The CEO Macro Briefing Book

Higher for longer in the US economy

UBS Chief Investment Office GWM

Jason Draho, Ph.D.
Paul Hsiao

April 2024 This report has been prepared by UBS Financial Services Inc.
Please see the important disclaimer at the end of the document.
Table of contents

Section 1 Insights in Brief 2

Section 2 Macroeconomic Outlook 5

Section 3 Operational considerations 17

Section 3.1 Consumer 19

Section 3.2 Labor 25

Section 3.3 Financing 31

Section 3.4 Real estate 35

Section 4 Policy, Geopolitics, and Policy 39

Section 5 Markets & Corporate Activity 46

Section 6 Sector Update 59

Section 7 Appendix 65
Executive Summary: Higher for longer, for good and bad for markets

• Higher growth, inflation, and rates is the story of the US economy. Growth and inflation exceeded
expectations in Q1, and while moderation is still the most likely path for both, the declines should be gradual.
Disinflation will be bumpy, but inflation reacceleration is unlikely barring major supply disruptions.
Macroeconomic
Outlook • No compelling reason for rate cuts any time soon, but that’s still the Fed’s bias. The outlook is
asymmetric: the Fed likely stays on hold if the economy doesn’t cool, but it will cut if inflation declines, or the
labor market weakens. Market pricing is down to 1.5 cuts this year, the Fed’s (lagged) projection is 3, we expect
2 starting in September. The bar is very high for additional rate hikes; expected cuts have to be eliminated first.

• A virtuous cycle between consumer spending and the labor market, for now. Real income growth, rising
total wealth, a tight labor market, and improving sentiment are powering strong spending by households. Debt
Operating delinquencies are modestly rising, but still low overall. The labor market is getting back into balance, with fewer
job openings and quits, and slowing wage growth. Spending and job growth should stay healthy for a while.
Environment
• Financing conditions have modestly eased, but not to everyone’s benefit. Looser lending standards
alongside strong bond issuance have loosened financing conditions, and those trends should continue. But
larger companies are the main beneficiaries; higher-for-longer rates are more challenging for bank borrowers.

• Equity rally temporarily challenged by higher rates and geopolitical risk. The upward trend in stocks was
dented by delayed rate cut expectations and geopolitical risk, but those headwinds are likely to ease. Market
Markets & Deal performance did broaden out as breadth increased, and the Magnificent 7 are no longer leading the way.
Activity • M&A and IPO green-shoots threatened by “higher for longer” narrative. Early signs of recovery in Q1
faded after rates rose and expected cuts got priced out. IPO after-market performance also underwhelmed. This
activity, along with PE and VC deal making, likely to take longer to pick up with the shift in the rate outlook.

• 2020 rematch confirmed, investor interest on the back burner until Labor Day. With a Trump vs. Biden
rematch almost certain, the focus has pivoted to potential policies under different scenarios. Without a one-
Politics party sweep of all branches the policy implications are likely to matter more for sectors than the economy.
• For all the talk of de-globalization, USD dominance should remain. High debt and deficits and a shift to a
multi-polar world has led to predictions for the USD’s demise as the global reserve currency. But US growth
exceptionalism, the lack of alternatives, and inertia should ensure USD dominance for the foreseeable future.

2
Dashboard Summary: As the macro cools, rates and activity will follow
Expected Current 6-months prior

2% 2% 2.5% 3.5%
3.5%
Macroeconomic
Conditions
Deep Strong Below Above Below Above Below Above
Recession Expansion 1.5% 2.5% Neutral Neutral 3% 4%

Growth Inflation Policy Rate Longer-term rate

Operating
Environment

Consumers Labor Financing Real Estate

Bullish Value, rhs Deal Count, lhs Volume, rhs Deal Count, lhs

Markets & Deal

Activity

1/23 7/23 1/24 1/23 7/23 1/24 1/19 1/21 1/23 3/19 3/21 3/23

S&P 500 & UBS Investor IPO Activity M&A

NASDAQ sentiment Activity

3
Markets Dashboard: From great to still good performance
Performance Latest YTD Q124 H223 2023 2024 UBS CIO Forecasts
S&P 500 5011 4.1% 10.2% 7.2% 24.2%
S&P 500 ACWI
Large Cap Growth 3232 5.6% 12.6% 6.6% 28.3%
Large Cap Value 1773 2.4% 7.4% 7.9% 19.8%
US Small Cap 1967 -3.9% 4.8% 7.3% 15.1% 5,200 940
Int'l Developed Markets 911 4.0% 9.1% 5.9% 19.5%
S&P 500 Sectors
Energy 731 13.4% 12.7% 2.6% -4.8%
Materials 561 3.8% 8.4% 3.4% 10.2%
Industrials 1027 5.7% 10.6% 6.2% 16.0%
Consumer Discretionary 1391 -2.5% 4.8% 6.6% 41.0%
Consumer Staples 802 4.2% 6.8% -2.1% -2.2%
Healthcare 1625 1.8% 8.4% 2.7% 0.3%
Financials 680 7.3% 12.0% 11.6% 9.9% Federal Funds Rate (%) 10Y Treasury Yield (%)
IT 3545 3.0% 12.5% 10.1% 56.4%
Utilities 335 3.2% 3.6% -3.3% -10.2%
5%
Real Estate 227 -10.6% -1.4% 6.3% 8.3%
3.5%

US Gov't 2208 -3.0% -1.0% 2.4% 4.1%

Munis 1304 -1.4% -0.4% 3.6% 6.4%
TIPS 333 -1.6% -0.1% 2.0% 3.9%
Agency 116 -1.9% -0.3% 3.6% 5.4%
US IG 3126 -2.9% -0.4% 5.1% 8.5%
US HY 2475 -0.2% 1.5% 7.7% 13.4%
Gold EUR
Oil 82.0 16.0% 16.1% 1.4% -10.7%
Gold 2330 15.9% 8.1% 7.5% 13.1%

2,250 1.12
USD 106 4.8% 3.1% -1.5% -2.1%
EUR 1.07 -3.5% -2.3% 1.2% 3.1%
JPY 155 9.6% 7.3% -2.3% 7.6%
EM FX 1711 -1.7% -0.9% 3.8% 4.8%
Source: Bloomberg, UBS, as of 19 April 2024

Negative Positive
4
Section 2

Macroeconomic outlook

5
Macro Key Points: Higher for longer for everything

Growth has been durable, inflation sticky; slowdowns are likely to be gradual from here.
The latest reacceleration in payrolls and inflation data underscores strong momentum in 2H23
continued into 2024. Healthy consumers and a strong labor market are the underpinnings of this
momentum. A potential stress point is with small businesses that are more rate sensitive.

Fed rate cuts delayed not derailed; very high bar for more rate hikes. The March’s FOMC
projections were stale after just a month. Economic strength doesn’t warrant cuts right now, which is
the most recent message from Fed officials. Slower wage growth and modest rent growth drives our
confidence in further disinflation that can justify the first cut in September.

