 next year, powered by around 14 percent earnings growth, with nearly half of that contribution coming from U.S. technology giants. UBS sees S&P 500 at 7,500 on 2026 earnings boom as a base case built on stronger global activity in the second half of 2026, resilient corporate margins, and an easing policy backdrop that supports risk assets without reigniting inflation.

A tale of two halves for growth and markets

Strategists frame the outlook as a two stage story. Over the coming months, advanced economies must work through a soft patch, with tariff effects, trade frictions and lingering political uncertainty weighing on confidence. UBS expects growth to re-accelerate later in 2026 as real incomes stabilize, fiscal programs gain traction and inventory adjustments run their course. Equities, in this view, digest near term noise through modest volatility and sector rotation, then grind higher as earnings delivery narrows the gap between elevated price levels and underlying fundamentals. The call assumes no deep recession, but a choppy glide path into a stronger second half.

Earnings engine: tech still leads, but breadth improves

UBS projects that roughly half of the earnings expansion will be generated by technology, communication services and adjacent growth sectors, where cloud, AI, software and semiconductor demand remain central drivers. The rest is expected to come from financially healthier cyclicals, industrials, select consumer names and healthcare firms with pricing and innovation power. The bank argues that the S&P 500’s advance to 7,500 will be “predominantly earnings driven,” with valuation multiples a slight drag rather than a prop. That places pressure on companies to execute: investors are being asked to pay for real profit growth, not simply multiple re-rating.

Valuations: rich, but not prohibitive

Concern over stretched U.S. equity valuations has been a recurring theme in 2025. UBS acknowledges that headline multiples screen high versus long run averages, especially in megacap technology, but contends that current levels are defensible if earnings track its forecasts. The note assumes a small negative contribution from valuations, reflecting mild multiple compression as rates normalize and risk premia edge higher. Strategists also flag that risks to multiples and the market are “skewed to the upside,” citing persistent inflows and a global search for duration in quality growth assets. The target therefore embeds some caution, but not a forced de-rating.

U.S. seen outpacing Europe and emerging markets

UBS expects the United States to lead global equity performance into 2026, forecasting roughly 10 percent market returns with the S&P 500 outpacing major European and emerging benchmarks. Europe and EMs are still seen delivering “decent” earnings and about 8 percent returns, but “mildly underperforming” U.S. stocks given America’s concentration of high margin technology, healthcare and consumer platforms. The bank underlines that better risk reward exists in equities than in credit, arguing that spread products offer less upside after a strong rally, while corporate profit growth can still surprise positively if the soft patch proves contained.

Rotation: from megacap narrowness to broader participation

A key plank of the 7,500 thesis is a gradual broadening of market leadership. UBS expects the first part of 2026 to feature consolidation in megacap technology after a powerful AI led run, followed by a rotation into lower quality cyclicals and laggards as confidence in the recovery improves. Industrials tied to capex, select financials, travel, logistics and materials could benefit if global trade and investment re-accelerate. For portfolio managers, the message is to stay anchored in quality growth while preparing to add exposure in segments that can respond strongly to a late-cycle upturn once volatility around tariffs and politics fades.

Policy backdrop: supportive, but not reckless

The forecast leans on a measured policy environment. UBS assumes that central banks will maintain relatively low, stable rates after earlier cuts, allowing financial conditions to stay loose enough to support investment without sparking another inflation spike. Tariffs and trade barriers, while still a headwind in early 2026, are expected to be absorbed gradually rather than escalate into a systemic shock. Fiscal policy, including targeted industrial and infrastructure spending, is seen as a secondary tailwind that underpins demand. Any break from this script, either via renewed inflation pressure or a disorderly policy misstep, would challenge the path to 7,500.

Where the call can break

The upside narrative is balanced with clear caveats. A deeper than expected slowdown, more aggressive tariff rounds, geopolitical shocks that hit supply chains, or sharper multiple compression in crowded AI and tech trades could all derail the projected climb. If earnings growth undershoots the targeted 14 percent, or if margins are squeezed by wages and input costs, the valuation cushion quickly narrows. UBS notes that the S&P 500’s strong run in recent years has left less room for error; disappointment on profits or policy could turn the same powerful flows that lifted indices into a source of downside pressure.

Strategy implications for investors

For Tredu readers, the UBS view supports a pro equity, selectively risk on stance. The bank favours U.S. large caps with durable cash flows, advantaged technology and healthcare franchises, and balance sheets positioned for buybacks or disciplined M&A. It encourages gradual rotation into cyclical and mid cap names that can benefit from an eventual broadening, while keeping underweights in long duration credit where spreads are tight. Hedging against policy and geopolitical risk remains part of the playbook, but UBS frames pullbacks as opportunities to add rather than signals to abandon equities, as long as the earnings path remains intact.

Bottom line

UBS’s call for the S&P 500 to reach 7,500 in 2026 rests on a straightforward proposition: earnings growth does the heavy lifting while valuations drift slightly lower, the U.S. outperforms a still constructive global backdrop, and leadership slowly broadens beyond a narrow megacap core. If that sequence holds, equities retain the edge over credit, and the index’s climb toward 7,500 looks like an extension of fundamentals rather than a leap of faith.