In our base case, we expect US inflation to gradually resume its downward trend, falling to 3% by the end of the third quarter. Although Federal Reserve officials have indicated there is no urgency to cut interest rates, we think they will be able to make a first reduction in September. Meanwhile, we think the conflict in the Middle East will stay geographically contained. We think this scenario is consistent with the S&P 500 rising to 5,200 by year-end, and the 10-year Treasury yield falling to 3.85%.

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