CIO expects a modestly higher path for US stocks over the next 12 months, and they prefer equity laggards. (UBS)

CIO expects a modestly higher path for US stocks over the next 12 months, and we prefer equity laggards.


The stock rally has run into headwinds.

  • The MSCI All Country World Index is down around 6% since the start of August, cutting its 2023 gain to 9.5%.
  • Stocks struggled as markets swung between pricing for a soft and hard landing in the US.
  • A faltering Chinese growth picture pushed MSCI China down 9%in August, and it has fallen a further 1.7% this month as of 25 September.

But we are more constructive on stocks given growth and earnings resilience.

  • US inflation is moderating, while second-quarter GDP growth accelerated to 2.4% from 2% in the first quarter.
  • We think US inflation will now slow closer to target without a recession this year.
  • Second-quarter US earnings held up better than expected. Guidance was encouraging. We forecast 9% earnings growth for the S&P 500 in 2024.

We are neutral on global stocks but favor laggards.

  • The risk-reward outlook is more balanced but the range of potential outcomes remains wide.
  • Within US equities, we prefer equal-weighted indexes to cap-weighted ones.
  • Investors looking to re-engage in stocks markets should consider laggards like emerging markets, the value style, and select opportunities in the Eurozone and Switzerland. Structured solutions may also offer exposure to potential gains with some capital preservation features.

Did you know?

  • The capitalization-weighted S&P 500 climbed 12.5% year-to-date to 25 September, driven primarily by a handful of mega-cap growth stocks. The equal-weighted S&P 500 has climbed just 1% over the same period.
  • The equal-weighted S&P 500 Index holds a higher share of two of our most preferred US sectors—consumer staples and industrials—than the cap-weighted index.
  • Emerging market stocks (MSCI EM total return in USD) gained just 0.8% year- to-25 September, lagging global stocks (MSCI All Country World Index) by almost 9 percentage points.

Investment view

We are neutral on global stocks, but see value in areas of the equity market that have lagged this year's rally, including emerging markets and value. Our preferred global equity sectors include consumer staples, energy, industrials, and utilities. We favor equal-weighted US indexes relative to cap-weighted ones. Within emerging markets, we especially like India and Indonesia.


Main contributors - Vincent Heaney, Matthew Carter


Original report - What next for equity markets? , 25 September 2023.