e e US equities Preference: overweight S&P 500 (27 June): 1,332 (last month: 1,319) | Recommendations UBS View S&P 500 (6-month target): 1,430 Tactical (6 months) e US firms on average show more resilient earnings than their global and especially European peers. e We have adopted a neutral allocation Modest domestic economic growth supports US companies' revenue and thereby earnings growth. About between defensive and cyclical sectors. two thirds of revenues are generated in the US. e Among defensives, we still like Consumer ¢ While profit margins are slightly higher than their average over the last 30 years, we expect them to hold Staples, while IT is a preferred cyclical up in coming quarters. Pressure from rising wages on margins is rather muted. So company earnings are sectors. We also like Energy. forecast to develop in line with revenues. e We are cautious on Materials, where we e In the next six months, we forecast the price-to-earnings ratio (P/E) of the S&P 500 to rise to about 14.0x expect margin pressure to continue, as realized earnings from slightly above 13.0x currently. well as Telecom and Utilities, due to high ¢ The combination of expected moderate earnings growth and an expansion of the valuation multiples valuations. make the US one of our preferred equity markets. Strategic (1 to 2 years) A Positive scenario S&P 500 (6-month target): 1,580 ° we a Lat Re, obs. which should benefit from robus e An accelerating US and global economy reduces risks to company earnings. Investors begin to shift funds earnings growth in the long term (see into more cyclical sectors such as Industrials and Materials in light of better growth prospects. In this also slide 21) scenario, we would expect earnings to grow by around 10% in the next 12 months, and the trailing P/E ; multiple to expand to around 15x. oath & Negative scenario S&P 500 (6-month target): 1,115 vue ‘sect stance Int ae A ¢ The US slides into a recession and corporate earnings fall by around 15% over t