Two straight lukewarm inflation reports support a scenario where stocks reach fresh highs in 2025, according to UBS. In fact, the Swiss bank forecasts the benchmark S & P 500 will reach 6,600 by December, or roughly 11% above its current level. Tuesday’s producer price index report and Wednesday’s consumer price index reading both eased investor concerns and drove stocks higher after what had been a rocky start to 2025. This week’s moves have pushed the S & P 500 into the green for the year, with a gain so far of 1.2%. Sentiment on Wall Street has improved sharply from last week, when a scorching hot December jobs report led some investors to worry that the Federal Reserve won’t cut rates at all in 2025. Stocks closed lower on Thursday, with the S & P 500 snapping a three-day advance. This week’s “softer inflation figures are a reassuring sign for markets, particularly after a period of elevated bond yields and retreating equity prices,” Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, wrote in a Thursday note. “A solid U.S. economy, healthy corporate earnings growth and further advancements in AI should support the rally, in our view.” Marcelli added that investors may be underpricing the odds of further rate cuts from the Fed this year, and forecasts a total of a half percentage point reduction by the central bank, probably around the middle of the year. That’s largely in line with what has been priced in by traders, according to the CME’s FedWatch Tool . “Against this backdrop, we don’t expect the latest inflation release to notably alter the Fed’s monetary policy trajectory,” Marcelli cautioned. “We anticipate no further rate cuts before June.” The fact that traders expect the Fed to cut rates further at all in 2025, coupled with expanding economic growth, should be positives for stocks, Marcelli said. “Historically, stocks performed well in periods when the Fed cut rates while growth remained positive,” she said. “The strength of the economy is highly correlated with earnings growth, which we think bodes well for equities at this level of rates.”
