Signal over Noise with Ulrike Hoffmann-Burchardi

Hello and welcome to Signal Over Noise. I'm Ulrike Hoffman-Burchadi, CIO for the Americas and head of global equities for UBS wealth management. Let me start with what I see as Signal and what I see as Noise over this last week and then talk about what matters this week. The government shut down as of midnight October 1st. It's the 21st funding app since the current budget process was established in 1976. So we have lots of data to help evaluate its likely market impact. And the data speaks clearly. Government shutdowns do not tend to have a tangible impact on financial markets. So far, neither bonds nor equities have taken notice. DSMP actually ended the week up 1%. The reason is that there is not much of an economic impact from shutdowns. Even the longest shutdown under President Trump's first term in December 2018, when the government remained shut for 34 days, only shaved off less than 10 basis points or 0.1% of GDP. In general, much of the economic loss from a shutdown is recouped when the government reopens. How long is this shutdown likely to last? We see a resolution before October 15th as likely because this is the day military services personnel would go unpaid. A scenario we think both parties would like to avoid. So through the market lens, the government shutdown is likely going to be noise. However, one market signal last week came from the US government's deal with Pfizer. The spend to spare tariff playbook has arrived to the farmer sector. In exchange for committing to lower drug prices and onshore investments in the US, Pfizer will not be subject to the 232 tariffs. And while the CAPEX for artificial intelligence is getting much of the spotlight, I think it's important not to overlook the onshore investments in other sectors. US farmer alone has committed 500 billion in CAPEX over the next decade, equivalent to 1.6% of US GDP. As part of the deal, Pfizer agreed to most favored nation prices for Medicaid and for direct to consumer drugs. This deal removes uncertainty for both drug pricing and tariffs and will send a strong signal to other US former companies to follow suit. And with these two overhangs likely behind us, we see room for a re-rating of US farmer. The US healthcare sector has been one of the few sectors to trade lower since the launch of CHET GPT until last week when it moved almost 7% higher. In fact, the top 25 US farmer companies are worth less than a single company. And that is NVIDIA. And this is surprising since we consider healthcare as one of the biggest beneficiaries of AI from drug discovery all the way to clinical trials. The constant difficulty of bringing a new drug to market have risen exponentially. And AI, in our view, has a chance to bend this cost curve. Turning to this week, the main event will likely be OpenAI's Developer Day. A private company Developer Day has historically not fared among the top market signals, but now is different. OpenAI has a mass 700 million weekly average users and on average 13 to 15 minutes of usage a day. It has captured a large share of consumer attention, the key currency for monetization. And AI monetization will likely first take off in the consumer market. Enterprise adoption will be a slower, more gradual process. And any changes to OpenAI's consumer offering will likely have ripple effects in the public markets, especially for advertising platforms competing for the same consumer attention. So against this backdrop, we see continued support for risk assets. With this, stay well and stay ahead. UBS Chief Investment Office's investment views are prepared and published by the Global Wealth Management Business of UBS AG or its affiliate UBS. This material has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient and is published for informational purposes only. As a firm providing wealth management services to clients globally, UBS AG and its subsidiaries offer both investment advisory services and brokerage services. Investment advisory services and brokerage services are separate and distinct, differ in material ways and are governed by different laws and separate arrangements. In the USA, UBS Financial Services Inc. is a subsidiary of UBS AG and a member of FINRA SIPC. For information, please visit our website at UBS.com/workingwithus. For a full legal disclaimer applicable to the independent investment views produced by UBS, please visit our website at UBS.com/CIO-Disclaimer.