These are the catalysts to reignite stock market momentum in 2026, says UBS

By Jules Rimmer Earnings, the Fed and tariff rulings could be the three chief drivers of equity momentum heading into 2026 UBS thinks investors should focus on early 2026 factors rather than short-term moves between now and year-end. After the S&P 500's SPX 16% return so far in 2025, investors should not be overly distracted by what happens in the final week of the year. Rather, they should focus on the key catalysts to trigger equity market momentum into early 2026. They are earnings growth, a change in leadership at the Federal Reserve and a Supreme Court ruling on the legality of President Donald Trump's tariffs, which should establish clarity and perhaps provide some relief for both economic growth and inflation. This is the advice given Monday in the final daily note of the year from Ulrike Hoffman-Burchardi, UBS Wealth Management's chief investment officer and global head of equities. Her call is that 2026 catalysts matter more than the limited scope available now for a year-end rally. Hoffman-Burchardi's 2026 year-end target for the S&P 500 is 7,700 - just over a 10% forecast return and it's earnings growth that she said will be the key driver of this performance. UBS Wealth Management predicted 10% earnings per share growth for the index and the note observes that in terms of valuations, the benchmark's forward multiples are only fractionally higher than at the start of 2025. The announcement of the next Fed chair in January may well foster a more dovish policy stance, according to UBS. Three leading candidates - Kevin Warsh, Kevin Hassett and Christopher Waller - have all commented repeatedly about lowering rates further, despite the third consecutive cut in December. Hoffmann-Burchardi noted that unemployment is at a four-year high while inflation is moderating, providing policymakers with "ample scope" to support growth. Historical evidence suggests that when the Fed eases outside of recessions, it's a tailwind for stocks. The ruling from the Supreme Court about the legality of Trump's tariff policies is expected to be delivered in January or February. While UBS said they expect the tariffs would be repealed, effectively alleviating inflationary pressures and stimulating growth temporarily, they said the Trump administration would appeal such a decision. It's the impact on trading sentiment that mattered to Hoffmann-Burchardi, which is why she has been advocating that investors diversify their portfolios and retain exposure to gold as a geopolitical hedge. The overall recommendation from UBS was to "position for further advances in equity markets," including sectors like tech MAGS, healthcare XLV, utilities XLU and financials XLF. Outside the U.S., UBS favored China tech and the Chinese CN:SHCOMP and Japanese (NIY00) stock markets overall. Moreover, with Europe set to enjoy a growth rebound, UBS also saw opportunities in banks XX:SX7E, utilities XE:EXH9, industrials XX:SXONP and technology XX:SX8E. -Jules Rimmer This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal. (END) Dow Jones Newswires 12-23-25 0734ET