The second large wealth manager in less than a month reduced U.S. corporate earnings expectations, highlighting risks that the global economy is decelerating at a rapid pace.
With most assets globally up in price year-to-date, some areas of real estate might be the way to go for the time being.
But before we get to real estate, let's go over the facts.
UBS' Global Chief Investment Officer Mark Haefele wrote in a note Monday, "Downside risks are increasing for both the global economy and markets. As a result, we are reducing risk in our portfolios by moving to an underweight in equities to lower our exposure to political uncertainty."
President Trump threatened to raise existing tariffs of 25% on Chinese goods coming into the U.S. to 30%. This was in response to China's own retaliatory threat that it may levy tariffs on $75 billion worth of American goods sold into China. That was in response to Trump's early August threat to add 10% to 25% tariffs on $300 billion worth of Chinese goods. Meanwhile, the S&P 500 was up 17% in 2019 through last Monday, although that gain has moderated to 14.5% year-to-date, as investors fear a heightened risk of a recession soon.
Haefele mentioned slowing manufacturing -- the purchasing managers index contracted to 49.9 in August from 50.4 in July for the first time in almost 10 years -- as companies curb investment with an unclear tariff picture. It is business uncertainty that resulting from potential tariffs that is damaging the U.S. economy, as companies hire fewer workers when they invest less.
Last week, LPL Financial Chief Investment Strategist John Lynch wrote, "We are tweaking our 2019 forecasts to reflect increased risk to economic growth and corporate profits from the ongoing trade conflict between the United States and China." Third-quarter earnings growth in the U.S. is expected to contract 3%, according to FactSet.
Turning to safe assets like the 10-year treasury bond may not be a great move, either, as the bond's price has risen considerably, as investors look for several interest rate cuts in 2019 to stimulate economic growth. The 10-year treasury is yielding a measly 1.55%.
Enter real estate.
"I think we are seeing multi-family [houses], offices, things that are being built new over the next ten years," said Tracy Byrnes, Financial Advisor at UBS. "You're seeing great opportunities."
Clearly construction firms are seeing opportunity in real estate, and while that may be a positive signal to potential home-buyers, here's the kicker:
"People, if they're willing to part with their money for a bit, should really take advantage of this because you basically get growth, tax free, over the course of the next seven to ten years," Byrnes said. Still, she advises to "be careful" with single-family homes in the near term, as a drop of oversupply is currently a dominant factor in the housing market. For the near future, interest seems to be higher in rental real estate.