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- October 17, 202612°
- BIST10011,722-2.89%
- USD49.45+0.05%
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- INTEREST37.00%-1.00
- BITCOIN81,579+0.09%
- October 17, 202612°
UBS urges buying US stocks as Bank of America warns on high valuations and AI spending
Swiss bank UBS called on investors to enter markets, highlighting the opportunity cost of holding cash. Bank of America, meanwhile, described the explosion in AI spending as 'the biggest bubble since the 19th century.'
The ongoing rally in US stocks has sparked a deep divide among global financial giants over investment strategy. While UBS advises investors to enter the markets, firms like Bank of America and Goldman Sachs are taking a cautious stance on high valuations and the sustainability of AI spending.
UBS's optimistic outlook
UBS notes that investors often wait for factors like geopolitical risks or inflation to subside, but markets are never entirely risk-free. The bank stresses that such waiting leads to missed opportunities in the long run.
Citing historical data in its strategy report, UBS recalls that US stocks, on average, delivered similar or higher returns in the 12-month periods after reaching record levels. The bank forecasts that global corporate profits will grow by 21 percent in 2026, with the growth spreading beyond tech giants.
Controversial valuation levels
The most debated issue in markets is whether stocks are overvalued. According to FactSet data, the cyclically adjusted price-to-earnings (CAPE) ratio has reached 41 times, its highest level since the dot-com bubble of the early 2000s.
The 'Buffett Indicator,' which measures the ratio of market capitalization to gross domestic product, is also near its historical peak. The S&P 500's 10 largest companies account for 35 percent of the index's total weight; that ratio was 25 percent at the height of the dot-com bubble.
Bank of America's AI bubble warning
Bank of America's chief investment strategist Michael Hartnett describes the explosion in AI spending as 'the biggest bubble since the 19th-century railway bubble.' Bank officials foresee the S&P 500 potentially ending the year below current levels.
Goldman Sachs notes that companies' adoption of AI applications is still in its early stages, thus questioning the speed at which the massive spending will turn into profit in the short term.
Fed policy and market expectations
The US Federal Reserve's monetary policy is also creating pressure on stock valuations. Despite the Fed holding rates steady, divisions within the committee have raised expectations of rate hikes in the coming months. This is reducing the present value of future profits, especially for growth stocks.
Experts' advice to investors
UBS recommends diversifying portfolios across stocks, bonds, infrastructure, and alternative assets, holding cash only for short-term needs. This split of opinion on Wall Street shows investors should focus not just on market direction but also on how to manage risks.
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