UBS says hot demand-driven inflation is positive for stocks, raises its S&P 500 target to a Wall Street high

• UBS raised its S&P 500 year-end target for the second time in little over a month, from 5,100 to 5,400.
• It argues that hot inflation driven by strong demand is actually positive for stocks.
• The new target, which is roughly 9% above current levels, is the highest on Wall Street.

UBS has joined the club of firms raising their S&P 500 targets, now forecasting the benchmark index will reach 5,400 by year-end. It's the most bullish forecast yet, about 9% above current levels.

And while hotter-than-expected inflation data sparked a stock downturn last week, UBS says the fact that it's being driven by strong consumer demand is actually a good thing for equities.

"Higher inflation tends to be a positive for stock prices," analysts led by Jonathan Golub said in a note released Tuesday. "While the market sold off on more robust CPI and PPI reports last week, our work indicates that these demand-driven readings are constructive for future returns."

UBS cited strong consumer demand, pointing to a slate of recent economic data including consumer confidence, payrolls, and manufacturing data.

UBS ended last year with a forecast of 4,850. They then raised that number in mid-January to 5,150.

On Tuesday, Goldman Sachs also revised their year-end target higher, to 5,200. That matches Wall Street bull Tom Lee's year-end forecast, which is now the second-highest prediction. Meanwhile, firms like JPMorgan are on the bearish end of the spectrum. They expect the index will fall to 4,200 by the end of December.

"Despite our bullish outlook, it appears we were not bullish enough," UBS wrote.