CIO thinks the fundamental backdrop is supportive for equities, driven by solid economic and earnings growth, likely interest rate cuts, and rising investment in AI. (UBS)

CIO sees opportunities in quality stocks—including the US IT sector—and in small caps.


The S&P 500 has pulled back from record highs.


  • The S&P 500 has fallen roughly 3% since its record closing high in late March, though the index is still up around 7% year-to-date (as of 26 April).
  • Higher-than-expected US inflation data have prompted investors to scale back their expectations for Fed rate cuts this year.
  • Concerns about an escalation in the Middle East conflict have added to market volatility.

But we think the fundamental backdrop is still supportive for stocks.


  • US economic growth remains solid, and we expect inflation to resume its gradual downward trend.
  • We still think the Fed is likely to cut interest rates this year although uncertainty about the pace and timing of policy easing may keep equity markets choppy.
  • We expect earnings growth of 9% for the S&P 500 in 2024.

We are neutral on equities overall and favor quality stocks.


  • We expect the S&P 500 to end the year around 5,200 (vs. 5,100 as of 26 April).
  • Quality stocks—including the US IT sector—should deliver resilient earnings growth. Despite the recent volatility in the tech sector, we believe the AI growth story remains intact.
  • We like US small-cap stocks due to their discounted valuations and potential catalysts such as Fed rate cuts and stronger earnings growth. We also see opportunities in European small- and mid-cap stocks.

Did you Know ?


  • The S&P 500 closed at a record high 22 times during the first quarter of 2024, the most since 1998.
  • The S&P 500's gain of more than 20% between early October 2023 and the end of March ranked among the best six-month performances by the index in the past 80 years.
  • Companies with “quality” attributes typically have strong returns on invested capital, resilient operating margins, and relatively low debt on their balance sheets.

Investment view

We are neutral on equities overall. Our December 2024 target for the S&P 500 is 5,200 in our base case and 5,500 in an upside economic scenario. We think investors should hold a diversified, strategic exposure to the tech sector while remaining mindful of concentration risks. For those diversifying beyond technology, we see opportunities in quality companies; alternative growth themes (e.g., the low-carbon transition, healthtech, and the ocean economy); and in small- and mid-cap stocks.


Main contributors - Vincent Heaney, Alison Parums, David Lefkowitz


Original report - What's next for equity markets?, 29 April 2024.