UBS said on Friday it has cut its recommended allocation to U.S. equities to neutral, as the world’s biggest stock market risks lagging behind while growth accelerates elsewhere.
In a note, strategists Andrew Garthwaite and Marc el Koussa cited reasons such as the relatively lower sensitivity of U.S. corporate earnings to global growth, high valuations, the trend of funds diversifying outside of the United States and downside risks to the dollar, among other things.
“The U.S. has the lowest operational leverage of any major region and thus historically underperforms if global growth accelerates to be above 3.5 per cent,” they said.
UBS forecasts global GDP to come in at 3.4 per cent in 2026.
U.S. investors have been pulling money from the world’s largest stock market, as waning Big Tech returns and chaos over domestic policymaking leaves them searching for alternatives.
Weakness in the dollar - which last year clocked its worst annual performance since 2017 - has been another push factor.
“From our marketing in North America, it seems unambiguous that funds will go global,” said the strategists. “ETF flows show diversification is happening.”
Still the U.S. market is so large that even a benchmark allocation would remain a hefty one, with U.S. stocks comprising more than 70 per cent of the MSCI World Index of global stocks.