The stock market’s next leg higher may depend less on a handful of giant technology companies and more on earnings growth spreading across the broader economy, according to UBS.
Ulrike Hoffmann-Burchardi, Chief Investment Officer for the Americas and Global Head of Equities at UBS Global Wealth Management, has maintained a positive outlook for stocks despite higher interest rates, volatile oil prices and concerns that markets have become too dependent on artificial intelligence-related companies.
The argument is straightforward: Corporate profits are continuing to grow, economic activity has remained resilient and the enormous investment cycle surrounding artificial intelligence is increasingly reaching industries outside traditional technology.
UBS says those forces could allow more companies and sectors to participate in the market’s advance.
The Rally Is Starting to Broaden
For investors, market breadth matters.
A stock-market rally dominated by a small number of enormous companies can leave major indexes vulnerable when those companies stumble. A rally supported by earnings growth across industries, regions and company sizes spreads that dependence more widely.
There are already signs of that happening.
UBS noted earlier this month that the equal-weighted S&P 500 — which reduces the influence of the largest technology companies — had gained 13.9% for the year, compared with a 12.8% advance for the technology-heavy Nasdaq Composite at the time of its report.
Corporate results have also strengthened outside the biggest technology names.
The median S&P 500 company beat second-quarter earnings estimates by approximately 5.5%, compared with an average of roughly 3.6% since 2015, according to UBS. European earnings growth accelerated to 22% during the second quarter.
Those figures support UBS’s argument that profit growth is becoming less concentrated.
Profits Could Provide the Fuel
UBS expects strong corporate earnings to remain one of the principal supports for stocks.
The bank forecast S&P 500 earnings growth of about 25% in 2026, followed by another 14% increase in 2027. It expects Eurozone earnings to grow approximately 15% in both years.
In a separate global outlook, UBS projected earnings growth of approximately 26% this year and 14% next year for the MSCI All Country World Index, a broad measure of global equities.
That distinction matters because rising stock prices do not necessarily mean stocks are becoming more expensive relative to corporate profits.
When earnings rise quickly enough, valuation multiples can fall even while share prices increase.
UBS says stronger earnings have helped valuations normalize, potentially leaving the market less vulnerable to a correction caused solely by higher bond yields.
AI Is Moving Beyond Big Tech
Artificial intelligence remains central to the outlook, but UBS increasingly sees the opportunity extending beyond software companies and the largest technology platforms.
The bank estimates global AI-related capital spending will reach roughly $900 billion in 2026 and $1.2 trillion in 2027.
That spending increasingly touches semiconductor manufacturers, electrical infrastructure, utilities and industrial companies as businesses build the enormous physical infrastructure required to operate AI systems.
Robotics represents another potential extension.
UBS research says improvements in sensors and AI software are allowing robots to expand beyond traditional factory automation into logistics, agriculture, health care and other industries. The next stage could involve machines capable of using AI models to understand and interact with the physical world in real time.
For investors, that means the AI investment story may eventually become much broader than simply owning the companies that design chips or operate cloud-computing platforms.
Why It Matters for Retirement Investors
Broadening market gains could also matter for Americans saving through 401(k)s, IRAs and other diversified investment accounts.
Many retirement portfolios hold broad-market funds containing hundreds or thousands of companies.
When earnings growth spreads across industries, those portfolios become less dependent on extraordinary performance from a small group of megacap technology stocks.
UBS noted that concentration remains a concern among individual investors. Excluding strategic holdings, nearly 40% of self-managed equity investors on its platform held more than half of their stock portfolios in 10 companies or fewer.
Diversification does not eliminate market losses, but broader participation means the performance of major indexes is less dependent on a handful of companies.
Risks Haven’t Disappeared
The outlook is not guaranteed.
Higher Treasury yields can pressure stock valuations and increase borrowing costs for businesses and consumers. Energy prices remain vulnerable to developments in the Middle East, while the Federal Reserve has returned to raising interest rates.
UBS acknowledged that rising rates create challenges, particularly for growth companies whose valuations depend heavily on profits expected far into the future.
Still, the bank argues that interest rates alone do not determine where stocks go.
UBS’s current thesis rests on three major supports: resilient economic growth, strong corporate earnings and continued investment in transformational technologies such as artificial intelligence.
The key question for investors is whether those supports continue spreading through the economy.
If corporate profits keep expanding beyond the biggest technology companies, the next stage of the stock-market rally could look considerably different from the last one — with more industries participating and fewer companies carrying the market on their shoulders.
JBizNews Desk | Wall Street
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