UBS lowers its rating on US stocks, warning of triple pressures from the dollar, valuations, and Trump policies.

```

Mainstream Wall Street institutions' confidence in the long-term excess returns of the U.S. stock market is wavering, and UBS has downgraded its rating of U.S. stocks to neutral.

The strategy team led by Andrew Garthwaite, UBS Global Equity Strategy Chief, released a report on Friday, the 27th, downgrading the allocation rating of U.S. stocks in a 100% equity portfolio to "benchmark," i.e., neutral allocation, while maintaining an overweight position in emerging market equities.

Garthwaite pointed out in the report, "Measured in USD terms, the U.S. market's drawdown relative to the global market is the largest in nearly fifteen years," and even with the emergence of artificial intelligence (AI), stronger-than-expected U.S. economic growth, and the Trump administration rolling back some tariffs, this situation remains unchanged.

The direct implication of this downgrade is: UBS believes the risk of U.S. stocks underperforming the global market is now greater than the odds of outperformance. Regarding capital flows, UBS strategists say communication with North American clients shows "funds will noticeably shift towards global markets," and ETF flow data confirms this trend—recently, 45% of funds have flowed to markets outside the United States.

Dollar Weakness as a Core Concern; External Markets Accelerate Capital Inflows

A weakening dollar is one of the core reasons for UBS's downgrade. UBS predicts the euro/dollar exchange rate will rise to 1.22 by the end of the first quarter and clearly points out the dollar faces "asymmetric structural downside risk."

Historical data shows that when the trade-weighted dollar index drops 10%, the relative performance of unhedged U.S. stocks compared to the global market lags by about 4%.

It is noteworthy that the positive impact of dollar weakness on U.S. corporate earnings is also diminishing. UBS notes that in the past quarter, the boost to U.S. corporate earnings from dollar depreciation was "far below normal levels," further weakening the earnings growth logic that previously supported U.S. stock valuations.

Meanwhile, overseas markets have performed strongly this year, forming a sharp contrast. The MSCI World (ex-US) Index has risen about 8% this year, the Nikkei 225 is up about 17%, the pan-European Stoxx 600 Index rose about 7%, while the S&P 500 was nearly flat over the same period. Capital is accelerating toward overseas markets with lower valuations and smaller dollar exposure.

Buyback Advantage Fades, Valuation Premium Hard to Sustain

Corporate buybacks, once a major pillar for U.S. stocks, are losing appeal.

UBS points out that U.S. buyback yields are now merely on par with global peers, and even below the UK market, a shift that directly affects capital flows, per-share earnings growth, and valuations. Garthwaite states in the report:

"(U.S. stocks') buyback yields are no longer unusually high, whereas this was a key driver of capital inflows, per-share earnings, and higher valuations."

Pressure from valuation is also not negligible.

UBS calculates, after adjusting for industry structure, the U.S. stock market’s P/E ratio is about 35% higher than international peers, while the historical average premium since 2010 is only about 4%. Additionally, about 60% of sector groups not only have valuations higher than global peers, but their premium levels also exceed historical averages. The combined shareholder return rate (dividends plus buybacks) for U.S. stocks is currently about half that of Europe, further weakening their relative attractiveness.

Policy Uncertainty Intensifies; Bearish but Not Pessimistic

The high policy uncertainty of the Trump administration is another layer of pressure. UBS lists this year's policy disturbances, including: repeated tariff adjustments, proposals to cap credit card interest rates, plans to restrict private equity investment in the housing market, restarting drug price reviews, and proposals to limit defense companies from paying dividends and buying back stock.

However, Garthwaite clearly states he has not turned fully bearish. He believes that in the early stage of a potential bubble, the U.S. economy and market often still benefit.

UBS also expects that AI adoption in the U.S. will outpace most other major regions (possibly except for China), supporting earnings growth in key industries.

In forecast data, UBS strategist Sean Simonds set the S&P 500 year-end target at 7,500, below the average forecast of 7,629 from 14 top strategists tracked by CNBC Pro.

UBS further forecasts global GDP growth at 3.4% in 2026, and notes that the U.S. has the lowest operating leverage among major regions. If global economic growth accelerates past 3.5%, U.S. stocks historically tend to underperform global peers.

Nevertheless, since U.S. stocks account for over 70% of the MSCI World Index, UBS’s neutral allocation advice still implies a considerable absolute position in U.S. stocks.

Risk Warning and DisclaimerThe market has risks, and investment should be made cautiously. This article does not constitute personal investment advice and does not take into account any specific user's investment objectives, financial situation, or needs. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular situation. Investing based on this is at your own risk. ```