UBS Cuts U.S. Equities to Benchmark, Flags Dollar and Valuation Risks

UBS (NYSE: UBS) downgraded U.S. equities to “benchmark” in its fully invested global portfolio, citing weakening currency dynamics, elevated valuations and increased policy uncertainty.

Andrew Garthwaite, the bank’s head of global equity strategy, said the forces that supported years of U.S. stock outperformance are diminishing. A central concern is the outlook for the U.S. dollar. UBS expects the euro to rise to $1.22 by the end of the first quarter and warned of “asymmetric structural downside risks” to the greenback.

The bank said that historically, a 10% decline in the trade-weighted dollar has corresponded with roughly 4% underperformance for U.S. equities in unhedged terms. Overseas markets have advanced this year as the weaker dollar and comparatively lower valuations attract capital. The MSCI World ex-US Index has gained about 8% in 2026, while the S&P 500 has been little changed.

UBS also pointed to a reduced advantage from corporate buybacks. The U.S. buyback yield is now roughly in line with global peers, narrowing what had been a differentiating support for earnings per share growth and investor flows. Combined shareholder yield from dividends and buybacks in the U.S. is about half that of Europe, according to the bank.

Valuations remain another pressure point. UBS estimates the sector-adjusted price-to-earnings ratio for U.S. stocks stands 35% above international peers, compared with an average premium of roughly 4% since 2010. Around 60% of sectors trade at higher multiples than global counterparts and above their own historical premium levels. Policy developments in Washington have added to uncertainty. UBS cited shifts in tariff policy, proposals to cap credit card interest rates, potential limits on private equity participation in housing, renewed focus on drug pricing, and suggestions to curb dividends and buybacks for defense companies under President Donald Trump.

Despite the downgrade, UBS did not adopt an outright negative stance. Garthwaite said U.S. markets and the domestic economy often benefit disproportionately during the early stages of speculative cycles. The bank also expects artificial intelligence adoption to progress more rapidly in the United States than in most major regions, with the possible exception of China, supporting earnings growth across key sectors.

Elsewhere, Japan’s Nikkei 225 has risen 13% year to date, while the Stoxx Europe 600 is up 6.33%, reflecting a rotation toward international markets.

About UBS

UBS (NYSE: UBS) is a global financial services firm providing wealth management, investment banking and asset management services. The bank serves institutional, corporate and individual clients worldwide and publishes global macroeconomic and equity research.

At the time of publishing, Stocks.News does not hold positions in companies mentioned in the article.