Institution: Earnings Resilience Overlay as the Hormuz Strait Gradual Recovery Will Support the Stock Market

BlockBeats News, August 4th, UBS believes that the market may be underestimating the sustainability of the current earnings cycle, to a degree that exceeds the impact of geopolitical noise in the Strait of Hormuz. The fundamental assessment is that the energy flow in the strait will gradually recover rather than experience a rapid rebound, which, supported by strong earnings growth, will continue to drive the stock market higher.

UBS points out that the momentum of the U.S. second-quarter earnings season is strong, with both the breadth and magnitude of earnings beating expectations well above historical averages. The bank stated that it still sees upside risk to its forecast of 20% earnings growth for the S&P 500 this year and highlighted factors such as resilient consumer spending and improving cyclical forces that should support the trend spreading beyond leading companies to a more widespread area.

In Europe, UBS noted that companies are delivering their strongest performance in over three years, with earnings estimates for the STOXX 600 index continuously being revised upward — the bank believes this trend reinforces the view that investors should hold a diversified stock allocation to fully participate in market gains. In Asia, UBS expects corporate profits to grow by 72% this year. (FXStreet)