Despite the S&P 500’s robust year-to-date performance in 2025, UBS, one of the world’s largest financial institutions, anticipates a significant market pause or decline. This cautious outlook, articulated by Andrew Garthwaite, UBS Global Chief Equity Strategist, is primarily driven by mounting evidence of decelerating U.S. economic growth and the Federal Reserve‘s constrained ability to implement interest rate cuts until at least September.
- UBS forecasts a market pause or decline in 2025, despite the S&P 500’s over 8% year-to-date gain.
- The U.S. labor market is showing significant weakening, with projected non-farm payrolls averaging 48,000 jobs monthly in Q4, including an estimated 12,000 job loss.
- The Federal Reserve is not expected to implement interest rate cuts until at least September.
- Current historically low implied volatility in major indices is seen as unsustainable, with a reversal likely to cause cyclical sector underperformance.
- Historically, August and September are the weakest months for equity performance, reinforcing the short-term cautionary outlook.
UBS Warns of Impending Market Pause Amid Economic Headwinds
Key indicators within the U.S. labor market are signaling a marked weakening. Garthwaite points to a notable decline in three-month annualized hours worked and employment Purchasing Managers’ Index (PMI) figures, which collectively suggest a slowdown in job growth. This data underpins UBS’s projections for significant deceleration in non-farm payrolls, forecasting a monthly average of 48,000 jobs in the fourth quarter. Within that period, the firm estimates a net loss of 12,000 jobs, a stark contrast to recent trends.
Vulnerability in Current Market Rally
The S&P 500 has surged over 8% year-to-date in 2025, reaching new historical peaks. This bullish rally has unfolded despite increasing tariff pressures and broadly underwhelming economic data, raising questions about its underlying sustainability. However, this sentiment may be vulnerable to a significant reversal. Implied volatility within major indices currently sits near historic lows, a condition Garthwaite explicitly warns is poised for reversal. Historically, when implied volatility rises, cyclical sectors tend to underperform in a significant majority of cases, signaling potential broader market corrections and increased investor caution.
Historical Trends Augment Cautionary Outlook
Building on historical market trends, August and September have consistently been the weakest months for equity performance over many decades. This established historical pattern, combined with the projected economic slowdown and the Federal Reserve’s perceived inability to provide immediate monetary stimulus, underpins UBS’s cautious short-term outlook. Investors are advised to prepare for a potentially challenging period as these macroeconomic forces converge, suggesting a need for strategic portfolio adjustments in the coming months.
Jonathan Reed received his MA in Journalism from Columbia University and has reported on corporate governance and leadership for major business magazines. His coverage focuses on executive decision-making, startup innovation, and the evolving role of technology in driving business growth.