e e US equities Preference: overweight ; S&P 500 (24 Oct): 1,409 (last publication: 1,433) | Recommendations UBS View S&P 500 (6-month target): 1,460 Tactical (6 months) ¢ We keep our preference for US equities relative to other developed equity markets. Earnings continued e We continue to like IT. The sector trades to hold up better than in other regions during the recent economic slowdown. Continued economic at the jowest valuation multipies ebe growth should allow companies to show mid single digit earnings growth over the coming 12 months. since the early 1990s. Product launches support superior earnings growth. ¢ The US central bank's (Fed) very pro-growth oriented policy stance is a clear advantage for the local ; ¢ f ity market; the recent introduction of additional quantitative easing (QE 3) is positive for riskier assets « Industrials ate prevetted as they benefit hts ‘l : val ¢ ; -, ; ~ . ao ; ia chee pak , from a pick up in manufacturing activity. °We sti expect some potential for re-rating over the coming 6 months, in terms of increases in the price- ° Consumer Staples is our preferred to-earnings ratio (P/E). defensive sector offering the best ¢ The debate around the fiscal cliff implies increased uncertainty over the coming months. However, we combination of dividend growth and think that a 20% discount compared to the long-run PE-average provides some cushion, and our base case attractive valuation. assumes that politicians will finally achieve a compromise to avoid economic contraction. e We are still cautious on Telecoms, due to high valuations, as well as Materials, Ae A where margins remain under pressure. @ Positive scenario S&P 500 (6-month target): 1,700 g P e An accelerating US and global economy reduces risks to company earnings. Investors begin to shift funds are (1 rn 2 eee P a a P p 9 2 ® a into more cyclical sectors such as Industrials and Materials in light of better growth prospects. In this € ike MEGIUM SIZE companies, ; which are expe