UBS: Slowing US Consumption Threatens Future Equity Growth

UBS Group’s Chief Strategist, Bhanu Baweja, noted in an interview with Bloomberg Television that the growth of actual disposable income for US residents has approached zero, and coupled with a weakening of fiscal support, US consumption is set to decelerate. Although capital expenditures from titans in the artificial intelligence sector have fueled strong financial results for the first quarter, this singular market focus masks potential weaknesses in the consumption and financial sectors, and the subsequent upward momentum of the US stock market is facing threats.

Recently, the yield on long-term US Treasury bonds has surged significantly, with the 30-year Treasury yield reaching the highest level since 2007. Bhanu Baweja analyzed that this round of yield increases is mainly driven by real yield, reflecting the strong nominal economic growth in the United States, rather than concerns about inflation. If the market is currently preparing for inflation concerns, then it should also be preparing for a slowdown in economic growth.

Against this macroeconomic backdrop, strategists predict that the performance of large-cap stocks will outperform small-cap stocks, and growth stocks will beat value stocks. Despite both European and American markets facing headwinds in growth, the US market is still expected to outperform Europe. The price trends in the commodity market suggest that traders believe the conflict in Iran has ended, but given the stagnation in diplomatic negotiations and the lack of a clear solution, the six-month oil futures prices are currently significantly undervalued. In foreign markets, the yield curves in the UK and Japan have become quite steep, demonstrating investment value. Although inflation is transmitted quickly, it is expected that the Bank of England will start lowering rates in 2027, rather than increasing rates this year.