6% may be the new 4% for US nominal GDP growth … a “Roaring ’20s” by another name.
The combination of real GDP growth plus inflation may stay close to 6% for the foreseeable future, a
level it has surpassed since 2021. This compares to 4% in the 2010s, but similar to 1990s levels.

US growth exceptionalism continues, now impacting central bank policy. The gap in growth
remains wide between the US and other developed markets, although the latter are stabilizing. While
Fed rate cuts are delayed, other major central banks are poised to start decreasing rates in Q2.

6
Macro Dashboard: On cooling path, but slower than expected
Expected Current 6-months prior

2% 2% 2.5% 3.5%

Deep Strong Below Above Below Above Below Above

Recession Expansion 1.5% 2.5% Neutral Neutral 3% 4%

Growth Inflation Fed funds rate 10-year yield

▪ Amidst a manufacturing
recovery, growth
momentum remained
during Q124 setting the
stage for another above-
trend real GDP print.
▪ Stubborn services-side
inflation kept inflation
higher than expected yet
softening wage growth is a
positive sign prices will
move in the right direction.
▪ The Fed paused its rate ▪ 10-year yields now above
hiking cycle at 5.5%; 4.5% as markets expect
markets are now pricing in fewer rate cuts and limited
<2 rate cuts by the end of chance of recession.
2024.

7
Growth: Not much indication yet of a slowing economy
Rather than slowing, expectations for 2024 growth has been continually revised higher, for good reason.
Private sector demand (ex-government spending and net exports) has accelerated over the past year.

Private sector demand has accelerated the past year Expectations for 2024 growth have become more positive
Final sales to private domestic purchasers, q/q annualized, in % GDP y/y, in %

Q1 24
Forecast

Source: BEA, Federal Reserve, UBS, as of 23 April 2024 Source: Bloomberg, UBS, as of 23 April 2024

8
Growth: Tentative signs of recovery in rate sensitive sectors
The manufacturing sector is starting to recover after a mild contraction, albeit at a gradual pace. The
housing market is off its bottom, but the recovery is being hampered by the rate rise.

Manufacturing activity is clearly off its recent lows The housing market is improving in fits and starts
ISM manufacturing new orders index National Associate of Home Builders Market Index

Source: BEA, Federal Reserve, UBS, as of 23 April 2024 Source: Bloomberg, UBS, as of 23 April 2024

9
Growth: “No landing” or landing to a higher plateau?
Rather than trend to a soft landing of 4% nominal GDP growth (2% real plus 2% inflation), the economy
continues to grow around 6%. The economy may have “landed” at that level, the pre-GFC norm.

Growth has been flying above 2% trend for two years A 6% economy may be the old new normal
GDP growth, q/q annualized, in % Contribution to nominal GDP, y/y, %
7
Growth Inflation Overall
6.3
6 5.8

5
1.9
3% average since 3.7
4.0
Q3 2022 4

1.6
3

2 3.8

2.4 2.5
1

0
1992-2000 Average 2011-2019 Average 2023

Source: BEA, Federal Reserve, UBS, as of 23 April 2024 Source: BEA, Federal Reserve, UBS, as of 23 April 2024

10
Growth: Capex strong but moderating, higher rates are a headwind
While legislation like the CHIPS and IRA Acts created incentives for capital expenditures, “higher-for-
longer” rates and rising risks are both headwinds for future capex spending plans.

Strong non-residential fixed investment growth now slowing Firm surveys indicate capex slowdown ahead
year/year, % Index
Federal Reserve Regional Survey-
Capex Plans , 3M mov. avg., lhs

NFIB Capex
Plans, 3M
mov. avg., rhs

Source: BEA, Federal Reserve, UBS, as of 23 April 2024 Source: NFIB, Federal Reserve, UBS, as of 23 April 2024

11
Firms: Small businesses are being squeezed more than larger peers
Higher cost of capital is having a disproportionately negative effect on small businesses; larger cash-rich
companies are less sensitive to higher rates thanks to access to cheaper public market capital.

Smaller firms more interest-rate sensitive than larger peers And higher rate environment weighing down smaller firms
Estimated share of variable rate debt by business size, % Confidence indices
60

50 CEO 1Y
ahead
outlook, rhs
40

30

20

10 NFIB Small
Business
outlook, lhs
0
Small Large
Source: CEO Magazine, NFIB, UBS as of 22 April 2022 Source: Goldman Sachs, UBS as of 22 April 2022

12
Inflation: Hot Q1 CPI are likely speedbumps in the disinflation trend
Inflation in Q1 exceeded market expectations and pushed out the timing of expected rate cuts. But
disinflation is likely resume, partly because wage growth continues to soften.

Hot CPI prints are largely due to services But continued wage disinflation points to “soft landing”
CPI inflation contribution, y/y, % y/y, %
Goods Services Average Hourly
Supply Earnings
chain-
related
spike
Duke
CFO
survey
Services

Fed Median Wage

Fed’s 2% Target
Growth Tracker

NFIB Goods
Survey

Source: BEA, UBS as of 23 April 2024 Source: BEA, UBS as of 23 April 2024

13
Inflation: Shelter inflation should also ease, and overall inflation with it
Core CPI inflation is reasonable (2.4% y/y) when shelter inflation is excluded, versus 3.8% otherwise.
Plus, real time rent growth measures suggest shelter inflation will continue to moderate.

Shelter CPI keeping headline elevated Different measures of shelter inflation show significant cooling
CPI inflation, y/y, % CPI inflation, y/y, %

CPI Shelter

Core CPI

New shelter
series

Core CPI
less shelter

Source: BEA, UBS as of 23 April 2024 Source: BEA, UBS as of 23 April 2024
Source: BLS, UBS, as of 23 April 2024 Source: BLS, UBS, as of 23 April 2024

14
Interest rates: Cuts are delayed not derailed; the Fed is biased to ease
Market pricing for rate cuts in 2024 has gone from nearly 7 in January to about 1.5 now, and the Fed
forecasts 3 cuts. The Fed can stay on hold if inflation is sticky but cut on soft labor or inflation data.

Markets pare down rate cut expectations after hot CPI print A higher neutral rate is pushing up the 10-year yield
% %
5.0
Federal Reserve
Effective Policy rate
4.5

4.0

3.5

3.0
Pricing as of 4/15
Pricing as of 2/1 Market-implied neutral Fed funds rate
10y Tsy yield
2.5
2023 2024
Source: BEA, UBS, as of 23 April 2024 Source: BEA, UBS, as of 23 April 2024

15
Global: Signs of a manufacturing recovery, but only the Fed is on hold
Global manufacturing activity is showing signs of expansion in 2024. But that’s not enough to keep ex-
US central banks from starting rate cuts in Q2—another case of US exceptionalism.

Global Manufacturing cycle seems to be turning Higher for longer mainly a US story supported
PMI Manufacturing Index Market pricing for a June 2024 rate cut, %
100%

80%

60%

40%

20%

Contraction
0%
US EU
15-Feb Today
Source: ISM, UBS, as of 23 April 2024 Source: Bloomberg, UBS, as of 23 April 2024

16
Section 3

Operating environment

17
Operating environment dashboard
Bad Good
Current Prior
Consumers
▪ Consumer spending has
remained surprisingly robust
as consumer sentiment
makes significant strides
upward thanks to a decline in
inflation expectations.
Labor
▪ Labor market overall very ▪ Financing conditions
strong; the latest job
growth numbers have
picked up to the highest
point in a year while
vacancies and wages
continue to cool.
Financing Real Estate
▪ Real estate conditions
have broadly improved, overall little changed
buoyed by strong over last six months; low
issuance from investment vacancy and high rates
grade and high yield keeping supply tight in
markets alongside easing residential while demand
loan application for commercial real
standards. estate still weak.
18
Consumer Key Points: Still spending on rising income and sentiment

Despite higher prices, consumer spending surprises to the upside.

Consumer spending has continued to be strong through Q124 with
Bad Good
better-than-expected retail sales closing out the quarter.
Consumer heatmap

Consumer
Consumer
Consumer -2Y
-2Y
Today
Indicator -2YToday Today
Today
-2Y
Today
-1Y

Spending
Spending
Spending

Income
Income
Income Household purchases centered on services. Goods spending
Wealth
Wealth
Wealth
benefitted from a lockdown environment, now rotating back to services.
Wealth

Debt
Daycare, professional services, and tourism are among category leaders.
Debt
Debt
Debt
Delinquen
Delinquency
Delinquency
Delinquency
cy
Sentiment
Sentiment
Sentiment

Note: “Spending” is represented by change in retail

sales; “Income” is represented by growth in personal
Spending is supported by strong growth in wealth and income.
income; “Wealth” is represented by household wealth Median American’s net worth up +46% from pre-pandemic levels while
as share of disposable income; “Debt” is represented
level of debt service; “Delinquency” is represented by delinquencies remain low. Real income gains in a tight labor market are
share of delinquent households; “Sentiment” is
reflected by University of Michigan consumer sentiment
sustainable driver for further spending growth.
index
Source: Bloomberg, BEA, Federal Reserve, University of
Michigan, UBS, as of 23 April 2024

Consumer optimism rising. Consumer sentiment rises to the highest

point in three years coinciding with significantly lower short-term
inflation expectations and steady real income gains.

19
Spending: Very robust according to micro and macro data
Retail sales accelerated late in the winter and consumer spending is running higher than its pre-
pandemic trend would have predicted.

Retail sales shows spending on an upswing Real consumption running above trend despite pandemic
in 2021 bil. US$ in 2017 tril. US$
Nominal

+10%

Real

Source: BEA, UBS, as of 23 April 2024 Source: BEA, UBS, as of 23 April 2024

20
Spending: Goods spending still above trend, services catching up
The post-pandemic spending mix appears structurally different: work at home has driven goods spending
significantly higher, while daycare, education, and tourism are booming within services.

Services spending now marginally above trend in real terms With a large variance for services spending
Real good and services spending, relative to 2018-2019 % Real good and services spending, relative to 2010-2019 %

Daycare
Goods Professional services
Education
Tourism
Financial Services
Services Housing
Services
Food Services
Gambling
Goods Live Events
Accomodation
Services
Transportation Services
Recreation Services
Insurance
Haircuts

-30% -20% -10% 0% 10% 20%

Source: BEA, UBS, as of 23 April 2024 Source: BEA, UBS, as of 23 April 2024

21
Income: Consumer spending powered by stronger balance sheets
Consumption has helped drive growth surprises; a broad lift in net worth (up nearly USD 5 tr in 4Q23) as
well as continued positive real income growth should power consumption going forward.

The median American’s net worth +46% since 2019 Personal income higher thanks to pandemic stimulus
Net worth by quintile, 12/31/2019=100 in tril. USD

Start of
recession

Covid Covid-related Higher

stimulus payments income
trend

2018-2019
GFC Pre-pandemic trend

Source: Federal Reserve Bank, UBS, as of 23 April 2024 Source: Federal Reserve Bank of Atlanta, UBS, as of 23 April 2024

22
Balance Sheets: Debt burden is not nearly as onerous as assumed
The delinquency rate for credit card debt is rising, while delinquent mortgages, a far larger share of all
household debt, remain at historical lows. Debt burdens are very manageable, even with higher rates.

Overall debt delinquency rate still low versus history Rising stress in credit card debt for lower incomes
Delinquency rate for consumers, all debt, in % Delinquency rate for consumers, %

Income
<50K

Total

Income
Credit
50k -100k
Cards

Income
>150K

Source: Bloomberg, UBS, as of 23 April 2024 Source: Bloomberg, UBS, as of 23 April 2024

23
Sentiment: Firming disinflation expectations driving sentiment higher
Consumer sentiment is rebounded and is now at levels comparable to the early post-GFC cycle.
Sentiment has correlated highly with inflation, and further improvement likely requires more disinflation.

Consumer sentiment rising as inflation expectations decline Optimism rising faster for higher income earners
Index % U. Michigan sentiment index by income

Source: University of Michigan, UBS, as of 23 April 2024 Source: University of Michigan, UBS, as of 23 April 2024

24
Labor Key Points: Getting back in balance, but still historically robust

Demand is slowing, a relief to some. Job openings and wage growth

continue to decline, easing cost pressures for some companies and
Bad Good
providing conditions to justify Fed rate cuts.
Labor heatmap
Labor -2Y
-2Y
-2Y Today
Today
Today

UER
Unemployment

Payrolls
Payrolls Immigration a boon for labor supply. Revisions to immigration data
Openings
Openings
for the last few years reveal millions more than assumed suggesting
continued strong job growth possible, especially for lower-skilled jobs.
Participation
Participation

Wages
Wages

Note: “Unemployment” is represented by the

unemployment rate; “Payrolls” is represented by 1-
month change of non-farm payrolls; “Openings” is
represented by share of job openings relative to
Layoffs still limited. While layoff announcements have picked up from
employment; “Participation” is represented level of recent lows, actual job layoffs and count of unemployed still at or near
prime age (25-55) labor force participation; “Wages” is
represented by the average of the yearly change in historical lows, implying a tight labor supply, particularly for native-born
hourly earnings, employment cost index, and Atlanta
Fed median wage tracker
workers.
Source: Bloomberg, BLS, Federal Reserve, UBS, as of 23
April 2024

Part time work has increased. The number of workers taking on part-
time roles for non-economic reasons has increased; representing a
greater emphasis on post-pandemic “work/life” balance.

25
Labor Demand: Cooling without cracking
White hot demand for jobs has significantly retreated from 2022 peaks without a sharp rise in
unemployment, yet employees are increasingly more worried about keeping their jobs.

