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The stock market could still experience a decade of the ‘roaring 20s’, despite high inflation and rising interest rates, according to UBS

  • According to UBS, despite high inflation and rising interest rates, the stock market could still go through a tumultuous decade, like the 1920s.
  • That’s an unpopular opinion, given that many on Wall Street are still concerned about the potential for stagflation as it was in the 1970s.
  • “The rest of this decade will very likely look very different from the pre-pandemic decade,” UBS said.

According to a research note from UBS, a secular bull rally in the stock market, similar to what was seen during the turbulent 1920s, is still possible, despite elevated inflation and rising interest rates.

The investment firm made the call without consensus, as many Wall Street investors still believe we are in for a period of 1970s-style stagflation as the economy tries to bounce back after the recent wave of rate hikes by the Federal Reserve. Reserve.

The shifting stock market stories come as no surprise to UBS, as it finds that the recent surge in pessimism, like a pendulum, often swings back in the direction of optimism. And that offers opportunities to investors who can cut through the noise.

This is why UBS believes there is still a huge bull market coming our way, and that “the rest of this decade will very likely look very different from the pre-pandemic decade,” the note said.

1. ‘Faster wage growth’

“Even as the labor market cools, it is likely to remain relatively tight due to demographics and the current severity of labor shortages, which should favor low-income earners the most. Rapid wage growth for this cohort could help reverse decades of rising income inequality. turn,” UBS said.

2. ‘Public infrastructure and R&D boost’

“The passage of the CHIPS and Science Act and the Inflation Reduction Act, combined with the infrastructure package passed last November, will result in approximately $1.2 trillion in spending and tax incentives for the remainder of the decade focused on public infrastructure. semiconductor manufacturing, energy transition technologies and funding for basic R&D.”

3. ‘A possible capex boom’

“Capital expenditure has remained high in 2022 and there are indications that it will continue to do so… All of this aligns with companies recognizing that they need to invest to address supply chain issues, re-shoring, the energy transition and workforce shortages. The result could be the first substantial investment cycle in more than 15 years.”

4. ‘Rising new business formation’

“Since the start of the pandemic, there has been a step-by-step increase in new businesses in the US… [business formations] As COVID-19 transitions into an endemic state, suggests a permanent uptick in entrepreneurial behavior, injecting dynamism into an economy that lacked that characteristic for at least a decade.”

5. ‘Abundant access to growth capital’

“In a world where investors are still actively seeking secular growth opportunities, the growth capital supply should remain robust, albeit more selective than it was.”

6. ‘Digitize business models’

“Over the past two and a half years, companies have shown that companies can successfully leverage technology to run their businesses efficiently in ways that were unimaginable before the pandemic. As we move into an endemic state of COVID, entire business models will increasingly be built around digitization, potentially resulting in greater efficiency gains.”

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