Jason Draho Paul Hsiao
Business man looking out the window

Executive Summary: Higher for longer, for good and bad for markets

Macroeconomic outlook

  • Higher growth, inflation, and rates is the story of the US economy. Growth and inflation exceeded expectations in Q1, and while moderation is still the most likely path for both, the declines should be gradual. Disinflation will be bumpy, but inflation reacceleration is unlikely barring major supply disruptions.
  • No compelling reason for rate cuts any time soon, but that’s still the Fed’s bias. The outlook is asymmetric: the Fed likely stays on hold if the economy doesn’t cool, but it will cut if inflation declines, or the labor market weakens. Market pricing is down to 1.5 cuts this year, the Fed’s (lagged) projection is 3, we expect 2 starting in September. The bar is very high for additional rate hikes; expected cuts have to be eliminated first.

Operating environment

  • A virtuous cycle between consumer spending and the labor market, for now. Real income growth, rising total wealth, a tight labor market, and improving sentiment are powering strong spending by households. Debt delinquencies are modestly rising, but still low overall. The labor market is getting back into balance, with fewer job openings and quits, and slowing wage growth. Spending and job growth should stay healthy for a while. 
  • Financing conditions have modestly eased, but not to everyone’s benefit. Looser lending standards alongside strong bond issuance have loosened financing conditions, and those trends should continue. But larger companies are the main beneficiaries; higher-for-longer rates are more challenging for bank borrowers.

Markets & deal activity

  • Equity rally temporarily challenged by higher rates and geopolitical risk. The upward trend in stocks was dented by delayed rate cut expectations and geopolitical risk, but those headwinds are likely to ease. Market performance did broaden out as breadth increased, and the Magnificent 7 are no longer leading the way.
  • M&A and IPO green-shoots threatened by “higher for longer” narrative. Early signs of recovery in Q1 faded after rates rose and expected cuts got priced out. IPO after-market performance also underwhelmed. This activity, along with PE and VC deal making, likely to take longer to pick up with the shift in the rate outlook. 


  • 2020 rematch confirmed, investor interest on the back burner until Labor Day. With a Trump vs. Biden rematch almost certain, the focus has pivoted to potential policies under different scenarios. Without a one-party sweep of all branches the policy implications are likely to matter more for sectors than the economy.
  • For all the talk of de-globalization, USD dominance should remain. High debt and deficits and a shift to a multi-polar world has led to predictions for the USD’s demise as the global reserve currency. But US growth exceptionalism, the lack of alternatives, and inertia should ensure USD dominance for the foreseeable future. 

Dashboard Summary: As the macro cools, rates and activity will follow

Macroeconomic conditions



Policy rate

Longer-term rate

Operating environment




Real estate

Markets & Deal activity 

S&P 500 and NASDAQ (Blue line)

UBS Investor sentiment

IPO activity

M&A activity

Markets Dashboard: From great to still good performance

Source: Bloomberg, UBS, as of 19 April 2024

S&P 500

Federal funds rate (%)



10Y Treasury Yield (%)