Job vacancies declining as # of unemployed remains steady Hiring plans cool giving anxiety to existing workers
in millions 1Q mov. avg., %
Job vacancies Small business
cooled from hiring pans Strong
peak… cool … Demand

-27%

…and
consumer
job loss
…while fears rise
unemployment
remains steady
Weak Cooling
Demand Demand

Source: BLS, UBS, as of 23 April 2024 Source: BLS, UBS, as of 23 April 2024

26
Labor Demand: Number of laid-off workers still very low
Layoffs announcements reported in the financial press can seem worrying, but actual job cuts and
unemployed persons are at historically low levels.

Job cut announcements moving higher But actual layoffs still at record lows
in ‘000s Jobless claims & Layoff rate

Strong
Demand

-27%

Weak Cooling
Demand Demand

Source: Challenger, Gray, and Christmas, UBS, as of 23 April 2024 Note: Axes have been truncated
Source: BLS, UBS, as of 23 April 2024

27
Wages: Smaller increases, but still too high for the Fed
After peaking in summer 2022 wage growth is clearly, slowing which is a likely precursor to a sustained
slowdown in core CPI.

Atlanta Fed Median Wage Tracker Slower wage growth consistent with further disinflation
year/year, % year/year,% 2017-Present

Faster
April 2022

Q4 2023
April 2021

Faster

Source: Federal Reserve Bank of Atlanta, UBS as of 23 April 2024 Source: BLS, UBS as of 23 April 2024

28
Labor Supply: Fewer people quitting, more choosing part-time work
Part of the cooling labor demand is economic – the wage premium for job switchers has sharply declined
limiting the quits rate; increased desire for work/life balance driving part-time jobs higher.

Wage premium for switching jobs is declining Rise in part time workers most due to non-economic reasons
% % total employed
Part time for non-
economic reasons, rhs
Quits rate

Part time for

economic
reasons, lhs
Wage premium
for job switchers
(3M mov. avg.)

Source: BLS, UBS, as of 23 April 2024 Source: BLS, UBS, as of 23 April 2024

29
Labor Supply: An immigration surge helped fill the labor shortfall
Higher-than-expected immigration eases labor shortage concerns and wage pressures, especially since
immigrants are likelier to work than native born.

Revised immigration estimate shows surge in immigration Immigrants more likely to be working than native born
Millions of persons Participation rate, %
3.5 Previous
Previous Forecast
Net immigration
Forecast
3.0

2.5
~2 million more immigrants
than expected
2.0

1.5

1.0

0.5

0.0
2010 2015 2020 2025 2030 2035 2040 2045 2050
Source: Census Bureau, UBS, as of 23 April 2024 Source: BLS, UBS, as of 23 April 2024

30
Financing Key Points: Conditions to ease, but not uniformly for all

Bad Good

Financing heatmap
Financing -2Y Today

Financial Financial conditions improve alongside rising markets. Financial

conditions
Lending
conditions improved to the loosest conditions two years amidst tight
standards credit spreads, equities near all-time highs, and easing lending standards
HY
issuance from high levels .
IG
issuance
Availability
of loans
Borrowing
costs
Capital is available for most borrowers, with larger firms at an
advantage. Most small business borrowing needs are being met but
Note: Financial conditions refers to the Bloomberg
Financial Conditions index; Lending standards refers with very high interest rates on shorter-term loans. Nearly distressed
to the quarterly change in standards of Federal
Reserve Senior Loan Officer Survey; HY and IG companies can raise capital with bond sales while spreads are below
issuance are measured on a quarterly moving average
of monthly issuance data; Availability of Borrowing
long-term averages.
Costs refers to “Interest Rate on short-term loans”
component in the NFIB survey
Source: Bloomberg, NFIB, SIFMA, Goldman Sachs,
Federal Reserve, UBS, as of 23 April 2024

31
Standards: Tight, especially for small firms, but starting to loosen
Lending standards loosen significantly for small and large firms as banking stress abates; still many small
firms complain that financing is still difficult.

Banks are still tightening standards for loans, but easing now Small firms are still saying loans are hard to get
Senior Loan Officer Survey, tighter standards % NFIB survey: availability of loans index

Tighter
conditions Investment
grade, lhs

High yield, rhs

Source: Bloomberg, UBS, as of 23 April 2024 Source: Bloomberg, UBS, as of 23 April 2024

32
Cost: Spreads are tight and issuance rising for corporate bonds
Strong capital markets and a rise in foreign demand help, and expected rate cuts are tailwinds for the
corporate bond market; few signs of distress amid higher geopolitical risk.

IG and HY spreads show no signs of distress Issuance has picked up particularly for high yield
OAS, % 6M mov. avg., bil. US$
250 60

50
200 Investment grade, lhs
High yield, rhs

40
150

30

100
20

50
10

0 0
2010 2012 2014 2016 2018 2020 2022 2024
Source: Bloomberg, UBS, as of 23 April 2024 Source: Bloomberg, UBS, as of 23 April 2024

33
Availability: Refinancing activity surges even without rate cuts
“Higher for longer” rates may crimp further activity while larger firms with access to capital markets
ramp-up refinancing activity.

“Higher for longer” rates will hurt small business financing Bond issuance for large companies accelerating esp. refinancing
% 1Y MA, bil. US$
100

90

Satisfied borrowing 80
needs
70

60

50

40

30

20

10 "New Money"
Refinancing
0
Jun-21 Dec-21 Jun-22 Dec-22 Jun-23 Dec-23
Source: NFIB, UBS, as of 23 April 2024 Source: SIFMA, UBS, as of 23 April 2024

34
Real Estate Key Points: Green shoots derailed by higher rates

Residential affordability is near the worst in decades. High prices

Bad Good and mortgage rates have priced out many potential buyers, especially
Real estate heatmap first-timers. Higher current rates prevent existing homeowners with low
locked-in rates from listing houses on the market.
Real Estate -2Y
-2Y Today
Today

Residential
Activity
Residential
Prices
Residential
Vacancy
Sales and starts are mixed. Lower mortgage rates were tailwind for
Commercial
sales, before “higher-for-longer” narrative took hold of the market.
Activity New starts have fallen from post-pandemic peaks.
Commercial
Prices
Commercial
Vacancy

Note: “Activity” is a normalized average of sales and

construction; Source: Bloomberg, BLS, NAHB,
Federal Reserve, UBS, as of 23 April 2024
Commercial real estate stressed, but fears of a meltdown are
exaggerated. The office segment, while down from adoption of work
from home, is only 15% of overall CRE segment. It has a multi-year
runway before risk of worrisome meltdown.

35
Residential: Sellers kept on the sidelines despite record-tight inventory
Record low housing inventory is keeping prices elevated, while gap between new and existing mortgages
prevent more seller listings.

Housing inventory is near the lowest levels on record Gap between new and existing mortgage rates very wide
in millions %

Existing New loans

home
sales (lhs)

New Existing
Home loans
Sales (rhs)

Source: BEA, UBS, as of 23 April 2024 Source: Federal Reserve, UBS, as of 23 April 2024

36
Residential: Expectations of rate cuts a tailwind to residential housing
New and existing home sales had inflected higher alongside new home starts as the market had become
confident of rate cuts happening later this year, but higher rates put the recovery at risk.

