UBS Equities-US Style Guide _Factors Challenged while Markets Up in July_...-116954878

ab1 August 2025Global ResearchUS Style GuideFactors Challenged while Markets Up in July Market PerformanceMarkets finished the month up despite a pull back in the final week. Market outperformance was broad based as the S&P 500 and Russell 1000 were each up +2.2% and Russell 2000 up +1.7%. Overall, markets are up +8.1% YTD, driven primarily by large caps (+8.3%) while small caps remain roughly flat compared to the end of last year (-0.1%). The US economy grew at a 3% (ann rate) in the second quarter, reversing the -0.5% contraction recorded in the first quarter. CPI remained stable, with a slight increase of 0.3%, and although the labor market continued to grow, it did so at a slower pace than expected. The Fed held interest rates steady at its latest meeting. Factor OverviewFactors remain challenged in July and only a handful of factors outperformed. EPS Growth was again the best performer (+3.6%) followed by High Quality (+1.0%) and Price Momentum (+0.4%) (Figure 1Style Factor Performance, Most Recent Month). Delta Quality and Size were close to flat while all other factors underperformed. Low Risk continued to underperform as they were the two worst performing factors: Low Price Beta (12m) (-5.9%), Low Volatility (-4.8%) (Figure 7Long-Short)\Market forecast PE in diferent universes. Factor valuations remain high across almost all factors, with the exception of Low Price Beta, which is just slightly above its historical median (Figure 6US forecast PE in diferent factors ).Investing Environment OverviewMacro factor importance remained largely unchanged versus last month, at about 20%. The largest contributors were US Yield 2Y at 14% and US 10Y-2Y Spread at 4%, while Crude Oil and Gold are flat (Figure 2US macro drivers through time). Cross-sectional volatility ticked up for large but ticked down for small caps (Figure 3Cros-sectional volatility), but remains low overall, while pairwise correlation, which had been edging higher in previous months, ticked lower this month (Figure 4Average pairwise corelation). Across market valuations (Figure 5Market forecast PE in diferent universes), Large Caps remain expensive while Small Caps are undervalued. Most sectors remain expensive with the exception of Energy (slightly overvalued), Healthcare (slightly undervalued), and Real Estate (undervalued). Consumer Staples, Industrials and Financials are near historical valuation highs.Figure 1: Style Factor Performance, Most Recent MonthSource: FactSet, UBS Quantitative DatabaseThis report has been prepared by UBS Securities LLC. NA ANALYST CERTIFICATION AND REQUIRED DISCLOSURES, including information on the Quantitative Research Review published by UBS, begin on page 12. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor