S&P 500 Index: Recent rally looks vulnerable as recession fears mount – UBS

The S&P 500 has gained 12.6% from its 2022 low in mid-October. However, the recent equity rally looks vulnerable, in the view of analysts at UBS.

Earnings will fall 4% next year

“While data for October showed an encouraging fall in inflation and Fed comments have recently been less aggressive, we believe the market moved too quickly to assume that the central bank has succeeded in ending the threat from inflation.”

“The path back toward the Fed’s 2% inflation target could be bumpy, sparking renewed concerns about how high rates will have to rise. In addition, we believe markets have been downplaying the threat posed by slowing growth to earnings.” 

“We expect S&P 500 earnings to fall 4% next year, compared to a consensus for a 5% increase in earnings based on bottom-up forecasts.”