UBS Expects Some Stock 'Slip-Ups' In Near Term, But Says 'Direction Of Travel For The Rest Of The Year To Be Higher'

The stock market is set to continue its upward trajectory, according to UBS. The financial services giant has outlined four key factors that are expected to sustain the rally.

What Happened: Despite potential risks, UBS remains optimistic about the market’s future, as per a blog post by Jason Draho, the head of asset allocation Americas at UBS Global Wealth Management, on Monday, reported Business Insider.

“The relentless climb higher for risk assets may slow and could well have some slip-ups in the near term as the weather turns warmer, but we still expect the direction of travel for the rest of the year to be higher,” wrote Draho.

The first reason cited is the strong growth prospects for the U.S. economy, which have kept investors confident, despite mixed labor market and production data. The S&P 500 has mirrored the GDP growth consensus, currently at 2%, since October.

Secondly, the improved growth outlook has made equities less susceptible to inflation and tighter central bank policies. This is evident in the S&P 500’s record highs, despite the increasing expectation of higher interest rates for the rest of 2024.

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Thirdly, stock price reactions to Q4 earnings have varied widely, indicating a shift towards micro-factors, such as AI adoption, as the primary market consideration.

Lastly, the current rally, often compared to the 1990s bubble, lacks the IPO craze that characterized that period. This suggests that traders are less inclined to invest in smaller, speculative equities, despite the absence of a significant bubble.

“Good fundamental macro and micro factors are lifting U.S. equities higher, with investors differentiating between winners and losers, and speculation still at a relatively tame level,” Draho said.

Why It Matters: The stock market’s continued rally is a topic of interest for many market observers. Despite market uncertainties, experts like Jim Cramer have advised investors to remain bullish. The strong performance of certain companies, such as AI winners and small caps, has contributed to the market’s overall positive trend.

Meanwhile, the AI bubble concerns have led to a shift in the market, with investors increasingly focusing on companies with strong earnings potential. This shift aligns with UBS’s observation of the market’s growing emphasis on micro-factors, such as AI adoption, over systematic macro-factors.

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