Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, USA, February 25, 2026.
Brendan McDermid | Reuters
UBS’s top equity strategist revised his opinion on U.S. stocks, citing the increasing risks of a weakening dollar, stretched valuations and political turmoil in Washington.
Andrew Garthwaite, head of global equity strategy at the investment bank, downgraded American stocks to “benchmark” in a fully invested global equity portfolio, arguing that the factors that have driven years of outperformance are beginning to fade.
Dollar risk is a key concern, Garthwaite wrote. UBS forecasts the euro will rise to $1.22 by the end of the first quarter and sees “asymmetric structural downside risks” to the greenback. Historically, when the dollar’s trade-weighted index falls by 10%, U.S. stocks underperform unhedged by around 4%, according to the bank.
Foreign markets are outperforming the U.S. this year as a weaker dollar and lower valuations lure capital abroad. The MSCI World ex-US index has gained around 8% in 2026, compared to the barely changed performance of the S&P 500. Japan Nikkei 225 is up 17% year-to-date, while the Stoxx Europe 600 is up 7%, underscoring a sharp move away from American stocks. U.S. stocks struggled again on Friday as investors worried about the potential downside of artificial intelligence expansion and ongoing domestic inflation.
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S&P 500 since the beginning of the year
Another pillar of U.S. equity strength – corporate buybacks – is also losing its edge, the bank said. U.S. buyback yields are now only about in line with global peers, undermining what has been a key support for per-share earnings growth and investor flows, UBS said. The combined shareholder return from dividends and buybacks in the US is now about half that in Europe, the bank said.
“The buyback yield is no longer exceptional and this has been an important driver of cash flows, earnings per share and valuation,” Garthwaite wrote.
Reviews increase discomfort. UBS estimates that the sector-adjusted price-earnings ratio for U.S. stocks is 35% higher than international stocks, compared with an average premium of about 4% since 2010. About 60% of sectors trade not only at higher valuation multiples than their global counterparts, but also above their own historical premium, the strategist wrote.
Another headwind is political volatility under President Donald Trump. This year brought changes in tariff policy, proposals to cap credit card interest rates, potential restrictions on private equity investment in housing, a renewed review of drug prices and proposals to curb dividends and buybacks for defense contractors, UBS said.
Nevertheless, the well-known strategist refrained from becoming completely pessimistic. Garthwaite said that when markets are in the early stages of a potential bubble, the U.S. economy and U.S. stocks tend to benefit more than their peers. The bank also expects the adoption of artificial intelligence to advance faster than in most other major regions, perhaps with the exception of China, helping to sustain profit growth in key industries.
UBS strategist Sean Simonds set a year-end target of 7,500 for the S&P 500, compared to an average forecast of 7,629 among 14 top strategists, according to CNBC Pro’s strategist survey.