Global stocks could slip further before modest 2025 rebound, says UBS

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Investing.com -- Global equities may face further downside in the near term before staging a modest rebound by year-end, according to UBS strategists. 

The bank expects the MSCI AC World Index to end 2025 around 830, implying about 5% upside from current levels.

“Our central view is that the market may well get close to old lows, maybe a little beyond, before ending the year slightly higher at 830 MSCI AC World (5% upside),” the team led by Andrew Garthwaite wrote.

UBS outlines several near-term risks, including overoptimistic revenue forecasts, tighter financial conditions, and the possibility of earnings downgrades. 

Garthwaite points out that each 1% drop in global GDP typically reduces global EPS by 8%, with the U.S.—which accounts for nearly 60% of global profits—especially exposed. 

The strategists also flag “near-term supply chain shocks” and the risk of "China dumping" as additional headwinds.

Moreover, valuation concerns persist. UBS says the current equity risk premium of 4.9% offers no valuation upside, with both U.S. price-to-earnings (P/E) multiples and credit spreads elevated. 

Meanwhile, cyclical stocks remain expensive relative to defensives, and market gains usually require cyclical leadership.

However, the outlook brightens if trade tensions ease. In UBS's moderate scenario—featuring a 10% universal tariff, 60% on China—the market could recover as central banks turn more supportive. 

“The well behaved nature of U.S. wage growth and long-term market inflation expectations allow the Fed to be more proactive in 2H 25,” the strategists noted, projecting a year-end Fed Funds rate of 3.4%.

They also maintain that the probability of a full-blown bear market remains low. Historical patterns show only 25% of corrections turn into bear markets, and fiscal easing in China and Europe is expected to prevent a global recession.

In a worst-case scenario where tariffs remain unchanged and exceptionalism is priced out, the MSCI AC World could drop temporarily to 680, or 14% below current levels, before recovering if policy shifts later in the year, according to UBS. 

“We think this is unlikely but if that does happen as we show in the scenarios, then the MSCI AC world falls 14% and 4500 S&P 500 is quite feasible,” the note says.

In a more optimistic "blue sky" scenario, global tariffs are rolled back significantly, sparking a broad-based improvement in sentiment and valuations. 

Under this outcome, the MSCI AC World could rise to 910, representing 15% upside, supported by tighter credit spreads, proactive central banks, and continued belief in U.S. economic exceptionalism.