- The stock-market rally will fade over the second half of 2023, according to UBS.
- Further rate hikes and weak economic data "could quickly unravel optimism," strategists said.
Don't count on stocks' strong first-half run to last much longer – with high interest rates and slumping growth set to kill the rally, according to UBS.
The Swiss bank said Tuesday that equities' current gains will prove unsustainable, with either the threat of further Federal Reserve tightening or weak economic data likely to ruin current market optimism.
"Investors should position for more lackluster stock market performance through the remainder of the year," a team led by UBS CIO Mark Haefele said in a note to clients.
"Fears of higher rates, a few disappointing economic numbers, or a shift in equity market sentiment could quickly unravel optimism about US growth resilience and its underpinnings," they added.
Stocks rallied during the first six months of 2023, powered higher by a huge wave of interest in AI, with the benchmark S&P 500 up 16% and the tech-heavy Nasdaq Composite jumping 32% year-to-date for its best first half since 1983.
But that rally has come against a backdrop of rising interest rates and at a time when many economists are fretting that a recession could hit the economy in the second half of the year, after GDP growth slowed to just 1.1% in the first quarter.
Even the AI boom – which has helped Big Tech stocks including Nvidia, Tesla, and Meta Platforms rack up triple-digit gains – could peter out soon, Haefele's team said.
"There were signs in June that mega-cap AI equities are consolidating (and that the rally is broadening to laggards)," they wrote, noting that the S&P 500 actually outperformed a narrower group of large-cap stocks last month.
Read more: The AI boom has powered tech stocks to their strongest start to a year since 1983