UBS warns: U.S. stock market rally won’t last, high interest rates and recession will kill rebound

UBS warns: U.S. stock market rally won’t last, high interest rates and recession will kill rebound

UBS( 19.89 , -0.58 , -2.83% ) Group said that don’t expect the strong trend of the US stock market in the first half of the year to last for too long. High interest rates and declining economic growth will kill the stock market rebound.

The bank said in a note on Tuesday that the current rally in stocks will prove unsustainable and that the threat of further tightening by the Federal Reserve or weak economic data could undermine the current market optimism.

“Investors should brace for more subdued equity performance for the remainder of the year,” a team led by UBS chief investment officer Mark Haefele said in a note to clients.

“Concerns about rate hikes, some disappointing economic data, or a shift in equity market sentiment could quickly dampen optimism about the resilience of U.S. growth and its fundamentals,” they added.

U.S. stocks rebounded in the first half of 2023, fueled by huge interest in artificial intelligence, with the S&P 500 up 16% and the tech-heavy Nasdaq (( 13791.6543 , -25.12 , -0.18% ) composite The index rose 32%, its best first-half performance since 1983.

But the gains come against a backdrop of rising interest rates and concerns among many economists that the U.S. economy could slip into recession in the second half of the year after GDP growth slowed to just 1.1% in the first quarter.

Even the AI ​​boom may fade quickly, Häfele’s team says. “There were signs in June that big AI stocks were consolidating (and that the rally was extending to laggards),” they wrote, noting that the S&P 500 actually outperformed a narrower group of stocks last month. large-cap stocks.