Multiple risks are mounting! UBS downgrades the rating of the US stock market and no longer recommends investors to increase their positions.

UBS Group's chief global equity strategist Andrew Garthwaite has downgraded his investment rating on the US stock market, citing reasons such as increased risks from a weakening US dollar, high valuations, and heightened uncertainty in Washington policies. He has lowered the allocation of US stocks in global stock portfolios from "overweight" to "benchmark allocation," believing that factors that have supported the outperformance of the US stock market for many years are weakening. Garthwaite pointed out that the outlook for the US dollar is one of the core concerns. UBS expects the euro to rise to 1.22 US dollars by the end of the first quarter next year and believes that the US dollar faces "structural downside risks." Historical data shows that when the US dollar trade-weighted index falls by 10%, US stocks typically lag by around 4 percentage points without hedging. This year, with the US dollar weakening and overseas market valuations becoming more attractive, there has been a noticeable rotation of funds. The MSCI All Country World Index (ex-US) has risen by around 8% so far in 2026, while the S&P 500 has shown relatively flat performance. The Japanese Nikkei 225 Index has risen by 17% year-to-date, and the European STOXX 600 Index has risen by 7%, indicating that investors are accelerating their shift from US stocks to overseas markets. UBS also pointed out that corporate buybacks, a long-term important support for US stocks, are also weakening. The current buyback yield of US stocks is roughly in line with global peers, no longer having a significant advantage, and the combined shareholder return of dividends and buybacks for US stocks is about half of that of Europe. Meanwhile, UBS estimates that the US stock price-to-earnings ratio, adjusted for industry, is 35% higher than the international market, significantly higher than the average premium level of around 4% since 2010. Policy uncertainties also pose pressure. UBS mentioned high uncertainties in areas such as tariff policies, proposals to cap credit card interest rates, housing investment restrictions, drug price reviews, and discussions on regulating dividends and buybacks for defense companies. However, Garthwaite did not completely turn bearish. He stated that in the early stages of a potential bubble, the US economy and stock market tend to have more advantages; at the same time, UBS expects the pace of artificial intelligence applications in the US to remain ahead of most regions, helping to sustain corporate profit growth. UBS strategist Sean Simonds expects the S&P 500 Index to reach 7,500 points by the end of the year, slightly below the average expectation of 7,629 points among mainstream strategists.