The latest market rally, pushed by optimism round AI and potential fee cuts, reaffirms UBS’s constructive outlook on the know-how sector, the financial institution stated in a word Thursday.
UBS analysts spotlight that regardless of a mid-July market pullback, the know-how sector is buoyed by sturdy AI capital expenditure and demand.
“Despite the market pullback in mid-July, and without taking any single-name views, Wednesday’s rally underscores our positive outlook on the technology sector amid strong AI capex and demand,” wrote the financial institution.
They remark that corporations are on observe to attain a 10-12% revenue progress for the second quarter, with 60% of corporations beating gross sales estimates and 75% surpassing earnings estimates, aligning with historic averages.
Moreover, the financial institution’s analysts observe that steerage for the third quarter from U.S. corporations stays according to regular seasonal patterns.
The latest Federal Reserve assembly additionally helps the view that fee cuts are imminent. Chair Powell’s feedback point out that the Fed anticipates a mushy touchdown for the U.S. economic system, aligning with UBS’s base case.
Powell additionally talked about the Fed’s rising attentiveness to job market dangers from extended excessive charges, although present proof suggests solely a gradual cooling.
UBS maintains a good outlook for U.S. equities, advising traders to keep up full allocation to the U.S. market. They emphasize the significance of adhering to long-term funding plans by means of unstable durations to keep away from lacking rebounds.
UBS expects the S&P 500 to get better and finish the yr greater at 5,900 in comparison with the present 5,522.
By way of funding technique, UBS suggests seizing alternatives in AI, notably within the enabling layer of the AI worth chain and vertically built-in mega-caps.
In addition they advocate looking for high quality progress shares, which have proven constant earnings progress and reinvestment as a result of aggressive benefits and structural drivers.
Moreover, with anticipated fee cuts, UBS sees important alternatives within the mounted earnings market, notably in high-quality company and authorities bonds, anticipating price appreciation as markets anticipate a deeper rate-cutting cycle.