UBS Equities-US Equity Strategy _Simply U.S.A. Sector PMIs may have peak...-118403580

ab22 October 2025Global ResearchUS Equity StrategySimply U.S.A.: Sector PMIs may have peaked in SeptemberOverheating probability higher as sector PMIs show some signs of slowing
The OECD CLI remained in expansion territory this month but our sector aggregate PMIs fell for the first time since February.
Media & Entertainment, Auto Components, Software, and Metals & Mining are currently the most positively scoring IGs while Industrials has become our lowest-ranked sector—though it still maintains a positive score.
Earnings revisions have moderated as 3Q earnings season kicked off, we could see further positive revisions if surprises continue.Regime: Sector weighted PMIs appear to be rolling overThe OECD CLI used in our REVS framework remain in expansion this month while the sector weighted PMIs for the S&P 500 appear to have peaked. The most notable declines were in Consumer Goods, Healthcare, and Consumer Non-Cyclicals, while Consumer Services posted a sharp gain. Technology sector PMIs edged higher in September but remain slightly below their three-month average. Our market implied economic regime probability suggests markets are still pricing in a 40% chance of Goldilocks regime (resilient growth + normal inflation), but we still see risk of Overheating probability (~20%) rising. Overheating could drive further cyclical outperformance as Autos & Comp, Cons Dur & App, and Div Financials are among the most sensitive IGs. Earnings: Earnings season could accelerate earnings revisions againFollowing strong positive earnings revisions at the end of Q2 reporting, revision momentum and breadth have moderated. However, significant beats in Q3 could reignite upward revisions later in the earnings season. Semiconductors & Equipment have seen the largest improvement in earnings expectations. Media & Entertainment, Retailing, Tech Hardware, and Insurance have also trended positively. Healthcare Equipment & Services and Autos continue to face negative revisions, while Energy declined this month. Markets still anticipate robust growth (>15%) from Semis, Media, and Pharma, with S&P 500 EPS projected to rise over 10% in 2025.Valuations: Elevated but earnings and sentiment remain supportive for nowThe S&P 500 looks expensive on a forward P/E of more than 22x; 18.5x for S&P 500 ex Tech+. Valuation concerns matter more when EPS downgrades are underway, but continued earnings strength should be an offset in the near term. We think that modern market structures like buybacks and reliable flows from global pension savings schemes contribute to the 'momentum'. If hard data/jobs begin to weaken faster negative earnings revisions could lead to increased volatility and more sellers, but there are strong arguments that this market structure could continue to offset potential valuation downside in the US. Sentiment: Comm Services and Consumer Discretionary have strong positive sentimentHedge fund positioning data suggests there has been a rotation out of Pharma and F