The Wild Swings in Markets: A Buying Opportunity Ahead?
The recent volatility in markets is likely to continue as investors react to incoming economic data and uncertainty surrounding President-elect Donald Trump’s policies, according to UBS analysts. However, they believe that the recent pullback in stocks is a buying opportunity as the solid economy will continue to support corporate earnings growth.
The analysts expect stock volatility to persist in the coming weeks and months as investors react to incoming data and Trump’s policy news amid rate uncertainty. Despite the recent 4% pullback in stocks, the underlying trends remain favorable for equities. The strength in the economy has been underscored by the recent payrolls report, which showed a large jump in job numbers and a dip in the unemployment rate.
The analysts believe that the recent pullbacks in equities are a buying opportunity as underlying economic strength will spur corporate earnings growth. With high equity valuations reflecting positive underlying economic conditions, the analysts expect robust profit growth of 9% for S&P 500 companies this year amid resilient economic activity.
Additionally, concerns of a long Federal Reserve pause have been eased by recent data showing core CPI inflation slowing in December, which is likely to continue. This could allow the Fed to ease policy by a further 50 basis points later this year.
Further improvement in AI monetization is also likely to underpin a renewed rally in quality AI stocks, with the analysts calling for the bull market in stocks to continue. While volatility may make it an uncomfortable journey before the S&P 500 hits its year-end target of 6,600, the analysts expect the equity bull market to continue.