Union Bancaire Privee (UBP) has upgraded its outlook on US equities to 4/5 from 3/5 following Trump’s victory in the US election.
The Swiss private bank said in its November house view that it expects the Trump presidency to drive higher earnings growth for US-based companies, driven by economic stimulus, deregulation and a reduction in corporate tax rates.
From a sector point of view, UBP said that financials and technology stood out with technology less dependent on the outcome of the election, whereas the US financial sector could benefit from a steeper yield curve, growth in credit lending and deregulation.
UBP therefore upgraded its outlook on financials to 4/5 from 3/5, while it also upgraded its outlook on consumer discretionary to 3/5 from 2/5 due to the more robust economic picture.
Conversely, it downgraded interest rate-sensitive sectors, such as utilities, from 4/5 to 2/5, and consumer staples from 3/5 to 2/5.
UBP is also particularly bullish on mid-cap companies as although earnings growth is expected to be largely in line with large-cap stocks, it noted that mid-caps are currently trading at a 25% valuation discount to large-caps.
In terms of fixed income, UBP continues to hold minimal exposure towards the long end of the curve and favours a position close to three years.
The prospect for strong economic growth means that UBP is constructive on high yield and noted that while spreads are historically tight, most of its exposure is through AT1s and senior loans where spreads remain favourable compared with traditional high yield.
In terms of investment grade, the bank’s cautious outlook on duration coupled with tighter spreads means it has downgraded its outlook to 3/5 from 4/5.
