UBS Investment Bank chief strategist Bhanu Baweja expects strong US earnings growth to push stocks higher in the near term, but warns that the picture will grow considerably murkier heading into 2027 as corporate margins face mounting pressure.
According to Baweja, corporate margins—the primary engine behind the post-pandemic equity surge—face pressures that could result in stalling returns and catch complacent investors off guard.
Shifting Outlook and Margin Realities
In January 2026, Baweja described the year ahead as one delivering decent yet mediocre returns compared to previous expectations, signaling that the easy money phase of the cycle was winding down. By April 2026, his tone shifted further toward caution, with the strategist encouraging investors to play defense in equity markets due to primary concerns surrounding geopolitical uncertainties.
His latest analysis focuses heavily on profit margins. While strong nominal growth has propped up markets driven by real economic activity rather than inflation, Baweja's timeline places the inflection point in 2027, when he expects market returns to flatline.
Consumer Spending and Defensive Positioning
As of May 2026, Baweja identified a potential slowdown in US consumer spending as the single biggest threat to the ongoing stock market rally. Because consumer spending accounts for roughly two-thirds of US gross domestic product, tightening wallets can ripple through corporate revenue lines faster than most models predict.
In a UBS podcast from November 2025 discussing the global economics and market outlook for 2026 through 2027, Baweja outlined a framework emphasizing a shift away from high-beta, momentum-driven trades toward more resilient market sectors.
Baweja maintains that the sequencing of these market phases matters for investors. While the coming months may still deliver positive returns driven by earnings momentum, he suggests the window for taking profits and repositioning is open now, prior to margin compression appearing in quarterly reports. Geopolitical risks also remain a wildcard that could accelerate the timeline for adopting defensive positions.
