UBS Lowers S&P 500 2025 Price Target, Sees Recovery by 2026

New York — August 11, 2025 — UBS has adjusted its expectations for the U.S. stock market, cutting its S&P 500 year-end 2025 price target to 6,100 from a previous forecast of 5,500. The revision comes with a clear message: while the market is near record highs now, the bank expects near-term weakness before a rebound in late 2026.

On Friday, the S&P 500 closed at 6,389.45, meaning the new target implies a 4.5% decline over the next 16 months. Looking further ahead, UBS set a year-end 2026 target of 6,800, projecting a 6.4% upside from current levels.

UBS’s Market View: Headwinds Are Building

In its Monday note, UBS analysts acknowledged that the market has been surprisingly resilient but pointed to several factors that could cap near-term upside:

• Earnings Growth Slowing — While corporate profits remain strong, margins are starting to compress.
• Valuation Pressure — The S&P 500’s forward P/E ratio is significantly above its 10-year average.
• Macro Uncertainty — Sticky inflation and mixed economic data complicate the Federal Reserve’s path.
• Geopolitical Risk — Trade tensions, elections, and geopolitical instability could dampen sentiment.

“This drives us to call the market lower in the near term and to expect it to remain below current levels even by end ’25. We then see a smart recovery in H2 ’26,” UBS said.

Why UBS Sees a Dip Before a Rally

UBS’s strategy relies on a two-phase market forecast:

Phase 1 — Correction and Sideways Trading (Now through 2025)

The bank expects modest declines or sideways movement through the rest of 2025 as valuations normalize. This period could be marked by higher volatility, as investors digest inflation data, Fed policy shifts, and earnings surprises.

Phase 2 — Recovery and New Highs (Late 2026)

Once interest rates stabilize and inflation moderates, UBS believes earnings growth will accelerate, helping the S&P 500 climb to 6,800 by the end of 2026.

Historical Context: When Wall Street Called for Pullbacks

Market history shows that cautious forecasts at highs are not unusual. Similar patterns have emerged before:

• 2018 — Analysts warned of overvaluation just before the Q4 sell-off, after which stocks recovered in 2019.
• 2021 — Calls for a pullback preceded the mid-2022 correction, but the market rebounded strongly in 2023.
• 2024 — Forecasts for a pause in the rally coincided with a period of sideways trading.

Impact on Investors

For long-term investors, UBS’s forecast suggests:

• Staying invested but preparing for volatility.
• Focusing on quality companies with solid balance sheets.
• Considering defensive sectors (utilities, healthcare) during pullbacks.
• Maintaining liquidity to capitalize on lower prices.

Sector Outlook According to UBS

Technology

Still a leader in earnings growth, but valuations are stretched. UBS suggests rotating into software and semiconductor leaders with consistent cash flow.

Financials

Rate cuts in 2026 could boost lending activity and margins. Until then, banks may face margin pressure.

Energy

Moderate oil prices could limit upside, but supply constraints may provide floor support.

Consumer Discretionary

Strong now, but could weaken if inflation erodes purchasing power.

Global Market Considerations

UBS’s U.S. outlook is linked to global developments:

• Europe — Slow growth but improving manufacturing sentiment.
• Asia — China stimulus measures could lift regional demand.
• Emerging Markets — Currency volatility remains a challenge.

Analyst Reactions to UBS Forecast

Some analysts agree with UBS’s cautious stance, citing stretched valuations and macro risks. Others believe earnings resilience will keep the S&P 500 above 6,300 through 2025.

“Markets can stay overvalued longer than analysts expect, especially in a low-yield environment,” said one New York-based strategist.

Possible Market Scenarios

1. Soft Landing — Inflation cools, growth stabilizes, and the S&P 500 remains near highs.
2. Mild Correction — Stocks pull back 5–10% before rebounding.
3. Bearish Surprise — Macro shocks lead to a sharper downturn.

Investor Takeaways

• UBS’s lowered 2025 target reflects a belief in near-term caution but long-term strength.
• Diversification remains key in a potentially choppy market.
• Patience may be rewarded in 2026.