Daily US

19 August 2026, 10:41 UTC Chief Investment Office GWM Investment Research

Higher yields are testing the equity thesis, not breaking it UBS House View - Daily US Ulrike Hoffmann-Burchardi, Chief Investment Officer Americas and Global Head of Equities, UBS Financial Services Inc. (UBS FS) Mark Haefele, Global Wealth Management Chief Investment Officer, UBS Switzerland AG Jon Gordon, Strategist, UBS AG Hong Kong Branch Frederick Mellors, Strategist, UBS Switzerland AG Leslie Falconio, Head of Taxable Fixed Income Strategy, CIO Americas, UBS Financial Services Inc. (UBS FS) Andrew Dubinsky, US Economist, UBS Financial Services Inc. (UBS FS)

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Thought of the day Even as this week's rise in global bond yields begins to stabilize, equities have continued to show signs of discomfort. On Tuesday, the Nasdaq and Philadelphia Semiconductor Index fell 1.7% and 5%, respectively. That followed into Wednesday, with the 5.8% sell-off in South Korea's memory- heavy Kospi and a 3.2% decline in Japan's Nikkei 225. In Europe, the Stoxx What to watch: 20 August 600 fell 0.7% on Tuesday, posting its fifth consecutive decline for the first • US initial jobless claims and Philadelphia time so far in 2026, before trading flat at the time of writing. Adding to Fed Business index the unease, Brent crude oil stood roughly 1% higher at USD 89/bbl amid persistent tensions in the Middle East. • Japan trade balance for July • Riksbank rate decision At first glance, these moves combine several factors that have historically challenged risk assets: higher bond yields, higher oil prices, and weakness in the technology and AI-linked shares that have led much of the equity rally. Concerns about AI monetization, ongoing debate over AI financing structures, and questions around the sustainability of investment spending have added to uncertainty around one of the market's most important themes.

While these risks deserve attention, we do not believe recent market moves undermine the core case for equities:

AI fundamentals remain intact. The latest sell-off has been concentrated largely among some of the market's strongest performers, adding to evidence that recent weakness reflects profit-taking and a momentum

This report has been prepared by UBS Financial Services Inc. (UBS FS), UBS Switzerland AG, UBS AG Hong Kong Branch. Please see important disclaimers and disclosures at the end of the document.

unwind rather than a broad deterioration in fundamentals. AI-related companies continue to report robust demand trends, with major hyperscalers posting average cloud revenue growth of 48% in the second quarter, up from 40% in the first quarter. While positioning may again be resetting, the underlying AI investment cycle still appears healthy, in our view.

Earnings growth remains the market's anchor. Strong earnings growth has been one of the defining features of 2026. S&P 500 companies delivered nearly 35% year-over-year underlying earnings growth in the second quarter, and close to four out of five exceeded expectations. Just as importantly, earnings strength is no longer confined to a narrow group of technology companies. We are seeing broader participation from sectors such as industrials, financials, and consumer discretionary. In Europe, earnings momentum has improved after several years of stagnation, while Asia continues to benefit from resilient growth trends.

The inflation-shock narrative is not yet showing up in the data. Oil prices have risen, and market-based inflation expectations have moved higher in recent weeks as concerns over Middle East tensions intensified. However, the broader inflation picture remains more balanced than recent market moves suggest. US import prices unexpectedly fell in July, while headline and core inflation remain softer than a…