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Pro Analysis

UBS: Stocks to hit new highs as earnings recession ends

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UBS predicts the stock market could stage a year-end rally as the so-called earnings recession ends.

"S&P 500 earnings have largely stagnated over the past few quarters, but the outlook is set to improve," Jeremy Zirin, head CIO investment strategist, wrote in a research note this week as third-quarter earnings season got underway.

Zirin believes the primary culprits for a slowdown in earnings — energy and a strong dollar — are dissipating, while U.S. economic growth in the second half of 2016 and into 2017 could climb to 2 percent from 1.1 percent in the first half of 2016.

"A moderate economic growth pickup, fading energy and currency headwinds, and an improving tech sector outlook should help drive a US profit recovery over the next several quarters," he said.

Below are the chief reasons the investment bank is telling clients to remain "overweight" U.S. equities: