Top of the Morning: CIO Equity Pulse - Monthly performance update & outlook
At a Glance
The desk maintains a bullish outlook on US equities, citing ongoing favorable conditions that should continue driving performance. Per the full note from UBS, CIO David Lefkowitz indicates a positive sentiment towards the equity market amidst various factors such as potential new equity issuance and expectations surrounding Fed policy under Chairman Kevin Warsh. With the current trajectory of US equities, there are no imminent high-impact events for currency movements in the short term that would disrupt this view.
Key Takeaways
- 01UBS maintains a positive outlook on US equities aided by favorable monetary conditions.
- 02Potential new equity issuance may signal increasing market confidence.
- 03Current trading conditions show no immediate disruptions expected in the equity landscape.
- 04Observations on Fed policy should be monitored closely as timings could affect equity performance.
Full Analysis
What the desk is arguing
The desk argues that current market sentiment coupled with favorable monetary policy is likely to buoy US equities. According to the UBS commentary, the emphasis on both IPO activity and a positive outlook for US equities suggests a bullish environment in the coming months.
CIO's positive stance on the market is rooted in both macroeconomic indicators and investor sentiment that favors equity positions as new issuances can often signal increased confidence in the market. This aligns with the observed trends in equity performance, especially as investors await guidance from the Fed.
Where it sits in our coverage
Our consensus target for the pair sits at 1.075, with a range between 1.04 and 1.12. Notable targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This perspective is at the upper end of the consensus spread, reinforcing a bullish sentiment compared to more cautious viewpoints held by others.
How other firms see it
Firms like jpmorgan and bofa exhibit diverging sentiments, with JPMorgan taking a more bullish stance while BofA adopts a conservative outlook on growth. The former views equity performance as supported by underlying conditions, while the latter expresses skepticism regarding sustainability.
The discussion around interest rate policies from the Fed is crucial here, especially as it relates to the USD and how changes might impact currency pairs such as EUR/USD and USD/JPY, keeping traders alert to the effects of US monetary policy on global equities.
Market Implications
Traders should monitor the performance of US equities closely, especially as any fluctuations in investor sentiment can lead to broad implications for the USD. Key to watch will be positioning around the 1.075 level as a benchmark for potential upside in the equity market.
From the original
Join David Lefkowitz, Head of Equities Americas, each month for a look at the factors that are driving performance across US equities. We also cover risk considerations, thematic focuses, and positioning recommendations from the UBS Chief Investment Office (as outlined within the
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The desk interprets UBS's positive outlook for US equities as a significant driver for currency sentiment, particularly within risk-sensitive FX pairs. Per the full note from UBS, the ongoing resilience of equity markets amidst geopolitical uncertainties suggests a favorable environment for risk-on positioning. As the market navigates these complexities, traders should note earnings performance and volatility triggers outlined by UBS as critical factors influencing market dynamics. The current risk-on sentiment can lead to further dollar weakness against other currencies, particularly if equity markets continue to rally.
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The desk sees the beginning of 2026 as emblematic of a 'Goldilocks' market environment, characterized by strong asset performance and signs of economic growth, while disinflation trends persist. Per the full note from UBS, Jason Draho highlighted that U.S. equities, particularly small-cap stocks, are leading the charge upward, reflecting increasing cyclical growth expectations. However, there are no imminent high-impact events on the horizon to disrupt this trajectory, thereby solidifying our outlook that leans towards sustained currency strength amid bullish sentiment.
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The desk posits that the bullish momentum in U.S. equities, as outlined by Jeremy Zirin of UBS Asset Management, is set to influence broader market sentiment, particularly in the FX space. With U.S. stocks achieving nearly 18% return in 2025 and driven largely by sectors leveraging AI, there is potential for a stabilizing dollar given the strong performance outlook. Per the full note [source], the continued leadership from technology and communication sectors could foster a comparable strength in the dollar versus EUR, which has been under pressure amid the ECB's cautious approach. This bullish outlook aligns with our internal consensus target for USD/EUR to trend towards 1.075 in the coming months.
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The desk maintains a cautiously optimistic view on the short-term economic outlook, driven by resilient consumer spending and a potentially favorable December FOMC meeting, as highlighted in the commentary from UBS. Per the full note, recent data shows 2.7% real spending growth, reflecting a solid recovery trajectory which should support further upward momentum in equity markets and, consequently, a favorable environment for risk currencies. However, with crucial labor market data upcoming, the desk underscores the need for careful attention to shifts in economic indicators and Fed communications, particularly as market participants speculate on rate cuts and their potential impacts on currency valuations.
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