Top of the Morning: CIO Equity Pulse - Monthly performance update & outlook
Per the full note from UBS, the U.S. equity market remains poised for growth driven by three core elements highlighted by David Lefkowitz. Central to this expectation is the impending second-quarter corporate earnings season, where a number of companies are projected to exhibit solid results despite prevailing economic uncertainties. This insight can guide FX traders, particularly those focused on dollar pairs, as stronger equity performance may bolster USD demand due to improved investor sentiment and risk appetite.
What the desk is arguing
The desk frames this as a pivotal moment for U.S. equities, underpinned by robust corporate earnings expectations for Q2. David Lefkowitz elaborates that these earnings will be influenced by several macroeconomic factors, including ongoing inflationary trends and geopolitical developments affecting market stability.
In recent times, the equity market has shown resilience, and this is substantiated by the expectation that operating margins will outperform current market forecasts. If corporations can surpass anticipated earnings, it could lead to a significant uptick in stock prices and support a continued bullish sentiment across the markets.
Where it sits in our coverage
With a consensus target of 1.075 for the USD pairs we are tracking, the desk is aligned with jpmorgan at a 1.10 target for March 2026, signaling confidence in the dollar's strength against a backdrop of strong equity performance. Conversely, bofa holds a more cautious stance with a target of 1.04. This places our outlook snugly within the existing variance among major firms, leaning closer to the upper bounds provided by strategists aligning with bullish equity scenarios.
How other firms see it
Firms like jpmorgan and goldman support a bullish narrative for U.S. equities, expecting strong corporate performance to reinforce positive market dynamics. On the contrary, bofa is accompanied by deutsche, which maintain a more bearish outlook amid potential economic headwinds.
Traders should closely monitor movements in currency pairs such as USD/EUR, as the U.S. equities' performance could have spillover effects on dollar valuations. Furthermore, indications from the Federal Reserve concerning interest rates may also play a critical role in shaping market trajectories in the coming months.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01US equity markets bolstered by strong corporate earnings outlook
- 02Robust corporate earnings could enhance USD demand
- 03Inflationary pressures remain a key risk factor
- 04Traders should watch USD/EUR for potential volatility
Market implications
Watch for USD rallies against major currencies contingent upon strong earnings reports in the upcoming months. A sustained movement above the 1.075 level could signify increasing confidence among investors, thereby reinforcing the greenback. Major companies' earnings surprises could be influential.
Risks to this view
Should companies fail to meet earnings expectations, or if geopolitical tensions escalate, this could significantly weaken market confidence and reverse the current bullish equity sentiment. Additionally, any shift towards a more dovish stance from the Federal Reserve could also put downward pressure on the dollar.
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 latest UBS House View). This month, David updates on the three bull market growth drivers, shares expectations for the Q2 corporate earnings season, reviews positioning preferences and risk considerations.
Plus, a look at performance of non-US equity markets. Host: Daniel Cassidy
Sources & References
How we cover this story