UBS analysts have provided a detailed outlook on the future of equities, suggesting a mixed but ultimately optimistic view despite recent market pressures.
The S&P 500 hit a new all-time high in mid-July but has recently retreated due to concerns over potential US trade policy affecting chipmakers. Despite these challenges, UBS maintains a positive stance on the market, citing several supportive factors.
Firstly, the broader market context remains favorable. "US economic and earnings growth is solid, and inflation continues to cool," UBS notes. They highlight that the S&P 500, although down 2% for the week ending July 19, is still up 15% year-to-date and near its record high.
The analysts emphasize that the Federal Reserve is expected to cut interest rates this year, likely starting in September, which should further bolster the equity markets.
One of the key sectors UBS favors is technology, particularly in the realm of artificial intelligence. "Rising investment in AI should also create a supportive environment for equities," they state, advising investors to ensure they have sufficient long-term exposure to AI. Despite recent setbacks for tech stocks, UBS sees this sector as a crucial component of future growth.
Additionally, UBS recommends diversifying investments. Beyond the US tech sector, they see opportunities in "Europe's Magnificent 7" and select benchmark heavyweights in Asia. At the country level, UK equities are favored due to expectations of an earnings rebound this year. For those concerned about market volatility, UBS suggests structured strategies with capital preservation features.
In conclusion, UBS projects a constructive outlook for equities, driven by resilient economic and earnings growth, falling inflation, and increased AI investment.
They forecast the S&P 500 reaching approximately 5,900 by December 2024, indicating a strong belief in the market's upward trajectory.