UBS has released analysis indicating that the S&P 500 index has entered September, a month traditionally known for weak stock market performance, following strong gains. The index has surged nearly 30% from its April 2025 lows and recently experienced a minor pullback after breaking through the 6500 level. Over the past decade, September has been the worst-performing month for the S&P 500, with an average return of approximately -2%, declining in 6 out of the past 10 years. Despite potential market volatility and short-term corrections, UBS believes that investors with underweight equity positions should consider gradually increasing their holdings and taking advantage of market pullbacks to add equity exposure. For investors favoring gold, UBS reiterates its recommendation to maintain gold allocation at mid-single digit levels. Under its base case scenario, UBS projects the S&P 500 will reach 6800 by the end of June 2026, implying approximately 5% upside potential.
UBS bases its outlook on the following key factors:
1. Strong Earnings Growth Momentum Maintains Among S&P 500 constituents, 98% of companies have reported second-quarter results, with 81% beating earnings expectations (data source: FactSet). Third-quarter guidance remains equally optimistic. UBS forecasts S&P 500 earnings per share will reach $270 in 2025 (8% year-over-year growth) and $290 in 2026 (7.5% year-over-year growth). While the S&P 500's current forward price-to-earnings ratio of approximately 22x sits at the upper end of its historical range, robust earnings growth supports this valuation level.
2. Federal Reserve Rate Cuts Expected to Support Equity Markets Recent inflation data shows that while some sectors (particularly services) continue to face price pressures, declining energy prices and stabilizing goods inflation are helping ease overall price pressures. Labor market data indicates slowing demand, leading Federal Reserve officials to adopt a more dovish stance. UBS expects the Fed to cut rates by a cumulative 100 basis points across the next four meetings, which should provide support for equity markets. Historical data shows that Fed rate-cutting cycles during periods of continued economic growth typically coincide with positive stock market returns.
3. Long-term Artificial Intelligence (AI) Trends Remain Intact Major technology companies delivered strong second-quarter results, with most companies exceeding revenue and earnings per share expectations. Forward guidance remains robust, with leading tech platforms reporting cloud service revenue growth exceeding 25% year-over-year for the June quarter (second quarter). UBS recently raised its global AI capital expenditure forecasts for this year and next to $375 billion and $500 billion, respectively. The firm expects global technology sector earnings per share growth of 15% in 2025 and 12.5% in 2026.
4. Positive Returns Expected After September and Following All-Time Highs After the typically weak September performance, the S&P 500 has averaged positive returns in October and November over the past 10 years, at 1.2% and 4% respectively. Additionally, all-time highs should not be a cause for concern: since 1960, the S&P 500 has averaged approximately 12% returns in the year following new all-time highs, and about 38% returns over the subsequent three years.
Therefore, UBS recommends: Investors with underweight equity positions should consider gradually increasing allocations and utilize market pullbacks to add exposure to preferred sectors. Beyond AI, outside of energy & resources and longevity economy themes, the firm favors US technology, healthcare, utilities, and financial sectors. In European markets, UBS favors Swiss high-dividend quality stocks, European quality stocks, European industrial stocks, and "Europe's Six Major Investment Themes." In Asian markets, the firm prefers Chinese technology sector, Singapore and Indian markets. Additionally, UBS sees investment opportunities in Brazilian markets.
**Gold Breaks All-Time High, Reiterates Mid-Single Digit Allocation Recommendation**
On September 2, gold touched an intraday all-time high of $3,508 per ounce, rising more than 30% year-to-date and becoming the best-performing major asset class. Gold's recent rally comes amid rising investor expectations for the Federal Reserve to restart rate cuts at its September meeting — according to CME's FedWatch tool, markets are pricing in nearly 90% probability of a Fed rate cut in September. Investors also anticipate that Friday's nonfarm payrolls data will show further slowing in US job growth. Market consensus expects September nonfarm payrolls to increase modestly by 78,000, with the unemployment rate rising slightly to 4.3%.
Against a backdrop of high government debt, persistent inflation, escalating geopolitical risks, and non-G10 central banks' desire to increase gold's share in foreign exchange reserves, gold's role as a long-term portfolio diversification tool may be further enhanced. Beyond potential support from geopolitical uncertainty, UBS expects gold to benefit from declining yields — lower yields reduce the opportunity cost of holding zero-yield assets like gold. Central banks are also expected to continue actively accumulating gold. A recent World Gold Council survey of central banks showed that almost all respondents plan to increase gold reserves or maintain stable reserve levels.
Overall, UBS currently forecasts global gold demand will grow 3% in 2025 to 4,760 tons, the highest level since 2011. Therefore, for investors favoring gold, the firm reiterates its recommendation to maintain gold allocation at mid-single digit levels. While UBS targets gold at $3,700 per ounce by June 2026, under risk scenarios involving deteriorating geopolitical or economic conditions, the firm does not rule out the possibility of gold prices reaching $4,000 per ounce.