UBS sees the U.S. stock market scaling to new heights in the new year. Strategist Jonathan Golub raised his 2025 S & P 500 target to 6,400 from 6,000 in a note to clients released Tuesday. The new forecast implies upside of 9.2% from Monday’s close. Golub pointed to a “supportive” economic backdrop as a catalyst for the change. “UBS economists forecast 3.7% nominal GDP in 2025 (1.6% real), roughly in line with long-term averages,” he said. Additionally, “rate cuts should lower interest expense and default risk, adding to both EPS and valuations.” Golub’s call comes one day after the S & P 500 hit a fresh record, bringing its year-to-date gains to nearly 23%. Stocks have recently been on a tear as investors see further rate reductions from the Federal Reserve on the horizon. “Valuations typically expand when the Fed cuts in non-recessionary environments,” the strategist said. “Despite elevated valuations, we expect P/Es to rise [half a] multiple point.” Golub also noted that a “sharp decline in Fed Funds will likely increase profit margins by 20 [basis points] via lower interest expense.” A basis point is 1/100th of a percent (0.01%). The CME Group’s FedWatch tool shows traders of 30-day fed funds futures contracts see an 88% chance of a quarter percentage point rate cut in November, followed by an additional 25 basis-point reduction in December. The Fed lowered its benchmark fed funds rates a half a point, to a range of 4.75% to 5.0%, in September. To be sure, Golub doesn’t see the stock market making further gains the rest of this year. While he increased his 2024 estimate on the benchmark index to 5,850 from 5,600, that actually signals a slight decline from current levels. Bottom line: Stocks could consolidate to end 2024 before scaling new heights in the new year, based on UBS’ outlook. Elsewhere on Wall Street this morning, Goldman Sachs downgraded Etsy to sell from neutral. “While Street estimates (and our own modeling) seek to reflect more normalized growth levels in a better backdrop for discretionary consumer spending, visibility remains low on the timing of any such recovery,” the bank wrote .