Traders work on the floor of the New York Stock Exchange (NYSE) on February 25, 2026 in New York City, USA.
Brendan McDiarmid | Reuters
UBS’s top equity strategist has downsized his view on U.S. stocks, citing rising risks from a weaker dollar, higher valuations and policy turmoil in Washington.
Andrew Garthwaite, head of global equity strategy at the investment bank, downgraded U.S. stocks to the “benchmark” of a fully invested global equity portfolio, arguing that the factors that underpinned years of outperformance were starting to fade.
Garthwaite writes that dollar risk is the biggest concern. UBS expects the euro to rise to $1.22 by the end of the first quarter and sees “asymmetric structural downside risks” to the dollar. Historically, a 10% decline in the trade-weighted dollar index results in U.S. stocks underperforming by about 4% on an unhedged basis, the bank said.
Overseas markets have dominated the U.S. this year, as a weak dollar and weak valuations have drawn capital overseas. The MSCI World Index ex-US performed little differently, rising about 8% in 2026. S&P500. Japanese Nikkei Stock Average While up 17% year-to-date, stox europe 600 is up 7%, highlighting the sharp departure from U.S. stocks. U.S. stocks struggled again on Friday as investors worried about the potential downside of advances in artificial intelligence and sustained domestic inflation.
S&P 500 year-to-date trends
Corporate stock buybacks, another pillar of U.S. stocks’ strength, are also losing their edge, the bank said. U.S. share buyback yields now remain roughly in line with global peers, undermining what had been a key support for earnings per share growth and investor flows, UBS said. According to the bank, shareholder returns in the U.S. based on dividends and share buybacks are currently about half that of Europe.
“Share buyback yields were no longer an anomaly; they were a key driver of capital flows, EPS and valuations,” Garthwaite wrote.
Values increase anxiety. UBS calculates that sector-adjusted price-to-earnings ratios for U.S. stocks outpace international stocks by 35%, compared to an average premium of about 4% since 2010. Roughly 60% of the sectors not only trade at higher multiples than their global peers, but also above their own historical premiums, the strategists wrote.
Policy instability under President Donald Trump is also a headwind. UBS said this year’s changes include changes in tariff policy, proposed caps on credit card interest rates, possible restrictions on private equity investment in housing, a re-examination of drug prices, and proposals to curb dividends and stock buybacks for defense companies.
Still, the renowned strategist stopped short of becoming completely bearish. Garthwaite said the U.S. economy and stocks tend to benefit more than their peers when markets are in the early stages of a potential bubble. The bank also expects artificial intelligence adoption to outpace most other major regions outside of China and help sustain revenue growth across major industries.
UBS strategist Sean Simmons set a year-end target for the S&P 500 of 7,500, compared to the average forecast of 14 top strategists of 7,629, according to a CNBC Professional Strategist Survey.
