UBS expects the S&P 500 to drop as low as 5,300 points

The chief strategist at UBS Investment Bank said the “visibly tiring” US consumer is set to further pressure stock prices, setting the stage for another 8% slump in the S&P 500. 

Bhanu Baweja said indicators such as employment expectations, spending outlook and consumer confidence are all flashing warning signs. He expects the S&P 500 to drop as low as 5,300 points as analysts cut profit estimates for the next three to four months. 

While the S&P 500 has bounced back to a two-week high in recent days, there’s still plenty of concern about the economic impact of sweeping US tariffs that are planned for April 2. US equity futures edged higher on Tuesday, with investors wary about President Donald Trump’s erratic trade policy and confusing exemptions.

“If you said to someone three months back that the US economy is going to slow down, you would have got laughed out of the room,” Baweja said in an interview from London. “Now all of a sudden the lack of immigration and the lack of incremental fiscal love is manifesting in the data.”

UBS's Baweja Says Premature to Call S&P 500 Bottom | Strategist sees pressure on earnings from weak consumer

Multi-asset strategists at HSBC Holdings Plc also downgraded US equities to underweight on Tuesday, citing risks to economic growth.

However, other market forecasters at firms including JPMorgan Chase & Co, Morgan Stanley and Evercore ISI have said the worst of the downturn was likely over, citing metrics from investor sentiment and positioning to favourable seasonality. 

Analysts expect S&P 500 earnings to rise 9.5% in 2025, compared with 12.5% projected at the start of the year, according to data compiled by Bloomberg Intelligence. UBS’s Baweja said estimates are likely to be reduced further.

Bullish Bonds He also said he has a more positive view on bonds than in the past, since the slowing economy is tempering any inflationary fears. Baweja said two-year US Treasuries are more attractive than 10-year ones since the former is more likely to benefit from interest rate cuts. 

In his view, the long-end may lag because of shrinking foreign demand for US government debt. 

“I’m not saying the 10-year blows up — you don’t have a Liz Truss moment — but it is bad enough that even as the Fed is cutting in the front end, the long end lags, so your cost of equity doesn’t decline,” he said. “That’s going to be a drag on earnings.”