The world's largest wealth manager says stocks still have upside after Monday's vaccine rally — and offers 4 sectors with the greatest potential

• The certainty of an economic recovery has increased now that the election has concluded and a fiscal stimulus and coronavirus vaccine are likely on the way, according to UBS's Mark Haefele.
• The global chief investment officer said on Friday that he expects the S&P 500 to gain roughly 6% by mid-2021 with new stock sectors taking leadership.
• In a monthly letter to clients published Friday, Haefele recommended investors seek out small-and-mid-cap stocks, global industrials, consumer discretionary, and US financial stocks to find returns.
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The stock rally that ensued after Monday's positive vaccine news isn't the last time stocks will shoot higher, but new sectors will begin to take leadership in the next few months, according to UBS wealth management's global chief investment officer.

"Last month, I argued that the US election would unlock new stimulus, successful vaccine trials would increase certainty about the economic outlook, and that central bank policy makes the long-term case for equities over cash clear," Mark Haefele said. "With these drivers playing out, and with uncertainty over the economic and market outlook reducing, we expect market leadership to change."

In the monthly letter to clients published Friday, Haefele recommended looking for returns within sectors that have scope to "catch up" as the vaccine begins to facilitate an economic recovery.

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Small-and-mid cap stocks, global industrials, consumer discretionary, and US financial stocks are four sectors with upside, Haefele said have upside.

The CIO also said third quarter corporate earnings were stronger than he expected —and the data reflects that. Nearly 85% of companies beat earnings estimates in the third quarter. Estimates for fourth quarter earnings have risen by 2.7%, and forecasts for the next year are up as well, Haefele added.

With earnings surprising to the upside and valuation multiples justified by the continued low interest rates, plus a vaccine on the horizon, UBS expects the S&P 500 to trade at 3,800 by June of 2021, roughly 6% higher than Friday's levels.

Read more: Goldman Sachs unveils the top 10 themes it expects to drive the markets in 2021 — and shares where to invest your money