Recent investor discussions remain focused on three themes, according to UBS, including U.S. equity upside, signs of irrational exuberance, and whether artificial intelligence is delivering measurable productivity.
In a Wednesday note, the bank’s strategists used positioning and liquidity data, margin and return metrics, and employment trends to address these questions.
1. What’s driving U.S. equity upside and is there still ‘cash on the sidelines’?
UBS said its “Early Warning Signal” remains positive for U.S. equities, supported by favorable positioning and falling Fed policy expectations.
The strategists noted that margin balances are approaching a nominal high of $806 billion, though this is not a complete measure of available cash.
A broader look suggests liquidity remains ample. “U.S. ‘cash’ is still 17% of U.S. market cap. That’s off a peak of 23% but still much higher than the 2018 low of 12%,” strategists led by Gerry Fowler highlighted.
2. Is there irrational exuberance?
Strategists flagged strong inflows into niche thematic ETFs such as those focused on nuclear, quantum computing, rare earths and silver miners as possible pockets of exuberance. However, they said performance across industries generally aligns with earnings growth.
“More broadly, there don’t appear to be any industry groups where price performance has been so massively and unexpectedly out of line with earnings growth that we should worry too much yet,” the team wrote.
They also said that margin levels appear elevated mainly in U.S. large caps, reflecting a decade of asset-light global expansion and possibly an increasingly oligopolistic structure.
Source :
https://www.investing.com/news/stock-market-news/ubs-answers-3-key-investor-questions-on-global-stocks-4265528
