UBS Stays Bullish on Global Stocks Despite High-Rate Headwinds

UBS Asset Management remains positive on the outlook for global equities, arguing that resilient economic growth and expanding corporate earnings can sustain the bull market even in a high-interest-rate environment. The firm's analysis highlights a growing divergence between risk assets, which continue to show strength, and bond markets, which face mounting pressure.

Earnings and Growth to Underpin Equities

In its latest global multi-asset outlook report, UBS stated that its constructive view is anchored in strong economic fundamentals. The asset manager identified several key factors supporting its position:

• A consistently improving U.S. labor market.
• An accelerating recovery in global manufacturing activity.

These drivers are expected to fuel a continued expansion in corporate profits. UBS believes this earnings growth will provide a fundamental support level for stock valuations, even as investors grapple with macroeconomic uncertainty.

A Widening Chasm with Bonds

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The report underscores a significant split between equities and fixed-income markets. While stocks have proven resilient, bonds are under increasing stress as investors price in the prospect of U.S. interest rates remaining 'higher for longer.'

This dynamic presents a core challenge for asset allocation, forcing market participants to weigh the benefits of strong economic momentum against the headwinds of a restrictive monetary policy from the Federal Reserve.

Inflation and Fed Policy Remain Key Risks

Despite its optimism, UBS Asset Management warned that persistently high U.S. core inflation is a primary risk. Should inflation prove sticky, it could force the Federal Reserve to maintain its hawkish policy stance for an extended period.

Such a scenario would likely provide continued support for the U.S. dollar. While this policy uncertainty may trigger periodic market volatility, UBS concludes that the positive trajectory of corporate earnings will ultimately be the dominant factor driving equities forward.