UBS bullish on stocks as rates dip and earnings grow
Indexes up but below session highs; Nasdaq leads, up ~0.7%
Real Est leads S&P 500 sector gainers; Staples sole loser
Euro STOXX 600 index rises ~0.5%
Dollar down; bitcoin up >1%, gold up ~1%; crude up >2%
U.S. 10-Year Treasury yield falls to ~3.81%
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UBS BULLISH ON STOCKS AS RATES DIP AND EARNINGS GROW
After U.S. indexes spent much of the summer on some crazily intense roller coasters, David Lefkowitz, head of US Equities at UBS Chief Investment Office, was eyeing the end of the ride with a bullish view on equities.
In a note shared early on Friday, Lefkowitz wrote that the environment is constructive for stocks. His reasons include healthy earnings growth, improving inflation, Fed rate cuts and AI investment.
While the July labor market report caused some jitters, Lefkowitz was encouraged that "some more cyclical industries —which tend to be leading indicators for overall job growth — are not flashing warning signs."
He also says that after hotter-than-expected Q1 inflation, he sees disinflation continue, allowing the Fed to cut rates to the tune of 100 basis points by year-end. With this in mind he expects a soft landing.
Also, Lefkowitz writes that he heard nothing from second-quarter earnings season to change the UBS expectation "for 11% growth in S&P 500 profits this year." UBS' forecast is for another 8% earnings growth in 2025.
To be sure, stocks have already risen a lot as Wall Street in general has already been pricing in rate cuts and talking about soft landings.
But Lefkowitz has an answer for that too: "While valuations are high in absolute terms, they are reasonable in light of the macro environment."
With all of this, his expectation is for the S&P 500 to end 2024 at 5,900 and then rise to 6,200 by June 2025. This would imply a roughly 6% gain from Thursday's 5,570.64 close by 2024's year-end and an increase of roughly 11% by mid-2025. UBS provided those targets last month.
The firm notes that issues that could have the S&P surpass its base-case estimate would involve larger than expected gains from AI in earnings and productivity growth, stronger than expected economic growth and more rate cuts than expected.
It would risk being lower if there is a hard landing, disappointing earnings and geopolitical turmoil escalation.
Meanwhile the S&P was up ~0.5% on Friday at around 5,600, below its July record close and below Thursday's intraday high.
(Sinéad Carew)
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FOR FRIDAY'S EARLIER LIVE MARKETS POSTS:
INDIVIDUAL INVESTOR BULLS "UNUSUALLY HIGH" - AAII - CLICK HERE
HOUSE WARMING: NEW HOME SALES JUMP 10.6% - CLICK HERE
U.S. STOCKS POP WITH POWELL'S JACKSON HOLE REMARKS - CLICK HERE
S&P 500 INDEX: DOUBLE TOP WITH JACKSON HOLE? - CLICK HERE
WHAT IF THE RESILIENCE OF THE EUROPEAN ECONOMY TURNS OUT TO BE FOOL'S GOLD? - CLICK HERE
STRONG EURO COULD ACT AS HEADWIND FOR EUROPE INC - CLICK HERE
THE VOLATILITY SPIKE THAT IS HARD TO FORGET - CLICK HERE
EUROPEAN SHARES INCH UP, SWITZERLAND UNDERPERFORMS - CLICK HERE
EUROPEAN FUTURES HOLD THEIR BREATH BEFORE POWELL - CLICK HERE
BOJ'S UEDA BOLSTERS YEN. UP NEXT, POWELL - CLICK HERE
AAII08232024 https://tmsnrt.rs/3WVyB4Y
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