UBS global equity strategist Andrew Garthwaite warns that the stock market is nearing bubble conditions, with six out of seven key indicators already met. These include a prolonged structural bull market, slowing profits, reliance on a few tech giants, a 25-year gap since the last bubble, speculative retail investor activity, and the “this time is different” narrative driven by generative AI. However, loose monetary policy, a typical bubble driver, is absent due to rising long-term debt yields.
Garthwaite suggests AI-led productivity gains or stronger corporate balance sheets compared to governments could justify high valuations. He advises caution, recommending defensive, low-leverage stocks like Microsoft and SAP, while staying underweight in cyclical sectors. In the U.K., rate-sensitive sectors like utilities and real estate present value opportunities. Investors should monitor the 10-year Treasury yield, as a rise above 5% could signal greater risk.