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- Back-to-back weeks of stock market declines should be used by investors as an opportunity to buy stocks at better levels, UBS said in a note on Friday.
- Since record highs were recorded on September 2, the S&P 500 is down 7%, while the Nasdaq 100 is down 10%.
- Despite a combination of the US Senate's failure to pass a stimulus bill on Thursday, and a fourth consecutive week of rising jobless claims, UBS expects markets to "refocus on the positives."
- Hear are three reasons why investors should stay long-term bullish on equities and buy the dip, according to UBS.
- Visit the Business Insider homepage for more stories.
Investors should use the back-to-back weeks of declines in the stock market as an opportunity to buy stocks at better levels.
That's according to UBS, which said in a note on Friday that the 10% decline in the Nasdaq 100 and the 7% decline in the S&P 500 since their September 2 peak will likely be short-lived as the market refocuses on the positives.
Mega-cap tech stocks have led the stock market decline in recent weeks, as investors continue to digest high valuations and a weak, yet recovering underlying economy.
Recent negatives hitting the market include the US Senate failing to pass a $500 billion stimulus bill on Thursday, and the fourth consecutive week of rising jobless claims.
Hear are three reasons why investors should stay long-term bullish on equities and buy the dip, according to UBS.
1. "Fiscal stimulus from the US has been delayed, not canceled, in our view."
Despite Thursday's failure of the US Senate in passing another round of stimulus, future fiscal stimulus policies are still possible, UBS believes. The timing is uncertain given the upcoming November election and partisan disputes, but UBS said it does not see this as the end of the process.
"Talks are continuing, and both parties have a strong incentive to provide extra help to the economy," UBS said.
2. "Economic data remains positive."
The past four weeks of rising jobless claims suggest the economic recovery from the COVID-19 pandemic is slowing, but "the broad trend remains positive," according to UBS.
UBS highlights a falling unemployment rate, which declined to 8.4% from 10.2% in August, and is well below the recent peak of 14.7%, in addition to US retail sales being above prior-year levels since June.
And globally, economic data continues to beat forecasts, UBS said, citing the most recent Citi Surprise Index reading of 86.
3. "Central banks continue to innovate and provide ample liquidity."
More monetary stimulus policies from the Federal Reserve, which have been historic in size and scope, are likely to be announced in the coming months, according to UBS. The firm expects more guidance from the Fed at its mid-September meeting, but said its recent inflation policy overhaul suggests a long period of easy policy.
"We think this move [inflation target overhaul] signals the Fed's greater willingness to tolerate inflation overshooting the 2% target before tightening policy," UBS said.
In addition, the Bank of England meeting next week could provide another opportunity for the markets to be reassured, according to the note.
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