SKN | UBS Sees Earnings, Not Speculation, Behind the Global Equity Rally

Key Takeaways:

• UBS argues that the current global equity advance is being supported by strong corporate earnings rather than the speculative excess associated with the late-1990s technology boom.
• Forward earnings across the MSCI All Country World ex-US index have risen 36.9% this year, while profit margins have reached a record 12.3%.
• UBS identifies artificial intelligence investment and higher security-related government spending as two capital-intensive forces capable of sustaining corporate demand over the longer term.

Why UBS Sees Earnings Behind the Market Rally

UBS is pushing back against comparisons between today’s equity markets and the speculative conditions of the late 1990s, arguing that the current advance is being driven primarily by corporate earnings rather than investor fear of missing out.

Burkhard Varnholt, a senior financial market adviser at UBS, described the underlying earnings momentum as particularly strong. The distinction is important for wealth investors because a market supported by rising profits presents a fundamentally different risk profile from one in which asset prices rise substantially faster than the businesses generating those assets.

The central UBS argument is straightforward: earnings are doing much of the work behind the rally.

Profit Growth Is Providing the Market’s Foundation

UBS points to annual profit growth exceeding 20% in the eurozone, with expected earnings per share increasing 22% during the first half of 2026.

The broader global picture is similarly strong. Forward earnings for the MSCI All Country World ex-US index have risen 36.9% this year, while aggregate profit margins have reached a record 12.3%.

South Korea provides an especially striking example. The market has gained approximately 85%, while its forward earnings have roughly quadrupled.

For private investors, the distinction between earnings expansion and multiple expansion is critical. When profitability rises alongside equity prices, the market’s valuation can be supported by improving corporate fundamentals rather than simply by investors becoming willing to pay increasingly higher prices for the same earnings.

Two Structural Investment Cycles Are Supporting Demand

UBS attributes much of the current strength to two major investment cycles: artificial intelligence and security-related expenditure.

Both are capital-intensive. Together, UBS estimates that these investment booms represent approximately 2.5% to 3.5% of global economic output.

The implication is broader than the technology sector itself. Sustained capital expenditure creates demand across infrastructure, energy, manufacturing and associated supply chains. If these investment programs persist, the resulting economic activity could continue supporting corporate revenues and profits beyond the companies directly associated with AI or defence.

Energy illustrates the divergence between earnings and valuation particularly well. UBS notes that earnings in the S&P 500 energy index have increased 55.2% this year even as its valuation multiple has declined.

That combination challenges the idea that rising markets necessarily represent expanding valuation multiples.

UBS Keeps the Focus on Earnings and Interest Rates

Varnholt’s framework reduces the long-term market equation to two principal variables: corporate earnings and interest rates.

For wealth managers and private investors, this framework provides a useful filter through which to assess market narratives. Headlines concerning sentiment, positioning or individual market themes can influence prices in the short term, but the longer-term direction of asset values ultimately depends heavily on the profits generated by companies and the discount rates applied to those profits.

The current earnings environment therefore remains central to the UBS assessment.

The greater uncertainty lies with interest rates.

Why UBS Is Less Concerned About a Bond Market Shock

UBS also takes a relatively contrarian position on the prospect of a sustained surge in long-term bond yields.

Varnholt argues that the deflationary effects of technological innovation, particularly as AI accelerates productivity, could be underestimated. Greater productivity can place downward pressure on costs and inflation, potentially limiting the extent to which long-term yields need to rise.

UBS also points to financial repression as another potential constraint on long-term government borrowing costs. Highly indebted governments may have incentives to prevent long-term interest rates from rising excessively rather than allowing debt-service burdens to escalate indefinitely.

This view differs from the more cautious interpretation prevalent elsewhere in financial markets, where rising sovereign yields remain one of the principal threats to equity valuations.

What This Means for Global Wealth Allocation

For internationally diversified wealth, UBS’s analysis points toward a more selective approach rather than a simple conclusion that equities are either in a bubble or entering a new secular bull market.

The important distinction is between markets where earnings are expanding sufficiently to support valuations and markets where price appreciation has become increasingly detached from underlying profitability.

The record margins and substantial forward-earnings growth cited by UBS provide evidence for the former across parts of the global market.

However, that does not eliminate risk. Strong earnings expectations can already be reflected in asset prices, while higher interest rates can reduce the present value assigned to future profits. For globally diversified investors, currency exposure, sovereign yields and regional valuation differences therefore remain important alongside the headline earnings figures.

Jackson Hole Signals a Broader Financial Transition

The timing of the UBS assessment also places attention on the Jackson Hole gathering of central bankers.

This year’s focus on innovation and payments extends beyond conventional monetary policy. UBS views the meeting as part of a broader discussion about how the financial system could evolve over the coming decade.

Digital currencies and instant cross-border payments are increasingly relevant to international wealth structures because they could eventually affect settlement, liquidity management and the movement of capital across jurisdictions.

For clients operating across multiple financial centres, these developments deserve attention independently of the short-term direction of equity markets.

Closing Insights: The More Important Question Is Earnings Durability

UBS’s argument does not amount to a declaration that markets cannot fall. Instead, it challenges the assumption that strong equity performance automatically means speculative excess.

The evidence highlighted by the bank points toward a market in which earnings, margins and capital investment are playing a substantial role. AI investment and security-related spending could extend that support if they remain structurally elevated.

For sophisticated investors, the more useful question is therefore not whether markets look expensive in isolation. It is whether corporate earnings can continue growing quickly enough to justify current valuations while interest rates remain manageable.

That distinction will be particularly important if the global rally enters a more mature phase. Markets supported by durable earnings growth can absorb periods of volatility differently from markets dependent primarily on expanding valuation multiples.

For a confidential discussion regarding retail banking strategy, insurance distribution models, customer loyalty ecosystems, digital financial services, or cross-border financial innovation opportunities, contact our senior advisory team.