UBS says US equity market is too upbeat on the Fed achieving a soft landing for economy | Forexlive

Via a note from UBS Wealth Management on the S&P500, noting the stalling rally this week after a strong YTD.

In brief from the note:

• the market is too upbeat about the prospect that the Fed can achieve a soft landing for the US economy
• Risks remain that the Fed could hike more than markets are expecting.
• The delayed effects of prior hikes are still feeding through, adding to headwinds for the economy.
  • nominal yield on the 10-year Treasury ... rose ... to ... the highest level since the collapse of Silicon Valley Bank in early March.
• Equity market valuations leave little room for policy error.
  • The US equity market is trading at 19.3 times 12-month projected earnings, a roughly 19% premium to the 15-year average ...Such multiples have historically been associated with periods in which 10-year US Treasury yields have been below 2%, rather than close to 4% as at present, and also periods of robust earnings growth. Given that 12-month trailing earnings per share growth has remained above the post-1960 trend rate, we see little potential for a swift bounce—even if the Fed succeeds in guiding the US economy to a soft landing.

UBS conclude:

• So, against this backdrop, we see a better risk-reward outlook for fixed income over equities.

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• Source: https://www.forexlive.com/centralbank/ubs-says-us-equity-market-is-too-upbeat-on-the-fed-achieving-a-soft-landing-for-economy-20230706/