UBS sees US equity bull market intact amid sell-off

Last week’s harrowing sell-off in US equities presents a buying opportunity as economic fundamentals are still looking good, according to UBS. The S&P 500 Index has declined 6.7 per cent over the past six sessions, slightly more than the losses in global stocks. The MSCI World Index, down 6.3 per cent in the period, stabilised early yesterday as the slump showed signs of easing.

“The bull market remains intact,” analysts, including Jason Draho from the bank’s chief investment office, wrote in a note. “While the fundamental outlook has not changed notably in the past two weeks, US stocks’ valuation has improved,” they wrote, advising clients to retain a “modest overweight” to global equities.

Equity markets in the US have sold off this month alongside rising Treasury yields, two months after the current bull run became the longest streak without a 20 per cent drawdown. On Thursday, the S&P 500 tumbled 2.1 per cent, capping the worst two-day slump since February. A gauge of stock volatility spiked to an eight-month high. “This happened despite no notable earnings news,” and weaker-than-expected inflation data that lifted equity futures, the UBS report said.

UBS attributed the volatility to forced selling by funds that target specific levels of portfolio risk — the same funds blamed for February’s selling. “Consequently, markets may not stabilise until the forced selling abates and fundamental buyers step in,” the analysts wrote.