UBS: Stock Market Setback ‘Likely Temporary’

The sharp pullback in U.S. equities is unlikely to derail the broader bull market, according to UBS, which told investors in a note that recent weakness reflects shifting interest rate expectations rather than a fundamental deterioration in market conditions.

UBS explained the S&P 500’s 1.7% decline on Thursday, alongside a 2.3% drop in the Nasdaq, followed by “hawkish comments from Federal Reserve officials and valuation concerns”. 

San Francisco Fed President Mary Daly said it was “premature” to make a decision ahead of next month’s policy meeting, while Minneapolis Fed President Neel Kashkari said he remained “on the fence” about a December rate cut. 

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As a result, markets now assign a lower probability to a 25-basis-point cut next month, down from nearly 100% a month ago, UBS noted.

However, UBS maintains that the central bank “remains on track to cut rates twice more in the coming months”, adding that additional data on inflation and employment should “justify more Fed cuts ahead”. 

Despite uncertainty around official labour market readings, UBS believes surveys and private-sector indicators should provide enough clarity for policymakers, assuming inflation continues to moderate.

UBS also pushed back against comparisons with the dotcom bubble, arguing that today’s environment lacks the excesses that defined the late 1990s. 

Vendor financing, which UBS identified as “a key factor in the formation and collapse of the dotcom bubble”, has declined sharply. 

Even high-profile collaborations, such as those involving NVIDIA, Oracle and OpenAI, represent “only about 5% of NVIDIA’s projected pretax earnings for 2026,” according to the bank.

Meanwhile, tech valuations are said to be supported by “strong tech fundamentals”, including solid earnings, robust cash positions and disciplined balance sheets, UBS said.

With the Fed poised to ease further and tech earnings remaining strong, UBS concluded that “the equity bull market is intact” and reiterated its forecast for the S&P 500 to reach 7,300 by June 2026.