UBS’ top equity strategist dialed back his view on U.S. stocks, citing mounting risks from a weakening dollar, stretched valuations and policy turbulence in Washington.

Andrew Garthwaite, head of global equity strategy at the investment bank, downgraded American equities to “benchmark” in a fully invested global equity portfolio, arguing that the factors that powered years of outperformance are starting to fade.

The dollar risk is a central concern, Garthwaite wrote. UBS forecasts the euro climbing to $1.22 by the end of the first quarter and sees “asymmetric structural downside risks” to the greenback. Historically, when the dollar’s trade-weighted index falls 10%, U.S. equities underperform by roughly 4% in unhedged terms, according to the bank.

Foreign markets are trouncing the U.S. this year as a weaker dollar and cheaper valuations draw capital overseas. The MSCI World ex-US index has gained about 8% in 2026, compared with the little changed performance for the S&P 500. Japan’s Nikkei 225 has rallied 17% year to date, while the Stoxx Europe 600 is up 7%, underscoring a sharp rotation away from American equities. U.S. stocks struggled again Friday as investors fretted over the potential downsides of the artificial intelligence buildout and persistent inflation at home.

Another pillar of U.S. stock strength — corporate buybacks — is also losing its edge, the bank said. The buyback yield in the U.S. is now only roughly on par with global peers, eroding what had been a key support for earnings per share growth and investor flows, UBS said. The combined shareholder yield from dividends and buybacks in the U.S. is now about half that of Europe, the bank said.

“The buybacks yield is no longer exceptional and this had been an important driver of funds flow, EPS and valuation,” Garthwaite wrote.

Valuations add to the unease. UBS calculates that the sector-adjusted price-to-earnings ratio for US stocks is 35% above international peers, versus an average premium of about 4% since 2010. Roughly 60% of sectors trade not only at higher multiples than their global counterparts but also above their own historical premium, the strategist wrote.

Policy volatility under President Donald Trump is another headwind. This year has brought shifts in tariff policy, proposals to cap credit-card interest rates, potential limits on private equity investment in housing, renewed scrutiny of drug pricing and suggestions to curb dividends and buybacks for defense companies, UBS said.

Still, the noted strategist stopped short of turning outright bearish. Garthwaite said the U.S. economy and equities tend to benefit more than peers when markets are in the early phases of a potential bubble. The bank also expects artificial intelligence adoption to outpace most other major regions, with the possible exception of China, helping sustain earnings growth across key industries.

UBS strategist Sean Simonds set a year-end target of 7,500 for the S&P 500, compared with an average forecast of 7,629 among 14 top strategists, according to CNBC Pro’s strategist survey.