Can global equities keep rising? UBS sees these factors driving upside

UBS reiterated a constructive 6-12 month outlook for global equities, forecasting 26% MSCI All Country World earnings growth this year and 14% next year. The bank expects a shallow Fed hiking cycle, with tariff-driven inflation fading, and argues that expansionary fiscal policy, recovering manufacturing and accelerating loan growth should support risk assets. UBS forecasts AI capital spending growth of 84% this year and 33% next year, favoring semiconductors alongside cyclicals, industrials, health care, power and resources; it prefers the eurozone, Asia ex-Japan and emerging markets.

Analysis

The actionable issue is not broad equity direction but whether consensus has already capitalized the “shallow hikes plus earnings resilience” outcome. A 26% global earnings-growth assumption leaves little room for higher discount rates, slower nominal growth, or AI capex shifting from revenue acceleration to depreciation drag. Over the next 1-3 months, equity leadership should favor companies with near-term AI revenue recognition and pricing power rather than capital-intensive buyers whose free-cash-flow conversion deteriorates as infrastructure spending rises.

The most underappreciated split is within AI: MSFT, GOOGL and AMZN can monetize cloud/AI services, while many enterprise software and infrastructure buyers face a delayed ROI cycle. Semiconductor upside remains concentrated in the compute and networking bottleneck—NVDA, AVGO and ANET—but these names are increasingly exposed to any hyperscaler capex pause; a single cautious 2027 capex guide could drive a sharp multiple reset despite still-strong earnings. Power equipment and grid beneficiaries such as ETN, PWR and GEV provide a less duration-sensitive way to express AI load growth, though valuations require sustained backlog conversion.

A constructive global stance also raises the relative appeal of banks only if the curve steepens rather than simply reprices higher at the front end. European banks (SX7E proxy; U.S. ADRs including SAN and BBVA) have operating leverage to loan growth and still-discounted valuations, but would underperform if tariff inflation persists and policy rates rise into weakening activity. The contrarian risk is that fiscal expansion is already supporting current earnings while increasing term premium; that combination favors real assets and value/cyclicals over long-duration growth on a 6-18 month basis.

MSCI is a clean but indirect beneficiary of persistent global risk-asset appreciation through asset-based fees and index-linked product flows. The key falsifier is not a modest equity pullback but sustained net outflows from ETFs/index products or a material slowdown in new asset-based fee growth; absent those, the earnings sensitivity to market levels remains favorable.

Key Decisions for Investors

• Prefer a barbell over broad beta for the next 1-3 months: long ETN and PWR versus short IGV. The trade captures AI-related electricity/grid spending while hedging against a higher-rate-driven compression in long-duration software; reassess if 10-year Treasury yields fall below 4% or AI infrastructure order/backlog commentary weakens.
• Maintain selective long NVDA/AVGO/ANET exposure, but fund it with defined-risk downside hedges via 3-6 month QQQ put spreads. Add only after hyperscaler earnings confirm 2027 capex plans; reduce if aggregate MSFT, AMZN, GOOGL and META capex guidance is cut by more than 10%.
• Initiate a 6-12 month long European-bank basket (SAN, BBVA) versus short IWM only if euro-area PMIs remain expansionary and curve steepening persists. Upside comes from loan-growth/NII leverage and valuation catch-up; stop the trade on a material deterioration in euro-area credit demand or a renewed inversion.
• Watch MSCI for a post-results entry rather than chase sentiment: buy on evidence that recurring asset-based fee growth and ETF/index assets remain positive despite volatility. A sustained decline in asset-based fee revenue or net index-product outflows falsifies the thesis.
• Do not add broad emerging-market beta solely on the constructive global narrative. Require confirmation from a weaker USD and improving China credit/industrial data; without those, higher U.S. real yields can overwhelm the expected earnings and fiscal tailwinds.