UBS' new equity chief warns that a 10% plunge in the stock market this year will catch investors off-guard — and outlines how to protect against losses

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The Fed's rate hikes are about to slam the stock market with a lag, according to Francis Trahan, the new chief US equity strategist at UBS.

, of 2,550, is the second-lowest among the 25 chief equity strategists tracked by Bloomberg. The median forecast is 2,950.

Since late 2015, the Fed has raised its benchmark interest rate from near-zero to a target range between 2.25% and 2.5%. Despite these increases, rates have remained historically low, giving both the economy and stock market an accommodative environment to continue expanding. This climate is a key reason why the economy is on the verge of its longest-ever expansion.

Although growth looks strong today, it usually takes nearly two years for interest-rate increases to slow economic growth, according to Trahan. Given that the most recent rate hike was in December, the economy should slow through the end of 2020, he said.However, the stock market only discounts such events about six months into the future, which explains why it is still trading with the perception that the economy is doing just fine.

He continued:"As we see it, the likeliest path to outperformance remains with a risk-off posture and we favor counter-cyclical sectors and stocks exhibiting low volatility and high visibility."

 

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