Decline in home sales may have already bottomed Homes starts cool as rate cut expectations are pushed out
in tsds. in millions

Existing
home
sales (lhs)

New
Home
Sales (rhs)

Source: BEA, UBS, as of 23 April 2024 Source: Federal Reserve, UBS, as of 23 April 2024

37
Commercial: Risks of a meltdown are exaggerated
Office properties are seeing stress due to much lower vacancy rates and prices, but this segment of
commercial real estate (CRE) occupies less than a fifth of the overall CRE value.

Office prices challenged by higher rates and “work from home” Value of office space < 16% total
$ per square foot % Total Commercial Property Value

16.4% 18.4%

15.5%
24.2%

14.0%
11.6%

Multi-Family Office Retail

Industrial Hospitality & Sports Other

Source: Real Capital Anlytics, UBS, as of 23 April 2024 Source: MSCI, UBS as of 1 February 2024

38
Section 4

Politics, geopolitics, and policy

39
Politics: Polls have narrowed, betting markets see divided government
The polling gap between Biden and Trump has narrowed, indicating a toss-up. Prediction markets still
favor Democrats gaining the House, while Republicans are slight favorites set to retake the Senate.
It’s essentially tied in polls Market odds on 2024 House / Senate outcomes
2024 Presidential polling average,% %
80

70

60

50

40

30

20
Nov-23 Dec-23 Jan-24
R-Senate D-Senate R - House D - House
Source: Real Clear Politics, UBS, as of 23 April 2024 Source: UBS, as of 15 January 2024

40
 Politics: Legislative priorities under different electoral outcomes (I/II)
Blue Sweep
• Taxes increases for higher
earnings, capital gains,
corporates.
• Greater regulatory oversight.
Policies
• Stricter scrutiny for M&A and
anti-trust violations
• IRA to remain in place.
• Existing tariffs to remain in
place with China exception.
• Macro impact likely to be
smaller than Biden’s first term.
Macro impact
• Taxes would rise for higher-
income HHs – disinflationary
• Should lead to more rate cuts.
• Slightly negative for USD
Biden / GOP Senate / Dem House
• Marginal tax rate higher
• No change for capital gains
nor corporate tax.
• Greater regulatory oversight.
• Stricter scrutiny for M&A and
anti-trust violations
• Existing tariffs to remain in
place with China exception.
• Smaller impact in than blue
sweep scenario .
Red Sweep
• Lower marginal tax rates
made permanent.
• Corporate tax decrease
possible.
• Less regulatory oversight
especially for energy /
financials.
• Reduced scrutiny of M&A.
• Partial rollback of IRA
incentives.
• New and universal tariffs
possible, especially on China.
• Overall positive macro impact
alongside inflationary
pressure.
• Fewer Fed rate cuts
• Higher deficits and trade
tensions.
Trump / GOP Senate / Dem House
• Marginal tax rate higher for
top brackets.
• Estate tax compromises.
• No change to corp. tax.
• Less regulatory oversight
especially for energy /
financials.
• Reduced scrutiny of M&A.
• New and universal tariffs
possible, especially on China.
• Less impact than red sweep
scenario.
41
 Politics: Sector impact may not need legislation, differences matter (II/II)
Blue Sweep
• Negative for fossil fuels.
Energy
• Possible curbs to oil and gas
drilling activity.
• Positive for renewables.
• Worst case scenario for
Financials
financials.
• New regulations and
enactment of Credit Card
competition likely.
• Continued regulatory
Healthcare
oversight on managed care
and anti-trust scrutiny.
• Some efforts to expand IRA
drug price negations
• IRA to remain in place.
Industrials
• Existing tariffs to remain in
place with China exception.
• Continued support for
Technology
domestic semi-conductor
manufacturing
Biden / GOP Senate / Dem House
• Continued regulation for
fossil fuels.
• Neutral to slightly positive for
renewables.
• Anti–big financial services
company ideology would
remain in place.
• Limited ability pass new
legislation.
• Focus on regulatory and anti-
trust oversight.
• Existing tariffs to remain in
place with China exception.
• Continued support for
domestic semi-conductor
manufacturing
Red Sweep
• Positive for fossil fuels; oil
and gas investment could
increase.
• Less regulation could lead to
M&A and consolidation.
• Best case scenario for
financial services.
• More favorable regulatory
environment could favor
further consolidation.
• Trump’s proposal for int’l
drug pricing index quite
negative for biopharma.
• Lower antitrust regulation.
• Partial rollback of IRA
incentives.
• New and universal tariffs
possible, especially on China.
• Increased semiconductor
manufacturing.
• Increased tariffs could impact
hardware.
• Blowback from China could
be headwind for suppliers.
Trump / GOP Senate / Dem House
• Somewhat positive for fossil
fuels with less regulatory
oversight.
• Appointment of Fed, FDIC,
OCC, SEC leadership likely
positive.
• Limited bipartisan solutions.
• New and universal tariffs
possible, especially on China.
• Increased semiconductor
manufacturing.
• Increased tariffs could impact
hardware.
• Blowback from China could
be headwind for suppliers.
42
Geopolitics: Talk of de-dollarization, but USD is still dominant
Dollar bears cite the growth of alternatives and higher debt as reasons to worry about the US dollar’s
dominance, yet most currency reserves and daily FX transitions are in USD.

Share of USD in FX reserves worldwide USD used in international transactions jumped higher in 2024
% Total % Total

USD

EUR

CNY

Source: IMF, UBS, as of 23 April 2024 Source: SWIFT, UBS, as of 23 April 2024

43
USD: Despite challengers, USD dominance should persist indefinitely
USD
Safe haven ++ USD comprises 90% of
status and global FX transactions, and
liquidity appreciates during risk-off
++ U.S. is world’s largest
Economic size
economy and the largest
of issuer
bond market ($51 tn.)
++ Federal Reserve
Credibility of credibility and “risk-free”
issuing status of U.S. Treasury
policymakers unmatched
++ US has largest military
Geopolitics
and legacy reserve
and inertia
currency after WWII
EUR
= EUR value falls during
risk-off events but remains
highly liquid in global
markets
+ Together, the European
Union has the second
largest GDP footprint and
bond market size (~$25 tn)
+ ECB widely regarded as
credible, yet frequent
domestic sovereign crisis is
a headwind
= EUR makes up 20% of
global FX reserves and
important economic actor
CNY Bitcoin
- CNY depreciates during
-- Bitcoin heavily
risk-off, on-shore capital
depreciates during risk off
market controls limits
events and relatively illiquid
liquidity
= China has third largest
bond market ($21 tn) and -- Bitcoin market cap less
third largest GDP size in than $1bn
the world
= Opacity of policymaking -- No centralized issuing
framework limits broader source and exchanges
credibility under risk
- CNY <3% of global FX
-- Bitcoin has no backing
reserves but policymakers
by military force nor has
increasing zone of
geopolitical allies
influence
Advantage Disadvantage
44
USD: If the dollar weakens, it may be only because it’s very expensive

Rebased US Dollar index (1/1/2023=100)

19
Months

USD DXY
index

10
Months

5 Months

2000-2020
Avg
2000-2020
Avg

USD REER
(inflation adjusted)

Source: Federal Reserve, BIS, UBS, as of 22 January 2024

45
Section 5

Markets & corporate activity

46
Market Activity Key Points: A good start slowed by higher rates

April pullback is likely a pause that refreshes. Equities ended Q1 on a strong footing but stumbled
in April due to higher rates on the back of reduced rate cut expectations and Middle East tensions. Mag
7 performance is no longer dominant and now quite idiosyncratic as equity market breadth has
improved.

