UBS: The continuous volatility does not change the growth momentum, there is still room for continuous increase in US stocks.

UBS Group AG released a report stating that the momentum of stock growth in the US will continue, with further room for sustained upward movement. Despite recent fluctuations, investors should not overlook the favorable fundamentals for the US stock market while closely monitoring the next steps of the new government. UBS Group AG expects market volatility in the near term as the market reacts to upcoming important news from President Trump. If proposed tariffs are implemented, they will have a negative impact on the target regions. However, the bank also believes that with the continued momentum of growth, there is still room for the US stock market to rise. On his first day in office, President Donald Trump announced his intention to impose a 25% tariff on fentanyl and immigration issues on Canada and Mexico starting next month. The president stated on Tuesday that due to fentanyl flowing into the US from China, the US is considering imposing a 10% tariff on Chinese imports starting from February 1st. He added that due to the region's $350 billion trade surplus with the US, the EU "will be subject to tariffs". In addition to tariffs, UBS Group AG stated that continued investment in Artificial Intelligence (AI) in the coming years will continue to drive economic growth. Apart from the tariff plans against China and the EU, Trump also announced a private sector investment of up to $500 billion on Tuesday to fund AI infrastructure, led by OpenAI, SoftBank, and the Oracle Corporation joint venture, Stargate. SoftBank's Masayoshi Son stated that the joint venture will deploy $100 billion "immediately", with Oracle Corporation Chairman Larry Ellison noting that the project's first data center is already under construction in Texas. UBS Group AG considers this event to be another positive catalyst for the AI growth story. Furthermore, the bank mentioned that the current earnings season is likely to set a positive tone for company profits. Several large tech companies are set to release their fourth-quarter earnings next week, with possible further upward revisions in capital expenditure. UBS Group AG also predicts that the gap between AI revenue and capital expenditure will narrow, driving a 25% profit growth for large tech companies in the fourth quarter of 2024. Looking more broadly, supported by economic growth resilience, the S&P 500 index is expected to grow profits by 7-9% in the three months ending in December. By 2025, a 9% profit growth will push the S&P 500 index to 6,600 points by the year's end. The US economy is expanding, while the Federal Reserve is easing monetary policy. Since last week's release of inflation data milder than expected, the yield on the 10-year US Treasury bond has dropped by over 20 basis points. Under UBS Group AG's baseline scenario forecast, Trump's tariff measures should not hinder further slowing of inflation. Therefore, with the Federal Reserve expected to cut policy rates by another 50 basis points this year, the yield on the 10-year US Treasury bond is expected to fall to 4%. It is worth mentioning that historically, rate cuts by the Federal Reserve during non-recession periods have generally been favorable for the stock market. Therefore, UBS Group AG advises investors not to overlook the favorable fundamentals for the US stock market while closely monitoring the next steps of the new government. Without taking any singular viewpoint, UBS Group AG continues to favor tech stocks, utility stocks, and financial stocks, and believes that deploying structured strategies to address recent volatility is valuable.