UBS says record earnings, not hype, are driving ‘one of the most significant bull markets in history’ Proactive uses images sourced from Shutterstock
UBS has dismissed fears of a stock market bubble, arguing that the global rally is built on surging corporate profits rather than the speculative frenzy that inflated share prices in the late 1990s.
Burkhard Varnholt, a senior financial market adviser at the Swiss bank, said investors were being pulled in by what he called “fabulous earnings momentum” rather than a fear of missing out.
The distinction matters, because earnings growth that outpaces revenue points to rising margins and productivity rather than to prices detached from underlying value.
Profits, not prices, doing the work
Varnholt pointed to profit growth of more than 20% a year in the eurozone, with expected earnings per share up 22% in the first half of 2026 alone.
Across the MSCI All Country World ex-US index, forward earnings have jumped 36.9% this year and profit margins have reached a record 12.3%.
South Korea has led the global performance ranking, up 85%, after its forward earnings roughly quadrupled.
Two booms behind the rally
The bank framed the surge as the product of two capital-intensive megatrends: the artificial intelligence boom and a sharp rise in security-related spending funded by government budgets.
Together, UBS estimates, these investment booms amount to around 2.5% to 3.5% of global economic output, a scale it argues will sustain demand for years.
Varnholt singled out energy as a striking example, noting that earnings in the S&P 500 energy index rose 55.2% this year even as its valuation multiple fell.
He argued that only two factors matter for markets over the long run, corporate earnings and interest rates, with everything else amounting to background noise.
A contrarian call on bonds
On the second of those, UBS pushed back against warnings of a bond market shock from rising long-term yields.
Varnholt contended that the deflationary force of innovation, now accelerated by AI, is widely underestimated as a check on inflation.
He also argued that heavily indebted governments tend to suppress long-term rates through what economists call financial repression, rather than allowing yields to spiral.
That case runs counter to the more cautious tone struck elsewhere in the market, where rising government bond yields have been flagged as the main threat to equity valuations.
Setting the course at Jackson Hole
The note coincided with the annual Jackson Hole gathering of central bankers, whose theme this year was innovation and payments.
UBS said that meeting was quietly setting the direction of the financial system for the coming decade, from digital currencies to instant cross-border payments.