UBS's Neutral Call on U.S. Stocks: A Strategic Reassessment of Sectors for the Post-Trade Rally Era

The S&P 500’s 11% rally since the U.S.-China tariff truce has sparked optimism, but UBS’s “neutral” stance on U.S. equities in 2025 underscores a critical truth: this rebound is fragile. With trade tensions lingering, geopolitical risks resurfacing, and global growth forecasts weakening, investors must navigate a landscape where short-term gains could evaporate just as quickly as they emerged.

The Tariff Truce: A Rally Built on Shifting Sands

The 90-day tariff pause and partial relief on Chinese imports have fueled a cyclical rebound, particularly in sectors like industrials and consumer discretionary. Yet UBS warns that this rally is vulnerable to three critical risks:
1. Sector-Specific Tariffs: UBS’s APAC CIO, Tan Min Lan, highlights that 2025 could see new tariffs on pharmaceuticals and semiconductors, even as carveouts for other industries emerge.
2. Economic Drag: U.S. GDP growth is projected to average less than 1% in 2025, with high tariffs continuing to suppress consumer confidence and supply chain efficiency.
3. Policy Uncertainty: While central banks may ease rates by mid-2025, the “Trump put”—where market stress drives policy shifts—adds to unpredictability.

Sector Rotation: The Definitive Play for Volatility

UBS’s neutral call isn’t a rejection of equities but a plea for discipline. Investors should focus on sectors that blend defensiveness with growth resilience:

1. Technology: Navigating the Carveouts

Tech stocks have surged on hopes of tariff relief, but UBS urges caution. Instead, target semiconductor leaders with exposure to carveouts (e.g., companies in advanced manufacturing) and cloud infrastructure firms insulated from trade disruptions.

2. Healthcare: A Bulwark Against Tariffs

Healthcare’s dividend resilience and inflation-proof demand make it a standout. UBS favors pharma giants with diversified pipelines (to offset tariff risks) and telehealth platforms benefiting from rising healthcare access needs.

3. Utilities: The New “Safe Haven”

Utilities have long been a defensive staple, but UBS’s bullish 12-month outlook hinges on their low beta and regulatory stability. With 10-year Treasury yields expected to fall to 2.5% in downside scenarios, utility stocks offer capital preservation and steady income.

Risk Management: Diversify, but Don’t Dilute

UBS’s neutral stance isn’t neutral in execution. Pair equity exposure with gold (a hedge against trade uncertainty) and hedge funds using macro strategies to exploit volatility.

The Bottom Line: Act with Precision

The post-trade rally era demands a tactical approach. Investors who pivot to UBS’s favored sectors—technology (targeting carveouts), healthcare (dividend strength), and utilities (regulatory stability)—will position themselves to capitalize on the 12-month bullish window while mitigating downside risks.

The path forward is clear: rotate now into quality, dividend-resilient sectors. Wait, and you risk missing the window to lock in gains before the next wave of volatility.

The market’s next move will hinge on whether the tariff truce becomes permanent. UBS’s neutral call isn’t a warning—it’s a roadmap for those willing to act decisively.