21 November 2024, 11:11AM UTC
Chief Investment Office GWM
Investment Research
Year Ahead 2025: Roaring 20s: The next stage
UBS House View - Daily US
Solita Marcelli, GWM Chief Investment Officer Americas, UBS Financial Services Inc. (UBS FS)
Mark Haefele, Global Wealth Management Chief Investment Officer, UBS AG
Kiran Ganesh, Strategist, UBS AG London Branch
Vincent Heaney, Strategist, UBS AG London Branch
Sundeep Gantori, CFA, CAIA, Equity Strategist, UBS AG Singapore Branch
Daisy Tseng, Strategist, UBS AG Singapore Branch
From the studio: What to watch: 22 November 2024
Video: CIO’s Sundeep Gantori on NVIDIA earnings, tariffs impact, and
• Flash PMIs for November from the US,
AI positioning(1:09)
Japan, Eurozone, and UK
Video: CIO’s Matthew Tormey on 3Q earnings (1:24)
Podcast: CIO’s Jason Draho on supply-side economics (17:09) • UK October retail sales
Thought of the day
Since the start of the 2020s, global equity markets are up by around 50%,
US nominal GDP has increased by over 30%, and US corporate profits are up
nearly 70%. All that despite unprecedented global lockdowns, the outbreak
of wars in Eastern Europe and the Middle East, and the largest spike in interest
rates and inflation in decades.
The market and economic developments have led some to term the decade
so far as the “Roaring 20s,” marked by high economic growth, strong market
returns, and improving productivity. We are now approaching the midpoint of
the decade, and the implications of the US election result are a focal point. A
key question is whether US political change might extend or end the Roaring
20s.
The upside scenario would see lower taxes, deregulation, and trade deals
adding to a positive market narrative built on solid growth and continued
investment in artificial intelligence (AI). The risk scenario is that trade tariffs,
excessive fiscal deficits, and geopolitical strife will contribute to higher
inflation, weaker growth, and market volatility.
While we are monitoring the potential risk scenarios closely, our base case is
optimistic about the prospects for US stocks and high-quality bonds. We are
more cautious about the US dollar’s medium-term prospects but continue to
like gold.
Specifically, our high conviction investment ideas for 2025 are:
• Position for lower rates. In our base case, major central banks will
cut rates as inflation normalizes and jobs markets cool. Investors should
This report has been prepared by UBS Financial Services Inc. (UBS FS) and UBS AG and UBS AG London Branch and
UBS AG Singapore Branch. Please see important disclaimers and disclosures at the end of the document.
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therefore diversify into high grade, investment grade bonds, diversified
fixed income, and equity income strategies to bolster yields.
• More to go in stocks. Falling rates and solid growth make the US
market Attractive––we expect the S&P 500 to reach 6,600 by end-2025.
We also like select markets in Asia ex-Japan, Eurozone small- and mid-
caps, and Swiss high-quality dividend stocks.
• Seize the AI opportunity. AI will likely prove to be one of the biggest
investment opportunities of the decade, with potential revenues of
more than USD 1.1tr across the segment by 2027. We recommend that
investors focus on megacap tech and private companies in the enabling
layer for now.
• Invest in power and resources. AI power usage, industrial
electrification, and decarbonization will all spur electricity demand––
we recommend investing in transmission, distribution, data centers,
transport, and energy storage.
• Sell further dollar strength. While the US dollar may stay well bid
in the near term, we advocate hedging it, selling it on strength, or
generating yield through options as it falls back in line with declining
yields and as twin deficit concerns look set to rise.
• Go for gold. Gold looks poised to gain on lower rates, persistent
geopolitical risks, and government debt concerns. We also like
transition metals as rising demand for them to generate power likely
meets constrained supply.
• Time for real estate. The global real estate outlook is promising. With
limited supply and growing demand, sectors like logistics, data centers,
and multi-family housing present opportunities. We recommend
focusing on quality assets and strategic diversification.
Taking a step back, while these investment ideas present compelling cases
for immediate action, they must be considered within the broader context of
your financial goals. Our Liquidity. Longevity. Legacy.* framework is designed
to help you integrate these opportunities into a strategic plan by linking your
financial goals to your investments. We recommend putting cash to work
and building a core diversified portfolio, including exposure to alternatives.
Subject to careful planning and risk management, borrowing may help
improve portfolio diversification, while mixing index-tracking and more active
approaches provides the potential to generate alpha in a risk-controlled
way. Finally, sustainable options are available across all major asset classes,
including equities, bonds, hedge funds, and private markets, offering similar
risk and return profiles to traditional investments.
Read more in our Year Ahead 2025 outlook, “Roaring 20s: The next stage.”
*Time frames may vary. Strategies are subject to individual client goals,
objectives and suitability. This approach is not a promise or guarantee that
wealth, or any financial results, can or will be achieved.
Caught our attention
NVIDIA reports earnings beat. After the US market close on Wednesday,
NVIDIA reported strong results for the quarter ending in October, with both
revenue and earnings per share beating consensus estimates (by 6% and USD
0.06, respectively). However, shares of the chipmaker fell by about 3% in
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extended trading, as its fourth quarter revenue guidance came in only slightly
above average analyst estimates. Nasdaq futures were down 0.5% at the
time of writing.
Our view: Without taking single-name views, NVIDIA’s results support
our positive outlook on the broader AI growth story. CEO Jensen Huang
highlighted strong demand from its customers, consistent with the spending
commitments from big tech in recent quarters. While volatility in the tech
sector is likely to increase amid near-term risks such as export controls and
new tariff policy under President-elect Donald Trump’s second term, we
maintain our confidence in the investment boom and technological advances
AI will continue to bring. We recommend taking advantage of potential near-
term volatility to build up sufficient exposure to quality AI stocks.
Fed officials diverge on inflation risk. Fed governors Michelle Bowman
and Lisa Cook laid out differing views on inflation in separate speeches
on Wednesday. Bowman, at an economic forum in Florida, warned that
inflation progress has stalled, and said she would “prefer to proceed
cautiously in bringing the policy rate down.” She added that the Fed
should be wary of cutting rates too far too fast, and allowing inflation
to resurge. Cook, on other hand, in remarks in Charlottesville voiced
confidence that price pressures are now largely confined to the housing
sector and will continue to ease. With the disinflationary trajectory still
in place and the labor market gradually cooling, she said she sees “the
direction of the appropriate policy rate path to be downward.” Separately,
Boston Fed President Susan Collins expressed support for more rate cuts
amid diminishing inflation pressures.
Our view: The latest consumer and producer inflation data should see the
Fed’s preferred inflation gauge, the personal consumption expenditures
(PCE) price index, come in higher for October than in recent months.
However, with rates still in restrictive territory and the labor market
continuing to soften, we still see a 25bp cut in December, followed by
another 100bps of reductions in 2025. This would likely require somewhat
softer inflation prints in the months ahead given the Fed’s data dependent
approach. We recommend investors redeploy excess cash in a lower-rate
environment, including in investment grade bonds, diversified fixed income,
and equity income strategies to enhance portfolio income.
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Market update
Source: Bloomberg, UBS, as of 21 November 2024
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