Global Equities: Near-Term Lows Before a Year-End Rebound?

UBS strategists warn that global stocks may revisit early-2025 lows before recovering modestly by year-end. Their baseline calls for the MSCI AC World Index to finish 2025 around 830—about 5% above today’s levels—but the journey could be bumpy.

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Near-Term Risks to Watch

• Overoptimistic Revenue Forecasts: Companies may struggle to meet lofty top-line targets if trade and supply-chain shocks bite.

• Tighter Financial Conditions: Elevated credit spreads and high U.S. P/E multiples leave little room for further multiple expansion.

• Earnings Downgrades: Each 1% drop in global GDP typically trims global EPS by ~8%, with the U.S. (60% of global profits) particularly exposed.

• “China Dumping”: A surge in exports from Beijing could flood markets and pressure margins across cyclical sectors.

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Valuation Landscape

UBS notes the current equity risk premium of 4.9% offers no valuation cushion. Cyclical stocks remain rich versus defensives—a precarious setup since sustained rallies usually require cyclical leadership.

👉 Compare today’s sector valuations to historical norms via the
🔗 Sector PE Ratio Market Overview API
from Financial Modeling Prep.

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Scenarios for MSCI AC World

H3: Base Case – 10% Tariff, 60% on China

• Year-End Target: 830 (5% upside)

• Fed Funds: Projected at 3.4% by December, as “well-behaved” wage growth and stable inflation allow a proactive Fed in 2H 2025.

H3: Worst-Case – Tariffs Unchanged

• Temporary Dip: MSCI AC World could fall to 680 (–14%) before a late-year recovery if policy eases.

• S&P 500: Could test 4,500 under this scenario.

H3: Blue-Sky – Tariff Rollbacks

• Optimistic Upside: Index rises to 910 (15% upside) on broad sentiment lift, tighter credit spreads, and reaffirmed growth “exceptionalism.”

UBS assigns only a 25% probability to a full-blown bear market, citing likely fiscal stimulus in China and Europe to backstop a global recession.

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What Investors Can Do

1. Position for Volatility: Expect near-term downside; use dips to add selective cyclicals at richer entry points.

2. Monitor Policy Signals: Track U.S.–China trade talks and central bank commentary for shifts that could break the stalemate.

3. Adjust Risk Premia: Stay aware of elevated credit spreads and P/E multiples—consider defensive sectors if spreads widen further.