UBS sees 10% upside for global stocks through mid 2027

Investing.com -- UBS sees approximately 10% upside for global stocks through mid-2027, arguing the market rally has been "earned" through robust profit growth rather than excessive enthusiasm.

The bank’s Chief Investment Officer Mark Haefele wrote in a note Friday that first-quarter S&P 500 earnings growth was the strongest in four years, reflecting healthy economic activity, continued AI-related investment, and improving earnings in more cyclical areas of the market.

The firm expects second-quarter earnings growth to be even higher.

Despite this strength, UBS said investors will need to continually reassess the evolution of the AI growth story, noting that beneficiaries of AI adoption are likely to keep shifting over time "from semiconductors and infrastructure toward energy, applications, and companies that can translate the technology into productivity gains."

Haefele said the next stage of the market cycle is unlikely to be defined by a single source of return, but rather by "a wider group of companies and regions delivering earnings growth," pointing to recent outperformance from cyclical sectors like financials and defensive laggards like health care relative to tech.

The firm upgraded European equities to Attractive while continuing to favor U.S. and Asian equities, forecasting 21% earnings growth for global equities in 2026, followed by another solid year in 2027.

"Overall, we see around 10% upside for global stocks (MSCI All Country World Index) through mid-2027 and believe investors should broaden exposure across regions to capture a wider range of opportunities and growth drivers, and to manage single stock risks," wrote Haefele.

However, UBS also flagged risks to the rally, including renewed fears of central bank rate hikes if energy prices rise or inflation proves sticky, AI capex or monetization falling short of expectations, and a bumpy path toward lasting peace between the U.S. and Iran.

The firm also noted elevated concentration risks given wide performance gaps between individual stocks.

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