The recent rally in the market, fueled by optimism around artificial intelligence and potential interest rate cuts, confirms UBS’s positive view on the technology sector, the bank said in a note on Thursday.

UBS analysts emphasize that despite the market decline in mid-July, the technology sector is supported by robust capital expenditure and demand for artificial intelligence.

“Despite the market decline in mid-July and the lack of any specific positions taken, Wednesday’s gain underscores our positive view on the technology sector amid strong capex and demand for artificial intelligence,” the bank wrote.

They comment that companies are on track to deliver 10-12% profit growth in the second quarter, with 60% of companies topping sales estimates and 75% topping profit estimates, which is in line with historical averages.

In addition, the bank’s analysts note that U.S. companies’ forecasts for the third quarter remain in line with usual seasonal patterns.

The latest Federal Reserve meeting also supports the view that rate cuts are imminent. Comments from Chairman Powell indicate that the Fed is predicting a cushioned landing for the US economy, which is consistent with UBS’s baseline scenario.

Powell also cited the Federal Reserve’s growing concern about the labor market risks stemming from persistently high interest rates, although current data only indicates a gradual cooling.

UBS maintains a favorable outlook for U.S. stocks, advising investors to maintain a full allocation to the U.S. market. They emphasize the importance of sticking to long-term investment plans during periods of volatility to avoid missing out on rebounds.

UBS predicts the S&P 500 will rebound and end the year higher, at 5,900 points from the current level of 5,522.

In terms of investment strategy, UBS suggests capitalizing on opportunities in the AI ​​space, especially in the enabling layer of the AI ​​value chain and in vertically integrated large-cap companies.

They also recommend looking for high-quality growth stocks that have demonstrated consistent earnings growth and reinvestment due to competitive advantages and structural factors.

Furthermore, amid anticipated interest rate cuts, UBS sees significant opportunities in the fixed income market, particularly in high-quality corporate and government bonds, expecting prices to rally as markets anticipate a deeper rate cut cycle.