UBS downgrades its outlook on US stocks, warning of a weak dollar, high valuations, and volatile policy.
UBS downgraded its "US Equity" recommendation to benchmark level, citing fading support factors including a weakening dollar, stretched stock valuations, and policy uncertainty.
On February 27, 2026, at 11:18 AM, CNBC reported that: UBS lowers its outlook on the U.S. stock market. โดย Andrew Garthwaite, Head of Global Equity Strategy at the bank. We've downgraded our recommendation for US stocks to "benchmark" levels in our fully invested global stock portfolio, and explained why. Factors that had given the U.S. market an edge over other markets in recent years are weakening, including the risks of a weaker dollar, stretched stock valuations, and policy volatility in Washington.
Dollar risk is a key concern. UBS expects the euro to strengthen to $1.22 by the end of the first quarter and sees the dollar as having a historical asymmetrical negative structural risk: when the trade-weighted dollar index weakens by 10%, U.S. stocks typically underperform by about 4% in the unhedged market.
meanwhile International stock markets are outperforming the US this year. โดย The MSCI World ex-US index is projected to rise around 8% by 2026, compared to the S&P 500 remaining virtually unchanged. Japan's Nikkei 225 has surged 17% since the beginning of the year, and Europe's Stoxx Europe 600 has increased 7%, reflecting a shift of investment away from American markets.
Another key driver of the U.S. stock market in recent times, share buybacks, is beginning to lose its advantage. UBS notes that the yield from U.S. share buybacks is now similar to that of the global market, weakening its impact on earnings per share (EPS) and capital flows. Furthermore, the combined return on equity from dividends and buybacks in the U.S. is currently only half that of Europe. Garthwaite points out that buyback yield is no longer a dominant factor, despite previously being a significant driver of capital flows, EPS, and valuations.
In terms of stock valuation, UBS estimates that the price-to-earnings (P/E) ratio of U.S. stocks, adjusted for industry structure, is 35% higher than international markets, compared to an average premium of around 4% since 2010. Furthermore, approximately 60% of U.S. industry sectors trade at valuations higher than both their global competitors and their historical averages.
Policy risks under President Donald Trump are another source of pressure. This year, the US has faced changes in tariff policy, proposals to limit credit card interest rates, the possibility of restricting private equity funds' investments in the housing market, a renewed scrutiny of drug prices, and the idea of limiting dividends and share buybacks by defense companies.
However, Garthwaite wasn't entirely pessimistic, pointing out that the U.S. economy and stock markets tend to benefit more than other countries in the early stages of bubbles. Furthermore, UBS forecasts that AI adoption in the U.S. will expand faster than many major regions, with the exception of China, which might catch up, potentially helping to sustain profit growth in key industries.
Regarding the year-end target for the S&P 500 index, UBS has set it at 7,500 points, close to the average forecast of 14 leading strategists at 7,629 points. This reflects a more cautious view, but it hasn't yet reached a clear negative trend towards U.S. stocks.
refer : www.cnbc.com
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