UBS Likes US Stocks and Bonds as Trump's Pro-Business Policies Float All Boats

As the US economy continues to show resilience, UBS Global Wealth Management's Chief Investment Office (CIO) has maintained a bullish stance on US stocks and bonds, citing supportive fundamentals, positioning, and seasonal factors. The firm believes that the outlook for both asset classes has improved after three consecutive monthly losses, with stocks having more upside than bonds into year-end.

UBS's optimism is driven by several factors, including the expectation of a gentle cooling in economic activity, which should alleviate some of the valuation pressure on stocks from rising bond yields. The firm expects economic activity to continue expanding at a solid pace, with earnings per share estimates still rising, albeit at a slower pace as economic activity moderates. This slower growth in earnings should help solidify the view that the Federal Reserve's tightening cycle is over, which is positive for stocks.

Additionally, UBS expects a calming of bond market volatility, policy inertia from the US central bank, and improved expected returns for both asset classes to contribute to their bullish outlook. The firm believes that the most immediate question for tactical asset allocators is which to prefer into year-end and early 2024: stocks or bonds? Based on their analysis, UBS favors stocks over government debt.




UBS's views on the US bond market, particularly interest rates and inflation, also play a significant role in their bullish stance on US stocks and bonds. The firm expects economic activity to cool down, which should help alleviate some of the valuation pressure on stocks from rising bond yields. This cooling is supported by data such as the October non-farm payrolls report and the third-quarter employment cost index.

UBS also expects lower bond market volatility, which is positive for both stocks and bonds. The firm expects the Federal Reserve to maintain a high bar for additional policy tightening, as well as more tolerance for solid growth, so long as it does not foster a reacceleration in inflation. This policy inertia may help foster lower bond market volatility, which is positive for both asset classes.

In summary, UBS's bullish stance on US stocks and bonds is driven by their expectation of a gentle cooling in economic activity, which should alleviate some of the valuation pressure on stocks from rising bond yields. Additionally, UBS expects a calming of bond market volatility, policy inertia from the US central bank, and improved expected returns for both asset classes to contribute to their bullish outlook. The firm believes that the most immediate question for tactical asset allocators is which to prefer into year-end and early 2024: stocks or bonds? Based on their analysis, UBS favors stocks over government debt.