David Lefkowitz, CFA, CIO Head of US Equities, UBS Financial Services Inc. (UBS FS) Nadia Lovell, Head of Global Equity Strategy & Management, UBS Financial Services Inc.
Overview
31 January 2026, 03:51 UTC
Blog
David Lefkowitz, CFA, CIO Head of US Equities, UBS Financial Services Inc. (UBS FS) Nadia Lovell, Head of Global Equity Strategy & Management, UBS Financial Services Inc. (UBS FS) Matthew Tormey, CIO Equity Strategist, US Equities, UBS Financial Services Inc. (UBS FS)
There was no shortage of market-moving developments this past week,
which included the busiest week of earnings season, a Fed rate decision, and the nomination of a new Fed chair. For investors, it’s important to have a framework to make sense of the information fire hose. As we have articulated previously, we believe there have been three pillars to the equity bull market that is now more than three years old: a supportive Fed, healthy growth, and AI. Below we explain how recent developments affect the three drivers. Our bottom line: All three remain supportive and suggest further equity market gains.
Stocks gyrated a bit on Friday as investors digested news of the nomination
of Kevin Warsh to be the new Fed chair when current chair Jay Powell’s term ends in May. It may take some time for investors to better understand how a Warsh led-Fed will manage monetary policy, which could lead to some market volatility. Nevertheless, we would keep a few principles in mind. First, the Fed chair is important, but it is a full Federal Open Market Committee who sets monetary policy. Second, the Fed remains bound by its statutory mandate to achieve stable prices and maximum employment.
Third, and most important, regardless of who is at the Fed, we believe
a shift toward tighter monetary policy (i.e., rate hikes) is highly unlikely. Therefore, we think the Fed will remain supportive for equity markets.
Now that we are nearly halfway through the earnings season, we believe
the results support our outlook for continued economic and profit growth. The breadth of beats remains favorable, with 64% of companies beating sales estimates and 75% beating EPS estimates—slightly better than historical averages (see Fig. 1 on next page). A solid median EPS beat of 3.8% is being driven by good revenue growth. Guidance for 1Q26 remains healthy, with better-than-normal estimate revisions. Consumer spending appears resilient, as evidenced by Visa and MasterCard. And some cyclical markets are picking up, as highlighted by analog semiconductor company
Texas Instruments, even though other cyclical markets, such as housing,
remain depressed. Ultimately though, we believe we are on track for 12% earnings growth in the quarter. We look for this growth rate to persist through 2026. This report has been prepared by UBS Financial Services Inc. (UBS FS). Please see important disclaimers and disclosures at the end of the document.
Blog
Fig. 1: Breadth of EPS beats a touch better than normal
Percentage of S&P 500 companies beating EPS estimates
.
Now, touching on AI, Microsoft and Meta results demonstrated that AI
capex growth continues to be revised up, but at a slower pace. However, investors remain sensitive to the prospects for AI capex monetization. Meta’s strong revenue guidance was well-received, while investors were disappointed that Microsoft didn’t raise cloud revenue growth estimates. We’ll hear from Amazon and Alphabet next week, which will offer further insights on these trends. Approximately 20% of the S&P 500 market cap is set to report. We think this week's news continues to suggest a supportive backdrop for US equities, driven by solid growth, supportive central banks, and AI.
We maintain our June 2026 and December 2026 S&P 500 price targets of
7,300 and 7,700.
Global asset class preferences definitions
The asset class preferences provide high-level guidance to make investment decisions. The preferences reflect the collective judgement of the members of the House View meeting, primarily based on assessments of expected total returns on liquid, commonly known stock indexes, House View scenarios, and analyst convictions over the next 12 months. Note that the tactical asset allocation (TAA) positioning of our different investment strategies may differ from these views due to factors including portfolio construction, concentration, and borrowing constraints. Most attractive – We consider this asset class to be among the most attractive. Investors should seek opportunities to add exposure. Attractive – We consider this asset class to be attractive. Consider opportunities in this asset class. Neutral – We do not expect outsized returns or losses. Hold longer-term exposure. Unattractive – We consider this asset class to be unattractive. Consider alternative opportunities. Least attractive – We consider this asset class to be among the least attractive. Seek more favorable alternative opportunities.
