Global equity markets may remain stuck in a consolidation phase in the short term as investors navigate heightened uncertainty and a broad range of possible economic outcomes, according to UBS strategist Andrew Garthwaite.
UBS has set a 2026 target of 1,100 for the MSCI All-Country World Equity Index, slightly below its earlier forecast of 1,130. With the index currently around 1,015.60, the new projection points to limited upside potential but continued market volatility.
The bank also outlined a wide range of possible scenarios for global equities. In a more favorable outcome, a swift resolution to tensions in the Middle East combined with stronger productivity gains driven by artificial intelligence could push the fair value of the MSCI AC World index to about 1,280.
However, UBS cautioned that a prolonged conflict lasting three months or longer, coupled with a lack of productivity improvements, could drag the index’s fair value down to around 700—roughly 30% below current levels.
“There is a risk that even into a potentially quick resolution, we could be underestimating supply chain disruptions (eg, in sulphuric acid, jet fuel, LPG in India),” the strategist wrote in a note.
Garthwaite said several short-term pressures are keeping equity markets confined within a narrow range. Risk appetite indicators remain elevated, with UBS’s Risk Appetite measure sitting in the top 15th percentile of its 10-year range. Meanwhile, investor positioning across both systematic and discretionary strategies appears broadly neutral rather than deeply defensive.
Defensive sectors such as consumer staples and pharmaceuticals have not significantly outperformed, suggesting that investors are not fully pricing in the risk of an economic slowdown. Commodity markets are also providing mixed signals: oil futures point to a temporary supply disruption, while sharply rising bond yields imply that inflation risks may be underestimated.
Against this backdrop, UBS highlighted several indicators investors should monitor closely. Oil prices remain a key factor given their historical influence on equities during periods of geopolitical stress. Credit spreads are another important gauge, and the limited widening so far suggests financial conditions remain relatively stable.
Inflation expectations and wage growth in the United States also remain contained, allowing the Federal Reserve some flexibility to look past short-term energy-driven price pressures. In contrast, the inflation outlook in Europe remains more fragile.
Over the longer term, UBS still sees structural support for equities, particularly from the potential for generative AI to boost productivity beginning around 2028. The bank added that although some conditions for a market bubble are present, current market behavior is more consistent with a period of consolidation than the start of a broader downturn.