The bank emphasises the role of strong corporate earnings and potential for easier monetary policy as key factors supporting the market. Historically, strong earnings momentum and a more accommodative Federal Reserve have helped stocks progress even when valuations are elevated.<\/p>\n
With expected interest rate cuts anticipated to resume later this month, UBS views the overall environment for equities as favourable.<\/p>\n
Despite the S&P 500 trading at a high forward P\/E ratio of 22, we see the current market as a constructive environment for equities. History shows us that high valuations alone do not reliably predict a downturn in the next 12 months, especially when other factors are supportive. The focus should be on strong corporate performance and upcoming shifts in monetary policy.<\/p>\n
The data supports this optimistic view. S&P 500 companies reported an average earnings beat of 7.8% for the second quarter of 2025, showing that corporate health remains robust even in a slower economy. Furthermore, the August 2025 Consumer Price Index (CPI) report showed core inflation cooling to 2.9%, which strengthens the case for the Federal Reserve to begin cutting rates later this month. <\/p>\n
Given this backdrop, we should consider selling put options or put credit spreads on major indices like the SPX. This strategy allows us to collect premium while expressing a view that the market has a solid floor of support and is unlikely to see a significant sell-off. The current VIX, hovering at a relatively low 15, suggests some complacency, but the premium for downside protection is still worth capturing.<\/p>\n
For a more directly bullish stance, establishing long positions through bull call spreads on sector ETFs like the XLK for technology is a prudent approach. This defined-risk strategy allows participation in the expected upside from an accommodating Fed while capping potential losses if valuations cause a short-term pullback. It is a more cautious approach than buying outright calls, which can be expensive in this environment.<\/p>\n
We should pay close attention to the implied volatility around the next FOMC meeting scheduled for September 16-17, 2025. Selling premium ahead of this event could be profitable, as a rate cut is widely anticipated and would likely lead to a decrease in market uncertainty and volatility afterward. This “volatility crush” presents a clear opportunity for short-option strategies.<\/p>\n
Looking back, we saw a similar dynamic in late 2023, when fears of high valuations were overshadowed by the Fed’s dovish pivot, leading to a strong market rally into 2024. While the current P\/E is higher now, the combination of resilient earnings and expected rate relief suggests a comparable path forward in the coming weeks. Therefore, positioning for further gains, while managing risk through spreads, appears to be the most logical course of action.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" UBS sees strong earnings and expected rate cuts supporting U.S. equities, despite historically high valuations.<\/p>\n","protected":false},"author":62,"featured_media":16991,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-30244","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/30244","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=30244"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/30244\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/16991"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=30244"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=30244"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=30244"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}