Market improvement doesn’t require rate cuts, just rate stability. From nearly seven rate cuts in
2024, market pricing is now less than two, with risk of additional rate hikes. Disinflation progress and
slower growth should lead to rates falling, or at least stop rising. Volatility likely continues until that
happens.

M&A and PE "green shoots" challenged by higher rates. Deal activity still muted and may stay that
way until there is more clarity on the path of rates. Broad market improvement—rising equities, tight
credit spreads, ample corporate bond issuance, and improving CEO sentiment—are all still generally
supportive of more M&A, but bid-ask spreads between buyers and sellers is wide.

IPO activity and VC funding remain tepid, and a real pick-up could take a while. A few large 1st
day “pops”, but subsequent IPO performance was underwhelming. Activity likely stays low until that
improves. VC funding skewed towards AI start-ups, but that is slowing as VCs assess potential winners
in the space. VC funding rounds starting to improve, but a full valuation re-set could be a hindrance.

47
Equities: A strong Q1, a volatile Q2 so far
S&P 500 and Nasdaq 100 were both up 10% in Q1, but gave up over half of that in early April. The sell-
off and market volatility stem from higher rates, geopolitical risks, and investors de-risking portfolios.

Q2 equity index returns reversing Q1 so far Equity and rate volatility has surged in April
Rebased, 12/31/2023=100 %
1 April 1 April

MOVE, lhs
S&P 500

Nasdaq 100

Russell 1000

VIX, rhs

Source: Bloomberg, UBS, as of 19 April 2024 Source: Bloomberg, UBS, as of 19 April 2024

48
Equities: A Magnificent 7 no more, but market breadth has widened
Two of the Magnificent 7 are down year-to-date, with wide return dispersion amongst them all. The
equity rally broadened in Q1, and that should continue as the year goes on.

Wide dispersion in Magnificent 7 year-to-date returns Market breadth continued to rise through March
Rebased, 12/31/2023=100 # of companies reaching new 52-week highs on US exchanges

Source: Bloomberg, UBS, as of 19 April 2024 Source: Bloomberg, UBS, as of 19 April 2024

49
Equities: The S&P 500 is expensive, but earnings keep rising
The S&P 500 is rich relative to its own history, but can grow into its valuation. Earnings growth is likely to
continue in a higher nominal GDP environment and could be up nearly 10% in both 2024 and 2025.

S&P 500 P/E is a standard deviation above its LT average Earnings expectations continue to grind higher
Forward P/E S&P 500 bottom-up consensus fwd. EPS estimate, $

255
S&P 500 more
Expensive 250

245

240

Average 235

230

225

220
2022 2023 2024
Source: Bloomberg, UBS, as of 19 April 2024 Source: Bloomberg, UBS, as of 19 April 2024

50
Rates: Higher rates for too long could be a challenge for equities
Equities can withstand higher rates due to higher growth expectations, but additional rate increases due
to sticky inflation will be more challenging near term.

S&P 500 has wobbled when the 10-year yield got above 4.5% Nonprofitable tech especially vulnerable to higher real rates
% Index %

S&P 500, lhs

5y5y OIS,
rhs

US 10Y
Treasury yield,
lhs
Non-Profitable
tech index, lhs

Source: Bloomberg, UBS, as of 19 April 2024 Source: Bloomberg, UBS, as of 19 April 2024

51
Cross-asset: Markets were pricing for reflation, not stagflation
Typical cross-asset relationships are breaking; gold has rallied hard despite higher real rates, while
commodities moved higher even as the USD strengthened.

Dollar and commodities now have positive correlation Gold enjoys a sustained rally as real rates increase
Index $/oz & %

2400 -1.5
Gold 10y real yield (rhs, inverted)

2200 -1.0

2000 -0.5

1800 0.0

1600 0.5

1400 1.0

1200 1.5

1000 2.0

800 2.5
2010 2012 2014 2016 2018 2020 2022 2024
Source: Bloomberg, UBS, as of 19 April 2024 Source: Bloomberg, UBS, as of 19 April 2024

52
M&A: Conditions continue to become more favorable for M&A
Good equity returns, low volatility, improving business confidence, tight credit spreads, an open high
yield issuance market, and easing lending conditions all support an M&A rebound
Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar-
M&A Heatmap 18 18 18 19 19 19 19 20 20 20 20 21 21 21 21 22 22 22 22 23 23 23 23 24
M&A Volume 641 454 368 457 627 350 401 265 72 375 587 509 625 593 526 456 497 221 288 217 301 247 178 73
FCI 0.0 0.7 -1.0 0.3 0.3 -0.1 0.3 -5.3 -0.9 -0.4 0.3 0.9 1.2 0.7 0.9 -0.2 -1.2 -1.1 -0.1 -0.3 0.3 0.2 0.9 1.1
Vistage CEO Confidence 7.2 7.1 6.4 6.7 6.5 6.2 6.6 7.0 6.5 6.9 6.9 7.1 6.9 6.7 6.5 6.7 5.6 5.9 5.9 6.1 6.6 6.1 6.3 7.0
Small Business Confidence 107.2 107.9 104.4 101.8 103.3 101.8 102.7 96.4 100.6 104.0 95.9 98.2 102.5 99.1 98.9 93.2 89.5 92.1 89.8 90.1 91.0 90.8 91.9 88.5
Markets
SPX 12% 16% -6% 7% 8% 2% 29% -9% 5% 13% 16% 54% 39% 28% 27% 14% -12% -17% -19% -9% 18% 20% 24% 28%
NASDAQ 25% 28% -1% 12% 9% 2% 38% 6% 32% 47% 48% 68% 43% 29% 27% 13% -21% -25% -33% -11% 32% 34% 54% 38%
Midcap 12% 12% -12% 1% 0% -4% 24% -24% -8% -4% 12% 81% 51% 42% 23% 3% -16% -17% -14% -7% 16% 14% 14% 21%
Smallcap 16% 14% -12% 1% -5% -10% 24% -25% -8% -1% 18% 93% 60% 46% 14% -7% -26% -24% -22% -13% 11% 7% 15% 18%
Rates
10Y rate 2.86 3.06 2.68 2.41 2.01 1.66 1.92 0.67 0.66 0.68 0.91 1.74 1.47 1.49 1.51 2.34 3.01 3.83 3.87 3.47 3.84 4.57 3.88 4.20
Federal Funds Rate 2.00 2.25 2.50 2.50 2.50 2.00 1.75 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.50 1.75 3.25 4.50 5.00 5.25 5.50 5.50 5.50
2s10s Spread 33 24 19 14 25 4 34 42 50 55 79 158 122 121 77 0 5 -45 -56 -56 -106 -48 -37 -42
Financing
IG Spread 1.2 1.1 1.5 1.2 1.2 1.2 0.9 2.7 1.5 1.4 1.0 0.9 0.8 0.8 0.9 1.2 1.6 1.6 1.3 1.4 1.2 1.2 1.0 0.9
HY Spread 3.6 3.2 5.3 3.9 3.8 3.7 3.4 8.8 6.3 5.2 3.6 3.1 2.7 2.9 2.8 3.3 5.7 5.5 4.7 4.6 3.9 3.9 3.2 3.0
SLOS Large -11 -16 -16 3 -4 -3 5 0 42 71 38 6 -15 -32 -18 -15 -2 24 39 45 46 51 34 15
SLOS Mid/Small -3 -8 -3 4 0 -6 6 -1 40 70 31 11 -13 -26 -11 -9 0 22 32 44 47 49 30 19
IG Issuance 12% -25% -15% -9% 10% 2% -6% 61% 184% 13% -14% -44% -4% -9% 6% 7% -7% -32% -33% -8% 25% 5% -32% 60%
HY Issuance 0% -48% -73% 6% 82% 99% 69% 7% 103% 45% 11% 102% 6% -2% -40% -71% -75% -81% -68% 59% 126% 91% 23% 93%
Volatility
MOVE 51.2 46.2 66.6 58.5 70.4 77.2 58.3 83.9 54.1 39.2 49.0 71.3 57.3 61.1 77.1 106.9 135.5 141.9 121.6 135.9 110.6 113.6 114.6 86.4
VIX 16.1 12.1 25.4 13.7 15.1 16.2 13.8 53.5 30.4 26.4 22.8 19.4 15.8 23.1 17.2 20.6 28.7 31.6 21.7 18.7 13.6 17.5 12.5 13.0

