UBS Bull Outlook Despite Higher Rates
UBS Asset Management said it remains constructive on global equities, pointing to resilient economic growth and broadening corporate earnings, while warning that persistent U.S. core inflation could keep the Federal Reserve on a hawkish path and support a stronger dollar. The outlook highlights a growing divide between resilient risk assets and increasingly challenged bond markets, as investors weigh stronger economic momentum against the prospect of higher‑for‑longer U.S. interest rates.
The firm expects earnings growth to continue supporting equities despite potential bouts of volatility driven by monetary‑policy uncertainty. An improving U.S. labor market and accelerating global manufacturing activity are cited as underpinnings of the global economy. Lower oil prices are expected to ease headline inflation, but underlying U.S. inflation is projected to remain elevated, leaving further Fed rate hikes firmly on the table.
"We remain overweight equities and prefer emerging markets and Japan, where our leading indicators point to the strongest earnings growth. Maintaining exposure to AI‑linked stocks makes sense given surging earnings growth, but increased crowdedness and growing participation in leveraged single‑stock ETFs highlight the need for diversification," said Evan Brown, Head of Global Multi‑Asset Strategy and Portfolio Management for the Americas and Asia at UBS Asset Management. He added that investors should keep exposure to artificial‑intelligence‑related stocks given robust earnings momentum, while diversifying portfolios as positioning becomes increasingly crowded and leveraged single‑stock ETFs gain popularity.
On the fixed‑income side, Brown said UBS remains cautious on U.S. Treasuries, expecting them to underperform equities as markets increasingly price in the risk of additional Fed rate hikes. The firm sees better opportunities in U.K. and Australian government bonds, where economic growth is slowing.
UBS also expects the U.S. dollar to remain strong, arguing that the Fed is likely to maintain a more hawkish stance than other major central banks, whose tightening cycles are expected to slow amid weaker growth and more energy‑driven inflation dynamics.