The Blubber

UBS Strategist Warns of Further S&P 500 Decline as U.S. Consumer Weakens

The U.S. consumer is showing signs of fatigue, which could weigh further on stock prices, setting the stage for another 8% drop in the S&P 500, according to Bhanu Baweja, chief strategist at UBS Investment Bank.

Baweja pointed to multiple warning signals, including weakening employment expectations, lower spending outlooks, and declining consumer confidence. He now expects the S&P 500 to fall to 5,300 points as analysts adjust their profit estimates downward over the next three to four months.

Despite a recent rebound that pushed the S&P 500 to a two-week high, concerns remain about the economic fallout from upcoming U.S. tariffs, set to take effect on April 2. U.S. equity futures dipped on Tuesday as investors remained wary of President Donald Trump’s unpredictable trade policies and unclear tariff exemptions.

Consumer Weakness Weighs on Markets

“If you had told someone three months ago that the U.S. economy was going to slow down, they would have laughed,” Baweja said in an interview from London. “But now, the impact of lower immigration and a lack of new fiscal stimulus is showing up in the data.”

While some strategists at firms like JPMorgan Chase & Co., Morgan Stanley, and Evercore ISI believe the worst of the downturn is behind us, Baweja remains cautious, warning that earnings estimates are likely to be revised lower.

Earnings and Bond Market Outlook

Current S&P 500 earnings growth expectations for 2025 stand at 9.5%, down from 12.5% at the start of the year, according to Bloomberg Intelligence data. Baweja believes further reductions are likely.

However, he has grown more optimistic on bonds, arguing that a slowing economy will ease inflation concerns. He prefers two-year U.S. Treasuries over 10-year bonds, as they are more likely to benefit from Federal Reserve rate cuts.

That said, he warns that foreign demand for U.S. government debt is shrinking, which could weigh on the long end of the yield curve.

“I’m not saying the 10-year Treasury will collapse—this isn’t a Liz Truss moment—but the long end may lag even as the Fed cuts rates on the front end,” Baweja explained. “That means the cost of equity doesn’t decline, which will drag on corporate earnings.”