Nadia Lovell: Equities Must Earn the Next Leg Up

UBS strategist Nadia Lovell remains bullish on equities as stocks rise and bond yields decline ahead of the jobs report, though she says the next leg higher must be supported by results. She sees a new corporate investment cycle emerging beyond AI, with spending on power, supply chains and defense replacing the prior emphasis on buybacks and restrained capital expenditure. A resulting productivity improvement could broaden profit growth and support further long-term equity gains.

Analysis

The investable implication is a rotation in earnings durability rather than a blanket equity-beta call. Companies monetizing grid bottlenecks, electrical equipment lead times, data-center power demand, reshoring and defense replenishment should see multi-year backlog support, while asset-light firms whose EPS growth has depended on shrinking share counts face a higher bar if buyback intensity falls. ETN, PWR, CEG, GEV and RTX are better structural expressions than broad cyclicals because their revenue is tied to constrained capacity and funded customer capex rather than purely discretionary end-demand.

Near term, falling yields can sustain expensive secular-capex equities, but the jobs release is a two-sided catalyst: a stronger-than-expected print could raise real-rate expectations and compress multiples before the investment cycle converts into reported revenue. Over 1-3 months, watch order growth, backlog conversion, utility interconnection activity and defense awards; over 6-18 months, the thesis requires capex to produce measurable productivity and pricing power rather than cost overruns. The contrarian risk is that consensus is already concentrated in AI-adjacent power beneficiaries, making any delay in hyperscaler spending or utility rate-base approvals disproportionately damaging.

UBS is only an indirect beneficiary through capital-markets activity and financing demand; the news does not change its standalone earnings setup enough to justify a position. A broad market trade is not warranted from this signal alone: capex enthusiasm without accelerating private investment, industrial orders and earnings revisions would likely become multiple expansion unsupported by cash-flow delivery.

Key Decisions for Investors

• Maintain a 6-18 month quality-capex basket: long ETN, PWR and GEV, sized against a short XLY or IWM rather than adding outright index beta. Target 10-15% basket upside if backlog and EPS revisions continue; reassess if 10-year real yields rise above 2.5% or management commentary signals project deferrals.
• Use CEG as the cleaner power-scarcity expression, but wait for a post-jobs-report entry or employ defined-risk call spreads 6-9 months out; hyperscaler contracting and nuclear-power pricing are the catalysts. Exit on evidence of lower data-center load forecasts, adverse power-market policy, or a material decline in forward power curves.
• Favor RTX over broad defense exposure for a 12-month horizon only if award cadence and supply-chain margin recovery remain visible in the next earnings update. A failure of backlog conversion or a U.S. budget-resolution delay would falsify the near-term catalyst and argues for avoiding the trade.
• Do not initiate UBS based on this commentary. Set an alert for sustained improvement in global ECM/DCM volumes and wealth-management net new assets; absent those data, the macro narrative has limited direct earnings sensitivity.