The stock market is currently experiencing historically high valuations, causing concern among some investors.
UBS analysts argue that these high valuations are justified and likely to continue rising. They attribute this to the growing dominance of the technology sector, which has seen impressive financial performance compared to non-tech stocks. Additionally, both tech and non-tech companies have improved cash flows, allowing them to return more capital to shareholders and support higher price-to-earnings ratios. The current economic landscape, with lower discount rates, also contributes to elevated valuations. UBS analysts believe that these factors create a favorable environment for sustained stock price growth.
The recent bull rally in the S&P 500, driven by technology stocks and overall economic strength, further supports UBS's outlook. UBS anticipates that stock valuations will continue to rise in the absence of a recession.
Overall, UBS presents a compelling case for why high stock valuations are justified, considering the dominance of the technology sector, improved cash flows, and lower costs of capital.