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UBS’s top strategist says US stocks will fall, inflation will cool and a global recession will lead to a recession.

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  • Bhanu Baweja said US stocks may rise in the near term but have not bottomed yet.
  • UBS’s top strategist sees underlying inflation cooling and the US economy suffering from a recession.
  • Earnings pressures, higher bond yields and global slowdown could affect equities, he said.

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The chief strategist at investment bank UBS told CNBC on Wednesday that stocks will fall, inflation will slow and the U.S. economy will slip into recession.

Bhanu Baweja said of the US stock market, “I don’t think it’s low.” The benchmark S&P 500 is down 16% this year to nearly 4,000, while the tech-heavy Nasdaq index is down 29% to nearly 11,300.

Nevertheless, the seasoned analyst suggested that the stock could rise in the near term. He predicted that the main consumer price index, excluding food and energy prices, would rise less than 0.3% this month. They said this could prompt investors to lower their expectations about how high and for how long the Federal Reserve will raise interest rates, leading to a scramble to buy stocks.

“The market has been looking for a very restrictive Fed for a long time,” Baweja said. “I think with the next couple of CPI prints it will drop a bit more.”

However, UBS’s top strategist warned that US companies could squeeze profits if the country slides into recession. Stocks are often valued on a price-to-earnings basis, meaning they are likely to fall if earnings fall overall.

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In addition, UBS expects between a third and half of the countries it covers to enter a recession, with global growth slowing to just 2% next year, Baweja said. If other countries are struggling, it could hurt spending and investment by foreigners in the US and the demand for US exports.

“We don’t have the conditions necessary for a deep recession, but we do have conditions where global growth will be very weak,” Baweja said.

“It’s an inch deep, but it’s a mile wide,” he added of the growing slump. “It’s not priced into stocks.”

Overall, Baweja is no longer bullish on equities, as safe assets like bonds offer huge returns, but he expects US equities to outperform their European counterparts by 2023.

“We’re looking for very normal returns in stocks, period,” he said. “If most of the trouble is in profits next year, Europe is on track to make more losses than the US.”

Read more: Goldman Sachs says the S&P 500 will be flat through 2023. Here’s his five-step plan for finding returns — and avoiding serious losses — next year

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