The US dollar (DX-Y.NYB) is at its highest level in nearly a month following a rally over the past two weeks, a typically bearish signal for stocks. Even so, readings on the US economy’s direction give investors a broad range of opportunities in US equities, UBS strategists wrote in a client note Friday morning.
Given the split in perspectives over where to take rates in the Fed’s January meeting — the minutes were released on Wednesday — the Fed is likely to maintain its position and hold rates steady, said the UBS strategists, led by global wealth management CIO Mark Haefele.
“While the minutes did not suggest officials were contemplating the possibility of rate increases, they made clear policymakers were in no rush to cut rates as ‘the vast majority of participants judged that downside risks to employment had moderated in recent months while the risk of more persistent inflation remained,'” the UBS strategists wrote.
Yet, despite the short-term hold on the horizon, the US central bank likely has “further to go its easing cycle, and this remains a key pillar in our positive outlook on US equities overall,” the strategists wrote.
“With the easing cycle still intact, and the US economy showing resilience amid an improvement in manufacturing activity and industrial output, we expect healthy and broadening profit growth across sectors,” the strategists wrote, noting “attractive opportunities” in financials, health care, utilities, consumer discretionary, and industrials.