- UBS’ Keith Parker raised his year-end target for the S&P 500 to 3,150 from 2,900, citing the passage of the Republican tax plan.
- His forecast is the highest among strategists at major Wall Street firms.
- He expects the lower corporate tax rate to lift corporate profits by 7% this year.
UBS’ head of US equity strategy has raised his bullish view on the stock market now that the Republican tax plan has become law.
Parker increased his year-end S&P 500 target to 3,150 from 2,900, and has the highest forecast among strategists at major firms. His forecast is about 16% higher than where the index opened at an all-time high on Thursday, three trading days into the new year. In his most optimistic scenario, Parker sees the market going up to 3,330, by 22%.
“Positive economic data as measured by data surprise indices has supported much of the recent return for US equities, as earnings revision ratios for 2017 EPS (i.e. ex tax) have been very positive and are the strongest since 2010,” Parker said in a note on Thursday.
“However, the index also appears to be pricing in more of the tax bill than it was in mid-December.”
Parker estimates that the S&P 500 has priced in 60%-70% of the tax cut impact, based on how it’s traded since he released his previous outlook on November 14.
He forecast that the lower corporate tax rate would lift company earnings by 7.2%, excluding the effect of limits on interest deductibility. And just like the tax repatriation holiday of 2004, Parker expects companies to do heavy buybacks and acquisitions, which should also support earnings per share growth.