UBS: "VIX Surge Is a Buying Opportunity... US Stock Market Expected to Rise"

"Fed Rate Cut Leads to 17% S&P Increase After 12 Months"

Recently, global stock markets plunged and then rebounded amid concerns about a U.S. economic recession, and there is a forecast that the U.S. stock market will maintain an upward trend for some time.

Solita Marcelli, Chief Investment Officer (CIO) of UBS Asset Management, stated in an interview with Bloomberg on the 8th (local time) that recent market volatility does not affect the positive outlook for the U.S. stock market this year.

[Image source=Reuters Yonhap News]

The market is anticipating the Federal Reserve's (Fed) first interest rate cut in September. Marcelli CIO noted that when the Fed began cutting rates in a robust economic environment, the S&P 500 index rose by an average of 17% over the following 12 months.

On the 5th, the Chicago Board Options Exchange (CBOE) Volatility Index (VIX), also known as the "fear index," temporarily surged to 38.57, marking the highest level since October 2020. However, Marcelli CIO analyzed this as a buying opportunity. He explained, "There will be some volatility, but there is significant upside potential," adding that U.S. stocks generally delivered above-average returns over the 3, 6, and 12 months following sharp spikes in the VIX.

On the same day, the New York stock market saw all three major U.S. indices rebound, with the Nasdaq rising 2.87%. This was influenced by the U.S. Department of Labor's report showing that last week's initial jobless claims fell short of both expert forecasts and the previous week's revised figures, easing concerns about a cooling labor market that had triggered the market plunge.

Marcelli CIO said that despite recent market turmoil, she has advised clients to maintain their asset allocation to U.S. stocks. She cited four reasons for a positive outlook on the U.S. stock market: healthy earnings growth, investment in artificial intelligence (AI), a disinflationary environment with cooling housing costs, and the imminent Fed rate cut.

Meanwhile, concerns have recently emerged among investors about companies' massive AI investment expenditures. Marcelli CIO, a former Credit Suisse technology analyst, believes that the risk of missing out on AI's innovative potential outweighs the risk of excessive cash spending. UBS forecasts that AI will grow into a market worth over $1 trillion (approximately 1,376 trillion won) within the next few years.