UBS downgraded U.S. equities from Attractive to Neutral on Tuesday, highlighting reduced upside potential after a significant stock market rally driven by the U.S.-China tariff truce. The S&P 500 experienced an 11% gain since early April, with a 3.3% increase just on Monday following the tariff reductions.

Insights from UBS’s Analysis

• New Rating: Neutral (previously Attractive)

• Justification: “Risk-reward in equities is currently more balanced.”

• Tariff Truce Impact: “The extent of tariff reductions surpassed expectations.”

UBS initially upgraded U.S. equities on April 10, arguing that markets had overestimated trade concerns. Given the recent cuts in U.S. tariffs on China to 30% from 145% and China’s duties reduced to 10% from 125%, UBS believes that “the easy gains are now behind us.”

Clarification on Downgrade Position

Despite the downgrade, UBS stresses:

“This is not a bearish view, nor a signal to sell equities.”

Instead, UBS describes this adjustment as a recalibration amid uncertainty regarding the next phase of trade negotiations. The firm still advocates for a full strategic allocation to U.S. stocks and foresees higher prices over the next year.

Retained Sector Preferences

UBS maintains Attractive ratings for the following sectors:

• Communication Services

• Technology

• Health Care

• Utilities

Investor Recommendations

As the market absorbs the recent rally, using real-time index tracking tools will help investors make informed observations about shifts within key sectors that UBS favors. This includes up-to-date data on all 500 stocks in the benchmark index.

Future Outlook

UBS’s reassessment does not entirely diminish its positive long-term view, indicating a focus on:

• The durability of the 90-day tariff pause, and whether it turns into a permanent agreement.

• The interplay between corporate earnings and Federal Reserve policy as they relate to trade progress.

• Observing whether sector rotation favors defensive strategies or remains rooted in tech-driven growth.

In the meantime, UBS advises investors to remain engaged but prepare for higher market volatility.