Stock markets have enjoyed a strong first half of 2024, with the S&P 500 gaining over 14% year-to-date, driven primarily by the technology sector and AI enthusiasm. UBS has identified several factors likely to influence performance in the year’s second half.
Political Events and Risks: Upcoming elections in France, the UK, and the U.S. presidential election could introduce volatility. UBS notes a heightened political risk premium and recommends managing risks accordingly.
U.S. Election Scenarios: UBS assigns various probabilities to potential election outcomes, with the most likely being a Trump victory with a Republican-controlled Congress. This scenario could impact sectors like consumer discretionary and renewables negatively but might benefit financials due to potential lower regulation.
Interest Rate Forecasts: UBS expects the global rate-cutting cycle to gain momentum, with two 25-basis-point cuts anticipated from the Federal Reserve this year. The weakening economic data supports this outlook. Investors are advised to consider moving excess cash into quality fixed-income markets.
AI Stocks as Key Drivers: AI continues to drive tech sector growth. UBS remains optimistic about capital investment in AI, particularly in semiconductors and enabling layers. However, potential risks include capacity gluts and stalled advancements.
Investment Recommendations: UBS suggests a balanced, diversified approach across fixed income, equities, and alternatives to navigate near-term uncertainties and achieve long-term financial goals.
As the year progresses, these factors will play crucial roles in shaping market dynamics and investor strategies.
