UBS Global Research has elevated its year-end forecast for the S&P 500 index to 5,400, marking the highest projection among major global brokerages.

The latest forecast represents an approximately 8 per cent upside from the index's recent close at 5,005.57, signalling a confident outlook for US equities in the coming months.

The brokerage had previously revised its forecast upward to 5,150 in January, citing growing expectations of interest rate cuts by the US Federal Reserve, alongside a downturn in inflation and resilient earnings forecasts.

However, concerns emerged earlier this month following reports of elevated consumer and producer prices, reigniting fears of inflation resurgence after a period of moderation. Despite this, UBS remains optimistic, noting that historically, higher inflation has tended to benefit stock prices by boosting pricing power and margins.

UBS has also raised its earnings-per-share estimate for the S&P 500 index to $240 from $235 for 2024, implying a robust growth rate of 9.1 per cent, albeit slightly lower than the consensus estimate of 10.5 per cent.

The benchmark index has recently surged past the 5,000 milestone, largely propelled by the strength of the so-called Magnificent 7 stocks and growing enthusiasm surrounding artificial intelligence initiatives.

Market sentiment remains influenced by expectations of a 25 basis points rate cut by the Federal Reserve in June, with traders currently assigning a 53.1 per cent probability to such a move, according to the CME FedWatch tool.

In addition to revising its index forecast, UBS has adjusted its sector ratings within the S&P 500. Notably, it upgraded the financials sector to "overweight" from "neutral," buoyed by a resurgence in deal activity and easing lending standards. Conversely, the health care sector has been downgraded to "neutral" from "overweight."

(With Reuters inputs)