Stock market risks 'disappointment' despite cooling inflation: UBS

Investors may be overly optimistic that the latest Consumer Price Index report means the Federal Reserve will soon end its interest-rate tightening campaign, the Swiss bank warned.

"While inflation is trending in the right direction, we still see potential for disappointment among equity investors on the pace of Fed easing in the remainder of this year," UBS's CIO Mark Haefele said in a research note seen by Insider.The Bureau of Labor Statistics said Wednesday that the CPI rose 4.9% in April – down from 5% the previous month and way below the forty-year high of over 9% it hit in the middle of last year.

That's a source of optimism for some investors – because they believe that inflation cooling means the Fed will soon wind downWhen interest rates stop rising, stocks tend to benefit because companies can borrow at a fixed rate, boosting the future cash flows that make up a part of their valuations. The expectation that the Fed will soon pause its tightening campaign, or even start cutting rates, has fueled a broad rally for stocks in 2023, with the benchmark

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