Photo: Photo Bucket: CarolynPan
UBS equity strategist Jonathan Golub is telling clients that it’s time to ramp up risk in their portfolios.
He lists three prime reasons why US stock markets are likely to rally. And he also offers the three sectors that are best to ride the rally.
Incoming economic data has been better than expected, reinforcing UBS's belief that risks are weighted to the upside. Last week's data announcements, which included better ISM data and positive same-store sales at the nation's retailers, make a 2.5% Q3 GDP growth pace more likely than original UBS forecasts of 1.5%.
Although Europe remains deeply entrenched in debt fears, recent comments from Angela Merkel of Germany and Nicolas Sarkozy of France pointed to a coming agreement on the European Financial Stability Facility.
In an October 7 press conference Merkel said 'banks must first try to raise the capital themselves' before Euro members should step in to offer last resort financing. That requirement will likely allow policymakers the ability to expand the size of assets they can offer. The CDS market welcomed this quite warmly as spreads on Portugal, Ireland and Greece declined.
Early data from the 29 companies that have already reported earnings this season points to greater reward payoffs on forecast beats. Companies that have reported stronger revenue and EPS than analysts' consensus saw stocks rise 4.5%, on average, versus 3.6% in the last quarter.
Strongest Sub-sectors: Capital Goods and Transportation
per cent Change from April 29: -22.3%
Strongest Sub-sectors: Hardware and Semiconductors
per cent Change from April 29: -9.7%
Strongest Sub-sectors: Insurance and Banks
per cent Change from April 29: -27.3%