The stock market rally will likely continue into 2025, but investors should consider preparing for the day when the move goes too far, according to UBS. Global equity strategist Andrew Garthwaite said in a note to clients that his team is “cautiously optimistic” on equities in 2025, but warned that six of the seven “preconditions” for a bubble are in place. Squares that have already checked a bubble lose profits and market breadth under pressure. The remaining category is loose monetary policy, and markets could take another step on Wednesday if the Federal Reserve cuts interest rates by another quarter point, as widely expected. If the market turns into a bubble, investors should try to hold on to those stocks with more sustainable growth stories, Garthwaite said. “If there’s a bubble we’re not in yet (a 35% chance), we’d favor investing in areas that are different this time but where you can justify the valuation without the bubble,” including artificial intelligence and electrification. , the note said. Among the stocks UBS has identified as hedges are names that have seen strong rallies during the AI boom, such as Taiwan Semiconductor Manufacturing, Meta Platforms and power company Vistra Corp. Vistra is up more than 200% in 2024. VST YTD mountain Vistra Corp. shares have more than tripled in 2024. While these stocks may be expensive at the valuation level, identifying names with long-term growth stories can help sustain your portfolio. it goes up pretty well when the market bubble bursts. “The problem with a bubble thesis is that when a bubble bursts, investors lose 80% of their money (as we saw in the case of the Japanese post late 1989, (dot-com) or the Nifty 50). Thus, we can. Only put a 35% chance on a bubble, but this is 10% higher than before,” the UBS statement said.
