Uncertainty from tariff impacts still looms over U.S. stocks, UBS provides investment guidance

According to the Zhitong Finance APP, UBS has released a research report indicating that there is still uncertainty in the U.S. stock market, but as tariffs and other policy details become the focus, it may have already passed the peak of uncertainty. In the face of economic uncertainty, UBS believes that the GARP (Growth at a Reasonable Price) stock selection strategy should continue to perform well. The list of GARP stock selection strategies provided by UBS includes Broadcom (AVGO.US), Eli Lilly (LLY.US), Salesforce (CRM.US), Servicenow (NOW.US), and Booking Holdings (BKNG.US).

UBS stated that many market participants have pointed out that the published economic and policy uncertainty indices are at high levels. These data are based on news headlines and reflect the impact of policy announcement uncertainty; therefore, it is not surprising that this uncertainty is very high following the executive orders and actions during the first 100 days of the Trump administration. This type of uncertainty can lead to a significant increase in volatility and cause the correlation between individual stocks and the market to approach 1. The bank believes that based on this standard, as tariffs and other policy details become the focus, the market may have already passed the peak of uncertainty.

However, UBS pointed out that the next focus should be on the uncertainty of policy outcomes. Typically, this also reflects ongoing market volatility and correlation, but sometimes these policies create winners and losers, which manifests as more variability in the market. This can disperse over time, meaning that volatility and correlation can stabilize at lower levels.

When UBS looks at the policy outcome uncertainty for GDP and PCE inflation from its tariff model (assuming global tariffs of 10% and 60% for China), the uncertainty in the U.S. may still be high, but the uncertainty in Europe will significantly decrease—because the consequences of U.S. tariffs may affect all components of GDP (consumption, investment, government spending, and of course, exports); whereas in Europe, this impact may be more limited to the net export category of GDP.

UBS believes that in the face of economic uncertainty, the GARP stock selection strategy should continue to perform well. UBS's forecast for U.S. real GDP shows that under a moderate tariff scenario, U.S. real GDP will significantly decline from a year-on-year growth of 2.0% in the first quarter to a year-on-year growth of 0.7% in the fourth quarter. Reaching a broad trade agreement usually takes time (possibly as early as July), so uncertainty continues to exist, even if the market seems to have digested the upside prospects.

UBS recommends that in a situation where volatility/risk remains high and unclear, a value-oriented approach should be taken (avoiding overvaluation); however, the likelihood that U.S. economic growth momentum will continue until 2026 suggests that some cyclical growth stocks should still be held. This reflects the GARP stock selection strategy that has been overlooked in the past few decades

Against this backdrop, UBS utilized UBS HOLT data to filter out high-quality companies with high growth rankings and valuation rankings, which are neither too cheap (potential value traps) nor too expensive. The GARP list provided by UBS includes companies such as Broadcom (AVGO.US), Eli Lilly (LLY.US), Salesforce (CRM.US), Servicenow (NOW.US), and Booking Holdings (BKNG.US).