UBS says stocks look too optimistic after the Fed minutes and the idea of a soft landing
UBS argued on Thursday that stocks look too optimistic over the Federal Reserve minutes and the idea of a soft landing.
"The S&P 500 moved only 0.2% lower on Wednesday, despite further hawkish signals from the minutes of the Federal Reserve’s June meeting. Policymakers expressed concern over ‘unacceptably high’ inflation, with ‘almost all’ believing that further rate hikes will be necessary this year," UBS said in an investor note.
"While the rally in US stocks has stalled this week, the S&P 500 has still gained 15.8% so far in 2023. In our view, that suggests the market is too upbeat about the prospect that the Fed can achieve a soft landing for the US economy, combining a swift decline in inflation with relatively resilient growth."
UBS also highlighted that the current state of equity market valuations leaves little leeway. At the moment, the investment bank said the U.S. equity market is trading at 19.3 times its 12-month projected earnings. This equates to essentially a 19% premium compared to the 15-year average, based on the MSCI USA Index, UBS says.
Moreover, during Thursday’s trading session, the benchmark S&P 500 (SP500) along with its mirror-matched exchange traded funds, the S&P 500 ETF Trust (NYSEARCA:SPY), the iShares Core S&P 500 ETF (NYSEARCA:IVV), and the Vanguard S&P 500 ETF (NYSEARCA:VOO), all traded lower by roughly 0.9%.
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Source: Seeking Alpha
