The stock market’s recent rally may be nearing a pause as signs of slowing US economic growth emerge, according to Andrew Garthwaite, chief global equity strategist at UBS.
The strategist points to both macroeconomic indicators and market signals that suggest the S&P 500’s bullish momentum could be at risk in the months ahead.
Garthwaite highlighted that implied intra-index volatility — a measure of expected fluctuations within index components — is now near the lower end of its historical range, leaving it vulnerable to a reversal. “When it rises, cyclicals have tended to underperform 84% of the time,” he noted in a recent client briefing.
The UBS strategist maintains a cautious short-term outlook, forecasting that August will likely be a down month for equities as US growth slows, while the Federal Reserve remains unable to cut interest rates until September.
Economic indicators signal deterioration
UBS sees US economic data continuing to weaken in the months ahead, which could put additional pressure on markets.
Despite the S&P 500’s strong performance this year — up 8% in 2025 and more than 30% higher than its April lows — underlying economic trends have been soft.
Garthwaite pointed to the labor market as a key area of concern.
While equity markets have shrugged off higher tariffs and sluggish data, the strategist noted that “3-month annualized hours worked has weakened sharply,” while employment Purchasing Managers’ Index (PMI) readings are suggesting a slowdown in job growth.
UBS expects non-farm payroll growth to slow significantly in the fourth quarter, projecting a monthly average of just 48,000 jobs.
The forecast also includes the possibility of payrolls turning negative during Q4, with a decline of about 12,000 jobs.
Seasonal headwinds and Fed timing
Beyond the weakening economic backdrop, seasonal patterns could further dampen investor sentiment.
Historically, August and September have been the weakest months for equities, and UBS sees no reason to expect a different outcome this year.
Garthwaite reiterated that the Federal Reserve is unlikely to cut interest rates before September, limiting potential policy support in the near term.
With the combination of softening economic data, historically low volatility levels, and seasonal weakness, the strategist believes the current market environment calls for caution.
The S&P 500’s rebound to record highs has been notable for its resilience, but UBS warns that it has come in spite of mounting macroeconomic challenges.
Whether the index can sustain its momentum will likely depend on how quickly the labor market and broader growth indicators stabilize — and on the Fed’s next move once it has room to adjust rates.
As Garthwaite summed up in his client note, the balance of risks suggests the market’s bull run may be due for a breather, with the months ahead likely testing investor patience and conviction.
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