US Equities Poised for Further Gains: UBS
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Despite recent market volatility ahead of the US presidential election and key economic data releases, UBS Wealth Management remains optimistic about US equities. In a note published yesterday, the firm points to strong macroeconomic data and robust earnings from megacap tech companies as key drivers of further market gains.
"The latest macroeconomic data and third-quarter earnings results from megacap tech companies suggest that the market can rally further from here," states the Swiss bank.
The firm highlights several key factors supporting its bullish outlook:
- Resilient US Economy: The US economy expanded at an annualized rate of 2.8% in the third quarter, driven by robust consumer spending and goods spending. This, combined with a strong ADP employment report for October, reinforces the "no landing" scenario, with limited risk of a near-term recession.
- Continued Fed Rate Cuts: The Fed remains poised to cut interest rates further, given the moderation in inflation and the central bank's objective of achieving a neutral policy stance. UBS expects a total of 150 basis points of rate cuts by the end of next year, historically a positive catalyst for equity markets.
- Booming AI Growth: Recent earnings reports from Microsoft and Meta, following Alphabet's strong cloud revenue growth, highlight the continued expansion of AI-related capex. This trend, while potentially impacting near-term margins, underscores the long-term structural growth potential of the AI sector.
"The combination of solid growth and Fed rate cuts provides a supportive backdrop for risk assets, in our view, while the AI trend should lend further fundamental support to equities," UBS concludes.
The firm maintains an "Attractive" rating on US equities and targets 6,600 for the S&P 500 by the end of 2025.