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UBS: 3 Market Predictions for the Rest of 2020

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It is very possible that risk assets will continue to perform well in the second half of 2020 and the election in November may not have a significant impact on the markets regardless of the outcome, according to UBS Global Wealth Management senior executives who spoke to reporters during a virtual media event Wednesday.

The executives discussed their midyear outlooks on businesses, markets and the economy at large, both within the U.S. and globally. Below are three main takeaways from the call.

1. Stocks stand to benefit from pandemic responses.

There are two main reasons for optimism that equities and other risk assets will continue to do well for the rest of this year, according to Mark Haefele, chief investment officer of UBS GWM.

First, he does not expect additional nationwide lockdowns due to COVID-19 outbreaks, he said. Policymakers have learned enough about the virus to give them a wider set of tools to prevent significant spikes in virus hospitalization rates in most parts of the world, he told reporters.

Additional “upside” will come from continued monetary stimulus by central banks to fight the economic damage of the pandemic, he said.

Continued fiscal stimulus efforts by both political parties in the U.S. are “probably, in the near term, the more important factor than who wins the election in the fall,” he said.

2. Short-term volatility will continue.

“Equities are going to be one of the few solutions with yields” as low as they are now and “that’s likely to continue to draw assets towards equity over time,” Haefele predicted.

There is “some potential” upside if news about the virus improves, he went on to say.

For now, we can expect “short-term market volatility” around the U.S. election to continue, “especially if we get a close or even a contested race,” Solita Marcelli, chief investment officer Americas, told reporters.

3. Election results will have little effect on stocks.

UBS does not expect “persistent, dramatic” market moves from the “most likely election outcomes,” Marcelli said.

The firm sees a red or a blue wave as “generally neutral for stocks, with a slightly more favorable outlook under a Republican administration,” she said.

Due to the economic conditions that have been caused by the pandemic, “policy choices are reduced for anyone” who wins the U.S. election, she said.

“Bringing the economy back on its feet will have to be a priority,” she said, predicting the main goal of whomever wins the presidency will be improving the economy.

Despite at least some investors being concerned about Democrats potentially increasing taxes if they gain power, she told reporters: “We believe that recovery spending on stimulus, health care, infrastructure, climate change and other initiatives will more than offset these headwinds.”

She conceded that “might be a bit of a contrarian view.”

If there is a blue wave, “we would likely see outperformance by stocks exposed to energy efficiency, smart mobility and renewables as President Biden adopts a green agenda and shifts away from fossil fuels,” she predicted. Other winners would likely include companies that would benefit from an expansion of health care coverage, she said.

If there is a red wave, fossil fuel and financial companies, as well as businesses that invest in space technology, would likely be among the winners, she noted.

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