UBS Global Wealth Management predicts that US GDP growth in 2025 may be less than 1%, indicating a potential intra-year recession.
The firm projects that GDP could decline by approximately 1% from its highest to lowest points during the year.
Ubs Adjusts Us Equities Outlook
Additionally, UBS has adjusted its outlook on US equities, downgrading it from attractive to neutral.
The year-end target for the S&P 500 has been reduced from 6,400 to 5,800.
UBS Global Wealth Management now expects the US economy to grow by less than 1% in 2025, with a likely contraction taking place between two quarters—that is, a drop in output from one part of the year to another. In practical terms, this would not be a full-calendar-year recession, but one occurring within the year itself. According to their projections, that dip could reach around 1%, measured from the high point of growth to the lowest trough.
The shift in their equity forecast reflects this cautious view. Their stance on US stocks has moved from being described as appealing to more neutral. In effect, this suggests that the investment case for broad US equity exposure has lost some of its momentum, particularly as weaker economic output could begin pressuring earnings expectations. Alongside that downgrade, the S&P 500’s year-end level has been revised lower from 6,400 to 5,800, a move that hints at a less confident outlook over the next few quarters.
Economic Outlook And Market Strategy
Taking this on board, we should interpret these downward revisions not as a short-term signal of panic or disruption, but instead as a considered view that economic headwinds may begin weighing more heavily than previously anticipated, particularly on market sentiment. The US economy has been more resilient than many expected in the past eighteen months, supported by strong consumption and steady hiring. However, any signs that even that robustness may soon wear thin should not be brushed aside.
In terms of strategy, the likelihood of slower output increases the importance of adjusting positions more frequently, particularly for those of us who deal with derivatives, where leverage can amplify both risk and reward. With reduced enthusiasm in equity forecasts, it’s worth reassessing volatility pricing. Implied vols may begin ticking up if forward-looking data confirms softening activity. Under such conditions, short-dated options with narrow strikes may need rapid reassessment, especially if liquidity becomes less reliable in weaker sessions.
It’s also worth noting that despite the downgrade, the new target for the S&P 500 implies only a mild pullback from current prices—not a collapse. That leaves enough air in the forecasts to suggest downside without panic. Spread structures may need to be tightened. Seasonal factors should also be considered. Historically, midsummer and year-end carry very different risk profiles when it comes to equity-linked derivatives. That matters when planning staggered positioning.
Given the forecast trajectory, we may need to treat each data release with greater weight than usual, particularly labour figures and business investment components in the GDP breakdowns. We shouldn’t expect orderly reactions if market expectations are misaligned. Tail hedging becomes more relevant in that environment, especially given compressed VIX levels for much of Q1. If we’ve been running short gamma strategies, they may warrant closer scrutiny if realised volatility picks up unexpectedly.
Powell’s recent remarks, while measured, weren’t enough to lift long-term sentiment around growth. The Fed may still lean towards patience on rate cuts, but slowing GDP makes that stance more complex. We should not rely on the assumption that policy shifts will be predictable, which means rates sensitivity among certain single-stock names and thematic indices may show sharper divergences.
Traders taking directional views on the index should pay special attention to fund flow dynamics. Rotation out of mega-cap names may accelerate under this economic view. That matters for the S&P 500 more broadly given its current composition. Leveraged vehicles tracking broader benchmarks could move with greater amplitude if support levels begin breaking.
We’re entering a phase now where margin for error has narrowed—neutral outlooks do not mean no movement but rather that conviction has less tailwind. Any open positions aligned to Q3 earnings need to be evaluated for softness in forward guidance, particularly in consumer and industrial sectors.
In summary, recalibrating rate-exposure strategies, tightening spreads, and increasing responsiveness to macro data may all represent practical steps in response to sharper top-down downgrades like these. As with any readjustment in economic and equity assumptions, timing and flexibility over the coming weeks will be central to maintaining risk-adjusted performance.
