UBS Sours on U.S. Stock Market
UBS has downgraded its outlook for the U.S. stock market, warning that the tailwinds behind its recent outperformance are fading. The investment bank cited "asymmetric downside risk to the dollar" and declining corporate buybacks as central concerns. The move signals growing caution among analysts about future U.S. equity returns.
The downgrade shifts UBS's official stance on U.S. equities from "overweight" to "neutral" within its global equity portfolios. The call was made by Andrew Garthwaite, the bank's Head of Global Equity Strategy, signaling a significant recalibration after a long period of favoring American stocks. This move comes after a powerful three-year bull run that saw the S&P 500 post double-digit gains in 2023, 2024, and 2025. However, international markets significantly outpaced the U.S. in 2025 and have started 2026 much stronger. Year-to-date, the S&P 500 is nearly flat, while Japan's Nikkei 225 is up about 17% and the MSCI World ex-USA Index has gained around 8%. A primary concern is valuation, with U.S. stocks trading at a premium of approximately 35% compared to their global peers. This elevated level is seen as a risk, especially as other markets with more attractive valuations are showing strong performance. The "asymmetric downside risk to the dollar" refers to the idea that the potential for the dollar to weaken is greater than its potential to strengthen. UBS forecasts the euro will rise to $1.22, and notes that the positive impact of a weaker dollar on the earnings of U.S. companies is less pronounced now than in past cycles. The boost from corporate buybacks, which reduce share counts to inflate earnings-per-share, is also waning. The yield from U.S. buybacks is now largely on par with the rest of the world, removing a unique advantage that has long supported Wall Street. The combined dividend and buyback return for U.S. shareholders is now roughly half of that in Europe. In place of U.S. stocks, UBS is showing a high-conviction preference for emerging markets. The bank cites accelerating global growth, cheaper valuations, and higher operational leverage in these regions as reasons for its overweight stance, a view supported by recent capital flow data showing investors are already looking overseas.
