The S&P 500 slipped 0.7% on Tuesday as September began, a month that has historically been the weakest for equities.
According to UBS, the index has fallen in six of the past 10 Septembers, with an average decline of about 2%.
Still, the bank argues that investors should not be deterred by either seasonal weakness or record highs.
“Despite the potential for volatility and short-term pullbacks, we believe investors who are underallocated to equities should consider phasing in and using market dips to add equity exposure,” UBS said.
The bank’s base case sees the S&P 500 reaching 6,800 by June 2026, about 5% above current levels.
UBS pointed to three main supports. First, “earnings momentum remains strong,” with 81% of S&P 500 companies beating second-quarter estimates and third-quarter guidance described as positive.
UBS forecasts earnings per share of $270 in 2025 and $290 in 2026.
Second, Fed rate cuts are likely to support equities. “We expect the Fed to cut rates by 100bps over the next four meetings and believe this will be supportive of equities,” the bank said, noting that past cycles of rate cuts during growth phases have coincided with positive equity returns.
Third, UBS highlighted that the “long-term AI trend remains intact,” citing strong tech earnings, robust cloud growth, and revised global AI capex forecasts of $375 billion for this year and $500 billion for 2026.
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