Rare "strongly bearish" major bank, UBS: bearish on the US economy, bearish on the US dollar, bearish on US stocks

Rare "Triple Bearish" Stance! Why is this investment bank firmly bearish on the U.S. economy, U.S. stocks, and the dollar?

On August 13, according to news from the Chasing Wind Trading Desk, UBS has shown a rare "firmly bearish" stance in its latest research report, issuing warnings on the U.S. economy, the dollar, and U.S. stocks simultaneously.

The bank predicts that U.S. GDP will sharply slow from a 2.0% annual growth rate in the second quarter to 0.9% in the fourth quarter, far below the consensus expectation of 1% among economists. At the same time, UBS expects interest rates to decline by 1% before the end of the year, which is double the market expectation.

Regarding the dollar, the bank maintains a long-term bearish view, believing that the U.S. net investment position has reached -88% of GDP, creating conditions for a correction before a new round of dollar bull market begins.

For the stock market, UBS's cautious attitude towards U.S. stocks is reflected in concerns about valuation and positioning, as well as the concentration of technology stocks. UBS has set a year-end target for the MSCI Global Index at 960 points and 1000 points by the end of 2026, but warns of significant downside risks in the near term.

U.S. Economic Slowdown Becomes Inevitable

UBS emphasizes that although investors still have doubts about the sharp slowdown of the U.S. economy, multiple indicators show that the slowdown is unavoidable.

The bank points out that the number of hours worked in the private sector has sharply declined, which typically precedes weak employment growth. The ISM employment index has also performed weaker than the PMI employment index.

UBS predicts that U.S. GDP will significantly slow from a 2.0% annual growth rate in the second quarter to 0.9% in the fourth quarter, clearly below the consensus expectation of 1% among economists. The research report points out that the reasons supporting this judgment include:

Pre-purchase demand before tariff increases has been exhausted, excess savings have been depleted, immigration has slowed, the Infrastructure Investment and Jobs Act will create a slight fiscal drag in 2025, and the effective interest rate has risen during debt extensions.

However, UBS also specifically points out in the report that despite the upward risks to the U.S. economy, the trend of economic slowdown is difficult to avoid. The bank notes potential factors driving economic upside in the report, including:

• A 10% rise in stock prices could increase GDP by 0.6%-1% through the wealth effect;
• Capital expenditures related to generative AI: UBS predicts that capital expenditures by super-large companies will grow by 60% this year;
• Investment returning to the U.S.: Investments promised by South Korea, Japan, and the EU in recent tariff negotiations are equivalent to 5% of GDP over the next three years;
• Loose financial conditions.

Significant Rate Cut Expectations and Market Discrepancies

UBS predicts that interest rates will decline by 1% before the end of the year, while the market consensus is only 50 basis points, indicating a significant discrepancy The bank believes that the growth of wages in the United States (as indicated by the voluntary resignation rate) and inflation expectations (as indicated by the New York Fed and the 5-year, 5-year forward inflation expectations) are performing well, allowing the Federal Reserve to overlook the inflation rise caused by tariffs.

UBS predicts that the year-on-year core PCE in the fourth quarter will be 3.4%, while the 3-month annualized rate of core services excluding housing in the latest data is 2.3%.

The report states that considering about 80% of household debt and 73% of corporate debt are at fixed rates, the economy's sensitivity to short-term interest rates is unusually low, especially if bond yields remain sticky when the Federal Reserve cuts rates.

Continuation of Long-term Bear Market for the Dollar

UBS maintains a clear bearish stance on the dollar. The bank points out that the dollar typically fluctuates in a 10-year cycle, having risen about 40% since 2011, but usually the increase is between 40%-70%.

More critically, the U.S. net investment position has reached -88% of GDP, and UBS questions: "Doesn't this need to be corrected before a new round of dollar bull market begins?"

In July, the dollar rebounded (after experiencing its worst 6-month performance since 1973), raising some doubts among investors about the long-term bearish view on the dollar.

In response, UBS explained in the report that although the dollar faces upward risks, including tariff policies (now the dollar's performance aligns with April's expectations), AI technology adoption, and investment repatriation, the fundamental logic of the dollar bear market still holds.

Regarding the potential impact of a dollar bear market, UBS predicts that if the dollar enters a long-term bear market, emerging markets will experience a situation similar to 1992-1994: first, emerging market central banks will cut rates, then intervene to prevent currency appreciation but conduct offsets, and finally, the slowdown in offsets will lead to an increase in money supply and domestic asset bubbles.

U.S. Stocks Face Multiple Risk Challenges

The bank sets the year-end target for the MSCI Global Index at 960 points and the target for the end of 2026 at 1000 points, but warns of significant downside risks in the near term. UBS's cautious attitude towards U.S. stocks is reflected in several aspects:

1. Concerns about Valuation and Positioning

UBS's CTA model shows that global equity exposure is close to historical highs, and the U.S. composite beta positioning indicates a neutral to slightly bullish stance.

The report points out that almost all clients have inquired about bubble risks, and UBS believes that 6 out of the 7 prerequisites for a bubble are currently in place. If the Federal Reserve lowers interest rates by 1% as expected before the end of the year, all 7 conditions will be met. UBS estimates a 25% probability of a bubble that has not yet emerged.

2. Concentration Risk in Tech Stocks

From an earnings perspective, about 70% of earnings growth comes from generative AI, and the market generally "rewards" large-scale enterprises for increasing capital expenditures.

However, UBS warns that the ratio of capital expenditures to sales revenue for large-scale enterprises is approaching the levels seen in TMT companies in the year 2000.

If UBS analysts' predictions are correct, the growth of capital expenditures for large-scale enterprises will slow from 60% to 16% by 2026, which will pose a headwind for tech stocks.

3. Underestimated Tariff Risks

UBS believes that the market is complacent about tariff risks, as evidenced by the price performance of the UBS Tariff Victims Basket in the U.S. (UBXXTTL) and Europe (UBXETTL). The bank emphasizes that the U.S. accounts for only 16% of global trade, and many non-U.S. countries are mutually reducing trade barriers.

Finally, the report states that the bank's clients acknowledge that the relationship between price-to-earnings ratios and credit spreads remains tight, but credit spreads are currently at the lower end of historical ranges