Position for market upside

21 August 2026, 12:42 UTC Chief Investment Office GWM Investment Research

Position for market upside Position for market upside Author: Sagar Khandelwal, Strategist, UBS Switzerland AG

• Why? 1) We expect equity markets to move higher, supported by AI investment, broader earnings growth, resilient economic activity, moderating inflation and a less restrictive policy backdrop. 2) AI remains a key driver of returns, but opportunities are broadening across sectors, regions and long-term growth areas as investment spending and earnings growth extend beyond the largest technology companies. 3) Investors should retain exposure to transformational innovation while broadening participation through diversified Robust AI investment and broadening earnings support core allocations, cyclical sectors, multifactor strategies, further equity gains, but investors should diversify beyond concentrated technology holdings. Source: and selective structured investments. Mariola Grobelska_Unsplash

• Why now? 1) The next phase of market gains is likely to be broader, with earnings momentum and leadership extending beyond the largest technology companies. 2) Cyclical sectors and selected regional markets should benefit from investment spending, credit activity, consumer resilience, and policy support. 3) Investors can reduce single-stock concentration and broaden equity exposure while retaining exposure to the main drivers of the market cycle.

Our base case of robust AI investment, broadening earnings and bottom-performing sectors and stocks remaining high, growth, resilient economic activity, and moderating inflation concentration can significantly affect portfolio outcomes. supports further equity market gains. The next phase of the Excluding strategic holdings, nearly 40% of self-managed market rally is likely to broaden across companies, sectors, equity investors on our platform hold more than half of their and regions. AI remains central, but stronger investment equity portfolio in 10 stocks or fewer. Broadening exposure spending, earnings breadth, and cyclical momentum are can help portfolios take part in further market gains, while creating opportunities across a wider range of markets. reducing company-specific risk.

Investors should combine a diversified core equity allocation Targeted exposure to transformational innovation and with targeted exposure to transformational innovation and longer-term opportunities cyclical opportunities. This can support further gains while AI remains a powerful investment driver. Global AI-related reducing dependence on any single market driver. There are capital expenditure is expected to reach around USD five ways to position for this environment: 900bn in 2026 and approximately USD 1.2tr in 2027. The opportunity extends beyond the largest technology Diversify single-stock exposure companies to semiconductors and hardware, software, Investors with concentrated single-stock positions should power infrastructure, utilities, and industrials. consider broadening exposure across regions, sectors, and investment styles. With the differences between the top-

This report has been prepared by UBS Switzerland AG. Please see important disclaimers and disclosures at the end of the document.

Longer-term opportunities include power and resources, automation and robotics, longevity, and health care innovation. Areas of focus include grid resilience, renewables, nuclear power, critical minerals, obesity treatments, oncology, cardio-metabolic conditions and neurology, where structural demand and technological adoption can support earnings growth over time.

Position for cyclical broadening As earnings growth broadens beyond the largest technology companies, investors should consider sectors and markets that could benefit from rising investment, improving financial activity, and resilient consumer demand. This supports exposure to industrials, financials, consumer discretionary, health care and selected regional markets, including Europe, Japan, India, Asia ex-Japan, China, and emerging markets.

Multifactor strategies As market leadership broadens, multifactor strategies can provide exposure to a wider range of return drivers. By…