UBS Equities-US Equity Strategy _Simply U.S.A. Health Care drove PMIs hi...-118917221

ab18 November 2025Global ResearchUS Equity StrategySimply U.S.A.: Health Care drove PMIs higherSector PMIs rebounded while our Overheating probability declined
The OECD CLI remained in expansion territory this month and our sector aggregate PMIs rebounded driven by Health Care.
Banks and Metals & Mining are currently the best scoring IGs; Industrials has moved back up our scorecard and Cons Staples is now our worst-ranking sector
EPS for the S&P 500 is on pace for 15.6% YoY and earnings are beating estimates by 9.7% in aggregate, despite this non Tech+ revisions for 2026 are just resilient.Regime: Sector weighted PMIs snapped back from October weaknessThe OECD CLI in our REVS framework remains in expansion this month, while sector-weighted PMIs for the S&P 500 rebounded. Healthcare led the gains, climbing above 55—the highest since March—while Technology edged higher, now slightly above its three-month average. Market-implied regime probabilities still price a ~40% chance of a Goldilocks scenario (resilient growth + normal inflation), with Overheating slipping to ~17% in early November. If Overheating re-emerges, cyclical sectors such as Autos & Components, Consumer Durables & Appliances, and Diversified Financials could outperform.Earnings: Earnings revisions remain underwhelming but supportiveS&P 500 EPS is tracking +15.6% YoY through 3Q reporting , companies are are beating estimates by 9.7% in aggregate, with 78% of companies surpassing projections. Despite strong results, revision momentum and breadth remain muted, with only a slight uptick in small caps. 2026 EPS expectations for S&P 500 ex-Tech+ have held steady since June (vs. a typical ~2% decline), while revisions remain concentrated to Tech+, up ~9%. Semiconductors & Equipment lead improvements, while Media & Entertainment have normalized. Transportation, Autos, and HC Equipment & Services have strengthened. Markets still expect >15% growth from Semis, Mining, Media, and Pharma, with S&P 500 EPS projected to rise >11.5% in 2025.Valuations: Elevated but not concerningThe S&P 500 appears expensive at a forward P/E above 22x (18.5x ex-Tech+). Valuation concerns typically matter most when earnings downgrades are underway, but continued earnings strength should help offset near-term risks. We believe modern market structures—such as persistent buybacks and steady inflows from global pension savings—are key drivers of momentum. However, if hard data and employment weaken further, negative earnings revisions could trigger volatility and increase selling pressure. Still, structural factors provide strong arguments that these flows could continue to cushion potential valuation downside in U.S. equities.Sentiment: Industrials have strongest sentiment scores followed by MaterialsUBS crowding data indicates a significant rotation into Autos & Components, while crowding has eased slightly across a broad set of Industry Groups. Our Theme-ometer shows crowding in Mag 7 stocks and AI-related themes