UBS Predicts 8% Drop in S&P 500 Amid Weakening US Consumer Spending and Slowing Economy

The S&P 500 forecast has taken a bearish turn as UBS Investment Bank warns of a potential 8% decline, citing a “visibly tiring” US consumer. According to Bhanu Baweja, Chief Strategist at UBS, weakening consumer demand could trigger further downside in equity markets.

In a statement reported by Bloomberg, Baweja pointed to declining consumer sentiment, including softer employment expectations, lower spending outlooks, and waning confidence—all of which are raising red flags for risk assets like US stocks.

He estimates the S&P 500 index could retreat to 5,300 points, as analysts revise profit projections for the next three to four months. These downward earnings revisions reflect growing concerns over the health of the US economy and its impact on corporate profitability.

Despite a recent rebound in the S&P 500 to a two-week high, investor caution remains elevated. Market participants are watching closely as new US tariffs are set to be implemented on 2 April, contributing to fears of increased economic strain.

Baweja also highlighted the effects of reduced immigration and the lack of fiscal stimulus as key drivers behind the slowing economy—conditions that were considered unlikely just three months ago, but are now materialising in macroeconomic data.

UBS’s outlook aligns with recent data from Bloomberg Intelligence, which shows analysts have cut their 2025 S&P 500 earnings growth forecast from 12.5% to 9.5%. Baweja believes these projections may drop even further, especially if consumer activity continues to soften.

He also noted that small-cap stocks, as represented by the S&P 600, could face even greater earnings pressure, with further estimate downgrades expected.

The combination of weaker consumer spending, shifting economic conditions, and policy uncertainty is reshaping the broader US stock market outlook. Investors are now reassessing their exposure amid heightened volatility and increasing risk of an economic slowdown.

(Sources: Bloomberg.com)