UBS cites low VIX levels and soft economic data reducing near-term Fed rate hike risks as key supports for equities.
UBS remains constructive on equities as the VIX hits its lowest level of the year, signaling minimal event risk priced into markets. The bank attributes this calm to improving earnings revisions and a weakening case for a Federal Reserve rate hike, driven by softer economic data.
Markets are still pricing in over one additional Fed hike in the coming year, but UBS expects disinflation trends to persist, allowing the Fed to extend its pause. This would ease a persistent overhang on risk assets, though geopolitical risks—such as tensions in the Strait of Hormuz, Israel-Lebanon strikes, and the Russia-Ukraine conflict—remain potential volatility triggers.
Scheduled catalysts like Nvidia’s earnings and former Fed governor Kevin Warsh’s Jackson Hole speech could test market stability before month-end. UBS argues the current calm reflects fundamentals, not complacency, with resilient growth and earnings offsetting geopolitical concerns.