UBS: U.S. Stocks Face Limited Upside, Dollar to Weaken, Gold to Reach $3,500

UBS Wealth Management Asia Pacific has released a report indicating that the short-term upside potential for U.S. stocks is limited. The report suggests that while the U.S. dollar has recently stabilized, the slowing U.S. economy and increasing concerns over the fiscal deficit are likely to cause the dollar to weaken again. Investors are advised to take advantage of the current strength of the dollar to diversify their excess dollar cash into other currencies.

The report also maintains its forecast that gold prices will reach 3,500 dollars per ounce by the first quarter of next year. The recent pullback in gold prices is seen as an opportune moment for investors to increase their exposure to the precious metal. Within a broadly diversified dollar investment portfolio, investors are recommended to allocate around 5% to gold to hedge against a range of potential risks.

Geopolitical risks remain a significant factor, and the actual interest rates are expected to decline, which could further weaken the dollar. The report suggests that the current environment presents a strategic opportunity for investors to enhance their gold holdings. The recent delay in tariffs on European Union goods by the U.S. administration has also contributed to a decrease in gold's safe-haven demand, providing an additional window for investors to consider increasing their gold allocations.

In the baseline scenario, the effective tariff rate in the U.S. is expected to stabilize around 15%. If this trend continues, it would be equivalent to a 2% increase in sales tax, posing a drag on economic growth and pushing up inflation, but not enough to cause a recession in the U.S. economy. The report also notes that the current trading price of the stock market is higher than the level before April 2, and the rating of U.S. stocks has been downgraded from attractive to neutral, indicating limited short-term upside potential and continued volatility.

Looking ahead, the report predicts that the stock market will rise further by 2026, driven by structural earnings growth, a more stable policy environment, and declining U.S. interest rates. Investors are advised to use periods of volatility or pullbacks to gradually build positions in global stocks or construct balanced investment portfolios. The report expresses high confidence in the long-term potential of transformative innovation opportunities, including AI, energy and resources, and the longevity economy.

The report emphasizes that the U.S. has strong debt repayment capabilities. The U.S. has excellent credit quality, and its national debt is still considered a safe-haven and low-yielding dollar asset. Global central banks continue to value the excellent liquidity of the U.S. national debt market. Given the strength of the U.S. capital market, the reserve currency status of the dollar, and the significant wealth held by U.S. households, there is continued confidence in the U.S.'s debt repayment capabilities.