UBS: US stocks are about to rebound at the end of the year, and the midterm elections may be a catalyst for “emptying”

The Zhitong Finance App notes that UBS Securities believes that as favorable seasonal factors and low hedge fund positions create conditions for a potential rebound after Tuesday's midterm elections, US stocks may be expected to rebound at the end of the year.

David Montoni, head of sales of American institutional stock derivatives and quantitative investment strategies (QIS) at UBS Securities, said, “The financial reports of hyperscale cloud vendors clearly did not provide the signal investors wanted to lift the alarm, but successfully surviving the election may be a catalyst for starting a bearish market at the end of the year.”

On Monday, tech stocks led the decline in US stocks as concerns surrounding artificial intelligence transactions overshadowed hopes for US-Iran diplomacy. The Nasdaq 100 Index, which is dominated by technology stocks, closed down 1.4% and entered a pullback range, falling 10% from its October high.

According to Montoni, seasonal factors may support a rebound in the stock market. Since 1950, the average return for the S&P 500 in November was 1.9%, making it the strongest full-year performing month in history. Hedge funds' low net exposure may amplify gains. “If the market can remove the last major catalyst of the US midterm elections on Tuesday, it will form a potentially flammable layout.”

Over the past month, the market has been weighing the potential consequences of the Republican Party losing control of Congress, including the uncertainty of future policies and its impact on AI construction.

Montoni wrote that a big win for the Democratic Party could drag down financial stocks and data center companies. The S&P 500 financial sector has risen about 6% in October, leaving room for tactical maneuvers to hedge against this result. UBS recommended buying the November 20 put option on the SPDR ETF for the State Street Finance Select Industry.

Montoni is also optimistic about opportunities in renewable energy stocks, and investor positions in this sector have fallen to a low level of about a year. The Democratic Party's victory may provide a political catalyst for the sector, while relatively light positions leave room for investors to rebuild their exposure. Traders bought the Invesco Solar ETF's December call option last week, according to UBS.