UBS: US consumer spending slowdown may threaten stock market rally

On May 20, UBS chief strategist Banu Baweja said that as real disposable income growth approaches zero and fiscal support fades, U.S. consumer spending will slow down, which will pose a threat to the stock market. Despite the boost of artificial intelligence, U.S. corporate earnings performed strongly in the first quarter. Baweja pointed out that the yield of long-term U.S. Treasury bonds has risen sharply in the past few trading days, and the yield of 30-year U.S. bonds has risen to a high not seen since 2007. He warned that the rise reflected strong nominal growth in the United States rather than inflation concerns, and that real yields were the main factor driving interest rates higher. The market is currently blindly focusing on the capital expenditures of ultra-large companies with artificial intelligence, but ignoring the slowdown risks in consumers and the financial sector. First-quarter earnings growth in these areas was strong, but masked the weakness behind it. If markets are worried about inflation today, they should be worried about growth tomorrow. Against this backdrop, the strategist predicts that large-cap stocks will outperform small-cap stocks and growth stocks will outperform value stocks, especially if the Middle East conflict continues. But even if both U.S. and European stock markets face resistance, the U.S. market will still perform better than Europe.