UBS On-Air: House View

US core inflation rose 0.3% in October, with short-term momentum accelerating and price pressures evident across tariff- and AI-sensitive goods. The report was disappointing for a second consecutive month, although we think support for a 50-basis-point rate hike appears limited. We think the data reinforce the case for at least two further hikes and increase the risk that the Fed could shift from gradual quarterly adjustments to consecutive 25-basis-point moves.

Stocks have rallied over the past 24 hours as investors bought technology shares following last week’s sharp sell-off, while lower oil prices eased inflation concerns. We view the recent equity declines and the subsequent rebound as consistent with a positioning reset rather than the beginning of the end of the AI investment cycle, although elevated expectations and concentration risks should keep volatility high. Investors should use periods of strength to reduce excessive technology sector exposure and diversify across sectors, regions, and asset classes.

Asian technology stocks have rebounded after last week’s sharp AI-linked sell-off, but the recovery may also offer investors an opportunity to reduce concentrated positions. For investors who remain constructive on equities but are concerned about renewed volatility, certain structured strategies can provide measured participation in further gains while limiting potential losses at maturity.

US stocks fell sharply on Thursday, led by semiconductor and AI infrastructure companies, as investors reassessed the implications of the election for data center development. We view the decline as a positioning reset rather than indicative of a lasting downturn in the AI investment cycle and see potential for gains in broad equity indices over the next 6-12 months. At the same time, with further volatility possible, investors should focus on managing concentration risks, rebalancing excessive technology exposure, and building a strong multi-asset core portfolio.

The S&P 500 rallied on Wednesday as markets digested the Democratic sweep of Congress in the US. The prospect of gridlock reduced the likelihood of radical policy changes, while the clear result eased political uncertainty. Resilient earnings are shifting investors’ focus back to fundamentals, and hopes for US-Iran diplomatic progress have pushed oil prices lower. We think investors should stay invested while diversifying concentrated technology exposure and maintaining hedges against geopolitical risks. Democratic control of Congress may raise political noise and fiscal uncertainty, but investors should avoid repositioning portfolios around the election result alone.

Democratic control of Congress may raise political noise and fiscal uncertainty, but investors should avoid repositioning portfolios around the election result alone.

The composition of Congress may shape the policy debate, but investors should stay anchored to the fundamental forces driving markets.

The US stock market fell sharply on Friday as investors scrutinized potential returns on the AI investment cycle. While the 3Q earnings season is demonstrating that underlying AI demand remains robust, investors are demanding clearer evidence that rising AI investment will generate adequate returns. We believe investors should retain AI exposure but reduce excessive single-stock concentration, manage tech overexposure, and diversify more broadly.

Concerns about AI capital spending and renewed geopolitical risks have weighed on equities. But resilient economic growth, robust demand for AI infrastructure, and strong earnings continue to support the equity outlook. Investors should stay invested and maintain a well-diversified portfolio.

Accelerating cloud revenue and continued investment indicate that AI demand remains robust. We believe AI remains a key market growth engine, though investors should favor quality and manage concentrated positions.