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Investing.com - The outlook for U.S. equities is uncertain as investors face the implications of policy moves by the Trump administration, according to analysts at UBS.
But in a note to clients on Wednesday, the analysts said "big catalysts" for equities are looming in the near-term, including a much-anticipated April 2 reciprocal tariff announcement from President Donald Trump.
Economists and business have warned that Trump’s duties may drive up inflation and drag down U.S. economic activity. These fears over the broader impact of the tariffs have battered global markets recently, although the rout appeared to be easing somewhat this week.
Corporate sales and earnings have also started to cool from elevated levels, standing in contrast to expectations in other parts of the world and feeding weakness in U.S. stocks, the UBS analysts flagged.
The benchmark S&P 500 finished higher on Tuesday, but has slid by 1.6% so far this year. The pan-European Stoxx 600, meanwhile, has risen by more than 7% during that time, as investors eye relatively cheaper valuations and plans for increased spending by some regional governments.
In recent weeks, the S&P also briefly slipped into correction territory, typically defined as a 10% decline from a recent peak.
Still, data such as purchasing managers’ indices and the Organization for Economic Cooperation and Development’s composite leading indicator have yet to reflect a slowdown in the U.S., the UBS analysts led by Maxwell Grinacoff said.
"Markets are pricing a slowdown which isn’t obvious in macro indicators yet," they wrote. "We expect a tactical recovery, but have concerns of renewed weakness unless earnings expectations stabilize and policy uncertainty abates."
Against this backdrop, the analysts said they favor defensive stocks, or names that provide consistent returns despite stock market fluctuations. They highlighted utility companies Ameren (NYSE:AEE) and Entergy (NYSE:ETR) in particular.