Investing.com — The wild swings in markets is likely to continue as incoming economic data and uncertainty on President-elect Donald Trump’s policies fade, UBS said, but the recent pullback in stocks is a buying opportunity as solid a economy will continue to support corporate earnings growth.
“We expect stock volatility to persist in the coming weeks and months as investors react to incoming data and Trump 2.0 policy news amid rate uncertainty,” UBS analysts said.
The S&P 500 index gave up over 4% of gains in recent weeks amid stronger-than-expected economic data and rising Treasury yields. “But the choppy start to this year has not been caused by any fundamentally negative economic news. Instead, the underlying trends remain favorable for equities,” the analysts added.
The strength in the economy has been underscored by the recent payrolls report for December showing a large jump in job numbers as well as dip in the unemployment rate. Against the back drop of volatility in markets, the analysts believe that recent pullbacks in equities are a buying opportunity as underlying economic strength will spur corporate earnings growth.
“With the current high equity valuations a reflection of positive underlying economic conditions, we view recent pullbacks in stocks as a buying opportunity,” the analysts said.”The strength of the US economy has historically correlated with earnings growth, and we expect robust profit growth of 9% for S&P 500 companies this year amid resilient economic activity,” they added.
Concerns of a long Federal Reserve pause, were eased somewhat by incoming data Wednesday showing core CPI inflation slowed in December and is likely to continue, allowing the Fed rates later this year. “Broad disinflation, including slower shelter inflation, should allow the Fed to ease policy by a further 50 basis points later in the year, in our view.”
Further improvement in AI monetization, meanwhile, is likely to underpin a renewed rally in quality AI stocks, the analysts said, calling for the bull market in stocks to continue.
“So, while volatility could make it an uncomfortable journey before the S&P 500 hits our year-end target of 6,600, we expect the equity bull market to continue,” the analysts said.
