The world’s biggest wealth manager says investors should weather election volatility because vaccine progress will help corporate earnings fully recover by year-end 2021

• Market uncertainty is high as investors await the US election outcome, but UBS told clients on Monday to weather the volatility and look towards a positive 2021. 
• Mark Haefele, chief investment advisor at UBS’ Global Wealth Management, said that vaccine progress globally will help corporate earnings recover to pre-pandemic levels by around the end of 2021. He noted that ten vaccine candidates around the globe are currently in late stage trials. 
• Strong earnings and another sizable fiscal stimulus are likely to support stocks next year, and Haefele forecasts the S&P 500 will gain 13.2% by June of 2021.
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While the US election is causing high levels of near-term uncertainty in the stock market, UBS says investors should hold steady through the volatility because 2021’s outlook remains positive.

Mark Haefele, UBS Global Wealth Management’s chief investment officer, said in a note to clients on Monday that the progress of vaccine candidates around the world means it’s likely lockdown restrictions will be lifted by the second quarter of next year. Globally, 10 vaccine candidates globally are in late-stage clinical trials, he said. 

Eased restrictions will help corporate earnings recover to pre-pandemic levels by around the end of 2021, Haefele predicts, helping the the S&P 500 reach 3,700 by June of next year. That’s a 13.2% upside from Monday’s levels.

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Haefele also said that a sizable fiscal stimulus bill will pass soon after the election regardless of who wins the presidency, and this will be bullish for stocks.

“The setback to risk assets is likely to be relatively short-lived and investors should stick to their financial plan,” he said.

Investors should rebalance “excess mega-cap tech exposure” with emerging technology themes like medical developments and 5G, Haefele said. He also said US mid-cap stocks, emerging market value stocks, and European small-and mid-cap stocks will drive the next leg of the market rally after the fiscal stimulus is released.

Haefele noted that while mega-cap technology offered mixed guidance for investors last week, overall third-quarter earnings in the US have been strong. 85% of companies at present are beating expectations by an average of 15%, higher than the typical earnings beat of 3%-5%, he said.