- The stock market will continue to rise regardless of who wins the upcoming November elections, UBS investment chief Mark Haefele said in a Wednesday note.
- While volatility in markets is sure to be present this election season, expect a recovery in corporate earnings to be the underlying driver for higher stock prices, according to UBS.
- UBS reiterated its June 2021 S&P 500 price target of 3,700, representing potential upside of 5% from Tuesday’s close.
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US stocks should continue to move higher regardless of who wins the upcoming November election, according to a Wednesday note from UBS Chief Investment Officer Mark Haefele.
As the economic recovery from the COVID-19 pandemic continues, corporate earnings should continue to roll in better than expected, according to UBS. And those better-than-expected earnings will help drive stocks higher, even as the market deals with volatility related to the uncertainty of another fiscal stimulus deal, setbacks in the race for a COVID-19 vaccine, and election-related headlines.
US corporate profits “have been more resilient than expected,” UBS said, highlighting that second quarter results exceeded expectations by more than 20%.
That strength has continued in recent months with earnings estimates on the rise throughout the quarter, and third quarter earnings are already off to a good start with beats from JPMorgan and Citigroup on Tuesday.
"Aggregate [third quarter] earnings are coming in 23% better than expected, and sales are beating by 5%, very similar to the results in 2Q," UBS said.
Better-than-expected corporate earnings are in line with the steady stream of better than expected economic data over the past few months. According to UBS, recent economic data points suggest a rebound in auto sales, robust consumer and housing activity, and an improvement in industrial end markets.
"Overall we expect 3Q earnings to decline by about 15-17% y/y, an improvement from the 32% decline in 2Q," UBS said.
And in terms of a Joe Biden presidency hurting stocks because of a higher corporate tax rate, UBS thinks that a substantial increase in government suspending will more than outweigh the increase in taxes.
"Higher taxes would be used to fund Democrats' spending priorities on infrastructure, green energy incentives, and healthcare coverage expansion," UBS said, adding that Biden's agenda in a blue wave scenario would "boost economic growth because new government spending would exceed the increase in taxes."
UBS concluded that "the continued economic recovery from the pandemic will be the dominant market driver in 2021, with policy clarity, a new round of stimulus, and a successful vaccine helping propel the market higher."