The current market rally, pushed by optimism round AI and potential fee cuts, reaffirms UBS’s constructive outlook on the expertise sector, the financial institution stated in a be aware Thursday.
UBS analysts spotlight that regardless of a mid-July market pullback, the expertise sector is buoyed by robust 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 firms are on monitor to realize a 10-12% revenue development for the second quarter, with 60% of firms beating gross sales estimates and 75% surpassing earnings estimates, aligning with historic averages.
Moreover, the financial institution’s analysts observe that steering for the third quarter from U.S. firms stays according to regular seasonal patterns.
The current Federal Reserve assembly additionally helps the view that fee cuts are imminent. Chair Powell’s feedback point out that the Fed anticipates a gentle touchdown for the U.S. economic system, aligning with UBS’s base case.
Powell additionally talked about the Fed’s growing attentiveness to job market dangers from extended excessive charges, although present proof suggests solely a gradual cooling.
UBS maintains a positive 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 via unstable durations to keep away from lacking rebounds.
UBS expects the S&P 500 to get well and finish the 12 months increased 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.
Additionally they suggest searching for high quality development shares, which have proven constant earnings development and reinvestment as a consequence 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 worth appreciation as markets anticipate a deeper rate-cutting cycle.