Note: SLOOS Large and SLOOS Mid/Small measure the change in tightening standards Negative Positive
Source: Bloomberg, UBS, as of 23 April 2024

53
M&A: Strategic buyers likely lead the recovery from very low levels
M&A dealmaking still depressed in Q1; strategic buyers may dominate as they've been on the sidelines
waiting for a more favorable environment.

US M&A shows signs of troughing More strategic buyers relative to sponsors than the avg.
Number and count % of total volume
6,000 Volume, rhs Deal Count, lhs 700 100

Billions
600
5,000 80

500
4,000
60
400
3,000
40
300

2,000
200 20

1,000
100
0
Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-24
0 0
Sponsor Strategic
2012 2016 2020 2024
Source: Bloomberg, UBS, as of 23 April 2024 Source: Dealogic, Citi, Bloomberg as of 15 January 2024

54
Private Equity: Return of exits should be a catalyst to market recovery
Dealmaking starts 2024 on a still-sluggish note; collapse of exits in 2022 and 2023 has extended into
2024.

US dealmaking still sluggish, no strong rebound yet Overall exits muted and weighing on liquidity
Number and count Number and count
3,500 350 $120 45
Value, rhs Deal Count, lhs Exit value, lhs ($B)
Exit count, rhs 40
3,000 300
$100
35
2,500 250
$80 30
2,000 200 25
$60
1,500 150 20

$40 15
1,000 100
10
500 50 $20
5

0 0 $0 0
2012 2016 2020 2024 2012 2016 2020 2024

Source: Pitchbook, UBS as of 23 April 2024 Source: Pitchbook, UBS as of 23 April 2024

55
IPOs: Signs of life in Q1, but still very early in the recovery
In the US, seven IPOs raised more than $500 million each in Q1, a vote of confidence from larger issuers.
But overall IPO market performance is recovering slowly.

North American IPO deal proceeds Renaissance IPO index recovery stalled in April
$B and count Index
400 Value, rhs Deal Count, lhs 160

350 140

300 120

250 100

200 80

150 60

100 40

50 20

0 0
2019 2020 2021 2022 2023 2024 *
Source: Bloomberg, UBS, as of 23 April 2024 Source: Bloomberg, UBS, as of 23 April 2024

56
IPOs: Market will really open only if post-IPO performance is good
The ~30 US IPOs in 2024 had above-average 1st returns, but subsequent performance reversed that gain,
as the average price drifted lower.

IPO first day returns start 2024 with positive momentum But aftermarket performance lackluster
Median first day returns, % Performance, %
30% 30%

25%
25%

20%
20%

15%
15%
10%

10%
5%

5%
0%

-5% 0%
2000 2004 2008 2012 2016 2020 2024 Offer to first close Offer to date
Source: University of Florida, UBS, as of 23 April 2024 Source: Bloomberg, UBS as of 23 April 2024

57
Venture Capital: Very muted amid “higher for longer” rates
Q1 venture activity slows amid a softer environment in global VC, as exits remain limited; pre-seed
venture deal activity slips to the lowest share of all activity in recent memory.

Venture capital deal activity remains muted VC dealmaking by stage

Deal value ($B) and count % total
$120 Deal value ($B), rhs Deal count, rhs 6,000 100% 4.5% 4.5% 5.0% 5.0%
5.5% 4.9% 4.6% 5.3% 6.1%
90%
$100 5,000 22.2% 22.4% 23.9%
25.7% 26.6% 26.5% 26.6% 28.9%
80% 31.0%

70%
$80 4,000
60%
36.7% 36.5% 35.1% 32.7%
30.3% 31.4% 31.4%
$60 3,000 50% 32.3%
35.5%
40%
$40 2,000
30%

20% 36.6% 36.7% 36.0% 36.6% 37.6% 37.2% 37.4%

$20 1,000 33.5%
27.4%
10%

$0 0 0%
2016 2018 2020 2022 2024 2016 2017 2018 2019 2020 2021 2022 2023 2024
Pre-seed/Seed Early-stage VC Late-stage VC Venture Growth
Source: Pitchbook, UBS, as of 23 April 2024 Source: Pitchbook, UBS, as of 23 April 2024

58
Section 6

Sectors update

59
Sector Views: Tech, Healthcare, and Industrials in CIO Most Preferred

Tech: Valuations are rich but reflect strong fundamentals and secular growth. Massive rally from
last year have further enriched valuations but reflect strong RoE and fundamentals. Tech company
balance sheets still healthy and cash rich. Thus, they should be able to weather a high interest rate
environment better than other firms. Sector is likely to remain in favor unless there is a hard landing
which may have an outsized impact on select-mega caps.

Healthcare: Earnings to improve in 2024. Significant underperformance in 2023 holds back better
investor sentiment. Muted appetite for biotech IPOs reflects a degree of investor caution – especially
those lacking proof-of-concept clinical data. As a result, smaller biotech firms continue to struggle to
raise capital amid liquidity concerns. Consistent earnings growth through the economic cycle should
position healthcare well during any period of potential slowdown.

