UBS Global Wealth Management: Downgrades U.S. equities from 'attractive' to 'neutral'.

UBS Global Wealth Management: Downgrades U.S. equities from 'attractive' to 'neutral'.

UBS Global Wealth Management has downgraded its view on U.S. equities from 'attractive' to 'neutral', reflecting the increased uncertainty and potential risks posed by U.S. tariffs and policy shifts. This decision comes amidst a broader market reaction to recent economic signals and geopolitical developments.

The wealth management unit of Swiss bank UBS has adjusted its year-end index target for the S&P 500, lowering it to below 6,500 from its previous estimate of 6,600. The move mirrors similar actions by other Wall Street firms such as Barclays and Goldman Sachs, who have also revised their targets downward in response to the economic impact of U.S. tariffs.

UBS strategists cited the potential for policy uncertainty to lead to further weakness in economic and corporate profit readings, which could result in continued volatility in the U.S. equity markets in the short term. The benchmark index has fallen over 4% this year, including a significant decline on March 14, entering correction territory.

Despite the downgrade, UBS remains optimistic about the potential for U.S. equities to reverse course and rise by the end of 2025. The brokerage attributes this potential upside to policy clarity, durable economic growth, and investment in artificial intelligence (AI). The current index target remains 12% higher than the last close of 5,693.31.

UBS sees information technology as the most attractive sector among index components, betting on growth from AI investments. The firm also expects the Trump administration's aggressive tariff policy to weigh on growth but not so much as to drive the U.S. into recession. However, the potential for a U.S. government shutdown and further tariff escalation could add to market volatility.

In response to these developments, UBS recommends investors stay invested but hedge equity exposures to manage near-term risks. The firm advises considering high-quality fixed income, long USDCNY positions, and gold as portfolio hedges against geopolitical and inflation risks. Additionally, UBS suggests using pockets of tech volatility to build portfolio exposure to quality AI stocks.

While UBS retains an attractive outlook on equities based on its year-end targets, the downgrade reflects the need for investors to navigate political risks in the months ahead. The firm's base case expects US economic growth to moderate compared to last year but remain positive, with a 50% probability. However, it assigns a 30% probability to a stagflationary or cyclical downturn scenario.

In summary, UBS Global Wealth Management's downgrade of U.S. equities to neutral highlights the increasing uncertainty and potential risks posed by U.S. tariffs and policy shifts. Despite this, the brokerage remains optimistic about the potential for U.S. equities to rebound by the end of 2025, driven by policy clarity, economic growth, and AI investments. Investors are advised to stay invested but manage near-term risks through strategic hedging.