UBS advised clients on Monday to take advantage of the recent rally in equities to rebalance their portfolios, arguing that the exceptional performance of a handful of large U.S. technology companies has increased concentration risk and could leave investors exposed if market leadership broadens.
The S&P 500 reached another all-time high on Friday, pushing its gain for the year to more than 10%. The advance was supported in part by reports suggesting the United States and Iran were close to an agreement that could lead to the reopening of the Strait of Hormuz.
Meanwhile, the MSCI All Country World Index has climbed 10.9% so far this year. UBS reiterated its year-end target of 7,900 for the S&P 500, citing expected earnings-per-share growth of 20% as a key driver.
While remaining optimistic about the market outlook, the bank expects the next stage of gains to be led by a wider range of sectors and companies rather than being dominated by the largest technology firms. UBS anticipates increased sector rotation and periodic volatility as investors reposition capital.
The bank suggested investors broaden exposure to markets and sectors including Japan, China, emerging economies, Switzerland, global health care and European consumer discretionary stocks. UBS also noted that the benefits of artificial intelligence are increasingly spreading into areas such as infrastructure, energy and industrial supply chains, extending beyond the companies that have fueled the AI-driven rally.
UBS added that “the recent bond sell-off has created an opportunity to lock in attractive yields,” highlighting high-quality government bonds with short- and medium-term maturities as particularly compelling investments. According to the bank, financial markets have become overly aggressive in pricing future central bank policy tightening across many major economies.
Regarding the technology sector, UBS cautioned that “it remains unclear which companies will emerge as leaders in monetizing AI,” suggesting that investors could still face volatility and potential setbacks despite strong recent earnings results.