UBS forecasts only a 6% increase for global equities by the end of 2025, based on its latest outlook for the MSCI All-Country World Index. This benchmark, which tracks both developed and emerging markets, is expected to reach a level of 900 by 2025. UBS’s forecast is shaped by several important factors.
One factor is that current economic indicators are showing a mixed picture. UBS’s risk appetite index reveals that risk assets are performing in line with overall economic momentum. Currently, U.S. GDP growth is at a modest 1%, but other indicators, such as the Atlanta Fed’s Nowcast, suggest growth could reach 3% in the third quarter.
Historically, equity markets have performed well when the U.S. Federal Reserve reduces interest rates, provided there is no associated recession. UBS does not anticipate a recession in 2025 or 2026, and expects equities to rise by approximately 13% following the Fed’s anticipated cuts, despite markets having already priced in some gains.
UBS also highlights the potential impact of generative AI on long-term growth. The firm believes that generative AI could significantly enhance productivity by 2028, which would push the U.S. equity risk premium to 4.9%. If this scenario materializes, it could add around 10% to the valuation of global equities, benefiting sectors like healthcare, utilities, and technology.
For earnings, UBS expects a 5% growth rate in 2025, well below the 13% consensus forecast. This divergence is due to a projected slowdown in U.S. wage growth to around 3%, which may reduce pressure on profit margins outside the top 10 U.S. firms.
Credit market dynamics are also a critical component of UBS’s outlook. The firm points out that shifts in equity performance often follow changes in credit spreads. Currently, credit spreads suggest that market volatility could be lower, and default rates are running at half the levels implied by high-yield spreads.
Despite a base case of 6% upside, UBS sees a 25% chance of a more bullish scenario, where equities could rise over 20% if monetary conditions in the U.S. and China become more accommodative. Conversely, there is a 25% chance of a 10% market decline, driven by risks such as a U.S. recession or weaker global growth due to China’s economic slowdown.
