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Investing.com -- In a note to clients Friday, UBS analysts outlined 10 potential surprises for 2025—events that, while not their base case, could significantly impact markets if they materialize.
The scenarios range from unexpected equity shifts to major macroeconomic developments.
Among the surprises, UBS considers the possibility that tech underperforms, despite its central forecast of “mild outperformance.” While the firm remains constructive on the sector, it emphasizes the need to be “much more selective and focused on software.”
A major bullish scenario sees the S&P 500 surging 25% if all seven preconditions for a bubble are met, far exceeding UBS’s base case of a “6.5% upside for the S&P 500 by year-end.”
Conversely, the firm also considers the potential for US underperformance relative to other markets, despite its benchmark positioning in American equities.
UBS warns that US bond yields could rise to 5.5%, well above its forecasted year-end level of 4.25%, which could have broad implications for equity valuations and credit markets.
At the same time, it sees a scenario where the dollar weakens against the euro, in contrast to its expectation of the euro falling to $0.99 by the end of 2025.
In regional markets, Japan could outperform, despite UBS’s central case of underperformance, while China might embark on a massive Rmb15 trillion fiscal stimulus plan, far beyond the firm’s baseline estimate of “small-scale stimulus resulting in nominal GDP growth of 3.7%.”
Other surprises include oil dropping to $55 per barrel, a significant decline from UBS’s forecast of $75, and a potential resurgence of euro break-up fears, which the firm currently sees as unlikely.
Pharma outperformance is also listed as a surprise scenario, with UBS’s base case for the sector remaining neutral.