: UBS CEO throws cold water: financial markets are too optimistic about the prospects of conflict in the Middle East, V-shaped rebound script may not repeat itself

UBS Group AG CEO Sergio Ermotti warns of excessive optimism in the financial markets regarding the Middle East conflict. In an interview, he stated, "The market's expectations are not only that the situation will be resolved - which is also what we believe and hope to see - but also that the impacts that have already occurred will be resolved in a conventional manner." Although there are currently no signs of a sustainable solution to the Middle East conflict, the stock markets continue to "play on." The most representative example is the US stock market. Both the S&P 500 index and the Nasdaq Composite index reached new highs on Monday. Investors largely choose to treat headline news related to the Middle East conflict as trading noise, and to embrace US stocks, particularly in the technology sector, as they demonstrate the resilience of corporate profits in this round of earnings season. Ermotti mentioned that in recent years, investors have experienced multiple "V-shaped" rebounds, where the market quickly returns to normal. He said, "The market is quite optimistic, hoping for a positive outcome in the end." However, he also added that governments no longer have much room to stimulate economic growth through stimulus measures and emphasized that diversification is a way to hedge against market reversal risks. Furthermore, Ermotti also talked about the new Swiss capital regulation system, which is currently undergoing parliamentary review. He denied claims that UBS Group AG is actively lobbying Swiss lawmakers to weaken regulatory requirements. He said, "We are not lobbying aggressively. We are just representing the interests of our shareholders." "We just want to promote fact-based discussions. We have not made any additional demands, we just want the rules to be aligned with international standards and allow us to compete globally on a level playing field." Ermotti's comments come as a warning to investors amidst the ongoing uncertainty at GEO Group Inc. According to previous reports, the US has received a new negotiation proposal from Iran through Pakistan. However, there are indications that President Trump and his national security team have discussed the Iranian proposal, with Trump reportedly not favoring it. A US official stated that Trump is dissatisfied with Iran's negotiation proposal because it does not address Iran's nuclear program. Sources close to Pakistan's mediation efforts said that the efforts to bridge the US-Iran divide have never stopped, but hopes for resuming peace efforts are fading. At the same time, a US official said that Trump has instructed aides to prepare for a long-term blockade against Iran, aiming to cut off the financial resources of the Iranian regime and force Iran to make concessions on its long-standing nuclear issue in a high-risk manner. The official stated that in recent meetings, Trump has decided to intensify pressure on the Iranian economy and oil exports by preventing ships from entering and exiting Iranian ports. He believes that maintaining the blockade carries less risk compared to resuming airstrikes or directly engaging in the conflict. With the prospects of peaceful negotiations between the US and Iran uncertain and the possibility of a resurgence of conflict in the Middle East, several institutions have expressed doubts about the sustainability of the stock market's rally. John Flood, partner and head of execution services for the Americas stock market at Goldman Sachs Group, Inc., pointed out that as US and global stock market positions become increasingly crowded, and with the strong buying power of key institutions like CTA set to turn to selling pressure, stock market investors should prepare for a certain degree of pullback in the short term. However, Flood also expects the S&P 500 to be "significantly higher" by the end of the year, defining any potential pullback as a buying opportunity. Julien Tima, head of global macro at Fidelity, highlighted last week that as the Middle East conflict triggers a serious global oil supply crisis, the longer oil prices remain at high levels, the longer the recent adjustment in the US stock market is likely to last. Tima stated that the most crucial conclusion for investors is that the duration of high oil prices will determine the severity of any market correction. Yadni, a Wall Street veteran strategist who has accurately predicted market trends multiple times, also previously pointed out that with Trump's rhetoric on the imminent end of the war fluctuating, and peace negotiations evolving into a game of brinkmanship around the strategic Strait of Hormuz, the war is expected to limit the gains in the stock market before a resolution is reached. He said, "I believe the market may experience a period of volatile trading - a kind of consolidation pattern, perhaps lasting throughout the summer." However, several institutions remain optimistic about the outlook for US stocks. Wall Street giants such as Citigroup, JPMorgan, and BlackRock, Inc. all believe that the political and war-trading themes at GEO Group Inc are shifting towards profit momentum, with AI-driven capital expenditure and profit recovery in technology companies returning to the core logic of the market. Recently, HSBC upgraded its rating on US stocks from "neutral" to the most optimistic outlook equivalent to "buy"/"hold", indicating that the profit expansion momentum driven by AI has now "clearly turned positive." Therefore, the upcoming earnings reports of the "seven giants of the US stock market", with five companies including Alphabet Inc. Class C (GOOGL.US), Microsoft Corporation (MSFT.US), Amazon.com, Inc. (AMZN.US), and Meta (META.US) slated to announce performance on Wednesday, followed by Apple Inc. (AAPL.US) on Thursday, will be a key test for whether the rally in US stocks can continue. Dennis Fulmer, chief investment officer at Montis Financial, stated that tech investors have weakened concerns about bubbles in the market due to continuously rising profit expectations, but if any of the "seven giants" underperforms, it could serve as a reminder to the market that there remain significant risks to the optimistic outlook currently priced in. Additionally, the Federal Reserve will announce its interest rate decision this week. Factors such as Powell's remarks at the press conference, whether Lael Brainard can smoothly take over as Fed chair, and whether Powell will remain on as a Fed governor could all influence the short-term trend of the US stock market.