Industrials: Greenshoots emerge after prolonged distress. A broadening pickup in manufacturing

global manufacturing activity a strong tailwind to the sector after 16 consecutive months of contraction.
Industrial companies are emerging from a challenging period of normalization in which orders, backlog
and sales challenge inventory reset to underlying demand. Valuations are elevated, but reflect broader
risk appetite.

60
Sectors: Valuation and earnings growth dispersion is large
Tech and consumer discretionary trading at upper half of 30-year range while real estate and energy
trading at bottom of ranges. This mirrors earning expectations.

Earnings growth rates Historical P/E ratios for S&P GICS sectors
year/year, % % MAX
90 range
Communication
80
Health Care 70
IT 60
50
Consumer Discretionary
40 Q2 2024
Financials
30
MIN
Industrials 20
range
Utilities 10
0
Consumer Staples

Energy

Healthcare

Utilities
Financials

IT
Consumer Staples

Real Estate
Consumer Discretionary
Materials

Industrials
Real Estate
Materials

Energy

-40% -20% 0% 20% 40%

2024 2023
Source: Bloomberg, UBS, as of 23 April 2024 Note: History taken from 2004
Source: Bloomberg, UBS, as of 23 April 2024

61
Sector Snapshot: Tech

Summary Market Performance Valuations

• Tech stock valuations on S&P Subsector performance P/E Ratio

the high side but supported in tsds. %
by strong fundamentals.
• Overall, the sector should
benefit from bottoming in
PC and smartphone end-
markets and positive
earnings revisions.
• US tech sector companies
have strong balance sheets,
Source: Bloomberg, UBS, as of 23 April 2024
which should insulate them Source: Bloomberg, UBS, as of 23 April 2024

from high rates and slower Relative Market Performance Spreads

economic growth. Rebased 12/31/2019 =100 in bp
Tech
• For AI, we expect some
period of digestion over the
next 12-24 months and S&P
broadening of AI 500
beneficiaries; AI tech may
be a structural story but
investments in
infrastructure is cyclical.
Source: Bloomberg, UBS, as of 23 April 2024 Source: Bloomberg, UBS, as of 23 April 2024

62
Sector Snapshot: Healthcare

Summary Market Performance Valuations

▪ Healthcare struggled in S&P Subsector performance P/E Ratio

2023 lagging behind in tsds. %
broader equity indices
thanks to a challenging
macroeconomic
environment and reduced
impact from Covid-19
related products
▪ Valuation compared to S&P
trends at long-term
averages. Source: Bloomberg, UBS, as of 23 April 2024 Source: Bloomberg, UBS, as of 23 April 2024

▪ Historic steady earnings Relative Market Performance Spread

growth through economic Rebased 12/31/2019 =100 bp
cycle is a benefit in a more
uncertain, “higher-for- S&P 500
longer” rates scenario.
▪ Campaign season unlikely
Healthcare
to be a major driver for
healthcare sector but
rhetoric may impact
investor sentiment.
Source: Bloomberg, UBS, as of 23 April 2024 Source: Bloomberg, UBS, as of 23 April 2024

63
Sector Snapshot: Industrials

Summary Market Performance Valuations

• Acceleration of S&P Subsector performance P/E Ratio

manufacturing activity shown in tsds. %
through pickup in the ISM
manufacturing index a
positive for the overall sector.
• Short-cycle categories have
largely normalized from post
pandemic excesses and
should recouple with
underlying demand, while
secular trends provide Source: Bloomberg, UBS, as of 23 April 2024 Source: Bloomberg, UBS, as of 23 April 2024
resilience to long-cycle
verticals. Relative Market Performance Spreads
Rebased 12/31/2019 =100 %
• Valuations are elevated
relative to history but have
largely tracked broader
market valuations to inch
higher.

Source: Bloomberg, UBS, as of 23 April 2024 Source: Bloomberg, UBS, as of 23 April 2024

64
Risk information

Non-Traditional Assets

Non-traditional asset classes are alternative investments that include hedge funds, private equity, real estate, and managed futures (collectively, alternative investments). Interests of alternative investment
funds are sold only to qualified investors, and only by means of offering documents that include information about the risks, performance and expenses of alternative investment funds, and which clients
are urged to read carefully before subscribing and retain. An investment in an alternative investment fund is speculative and involves significant risks. Specifically, these investments (1) are not mutual funds
and are not subject to the same regulatory requirements as mutual funds; (2) may have performance that is volatile, and investors may lose all or a substantial amount of their investment; (3) may engage in
leverage and other speculative investment practices that may increase the risk of investment loss; (4) are long-term, illiquid investments, there is generally no secondary market for the interests of a fund,
and none is expected to develop; (5) interests of alternative investment funds typically will be illiquid and subject to restrictions on transfer; (6) may not be required to provide periodic pricing or valuation
information to investors; (7) generally involve complex tax strategies and there may be delays in distributing tax information to investors; (8) are subject to high fees, including management fees and other
fees and expenses, all of which will reduce profits.

Interests in alternative investment funds are not deposits or obligations of, or guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other governmental agency. Prospective investors should understand these risks and have the financial ability and willingness to accept
them for an extended period of time before making an investment in an alternative investment fund and should consider an alternative investment fund as a supplement to an overall investment program.

In addition to the risks that apply to alternative investments generally, the following are additional risks related to an investment in these strategies:

• Hedge Fund Risk: There are risks specifically associated with investing in hedge funds, which may include risks associated with investing in short sales, options, small-cap stocks, “junk bonds,”
derivatives, distressed securities, non-U.S. securities and illiquid investments.
• Managed Futures: There are risks specifically associated with investing in managed futures programs. For example, not all managers focus on all strategies at all times, and managed futures strategies
may have material directional elements.
• Real Estate: There are risks specifically associated with investing in real estate products and real estate investment trusts. They involve risks associated with debt, adverse changes in general economic or
local market conditions, changes in governmental, tax, real estate and zoning laws or regulations, risks associated with capital calls and, for some real estate products, the risks associated with the ability
to qualify for favorable treatment under the federal tax laws.
• Private Equity: There are risks specifically associated with investing in private equity. Capital calls can be made on short notice, and the failure to meet capital calls can result in significant adverse
consequences including, but not limited to, a total loss of investment.
• Foreign Exchange/Currency Risk: Investors in securities of issuers located outside of the United States should be aware that even for securities denominated in U.S. dollars, changes in the exchange rate
between the U.S. dollar and the issuer’s “home” currency can have unexpected effects on the market value and liquidity of those securities. Those securities may also be affected by other risks (such as
political, economic or regulatory changes) that may not be readily known to a U.S. investor.

65
 Risk information/Disclaimer
UBS Chief Investment Office's ("CIO") investment views are prepared and published by the Global Wealth Management business of UBS Switzerland AG (regulated by FINMA in Switzerland) or its affiliates ("UBS"),
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