Bhanu Baweja, Chief Strategist at UBS Group, stated that U.S. consumer spending is set to slow as real disposable income growth nears zero and fiscal support wanes. This poses a threat to the stock market, despite the strong first-quarter corporate earnings driven by artificial intelligence.

Long-term bond yields have risen sharply over recent trading sessions, with the 30-year U.S. Treasury yield reaching levels last seen in 2007. Baweja warned in a television interview on Wednesday that the yield increase reflects strong U.S. nominal growth rather than inflation concerns, with real yields being a significant driver, especially at the long end of the curve.

He noted that the market is overly focused on capital expenditure from AI-focused mega-cap companies, overlooking the risks of a slowdown in consumer and financial sectors. The robust first-quarter earnings growth in these sectors masks underlying weakness.

"If the market is worried about inflation today, it should be worried about growth tomorrow," he said.

Against this backdrop, the strategist expects large-cap stocks to outperform small-caps, and growth stocks to outperform value stocks, particularly amid ongoing Middle East conflicts. However, he believes the U.S. will still outperform Europe, even as both face headwinds.

Baweja pointed out that price movements in commodity markets suggest traders believe the Iran conflict has passed. He noted that, given stalled negotiations and no clear diplomatic solution in sight, the six-month oil futures price may be too low.

Baweja also views the yield curves in Japan and the UK as having steepened considerably, now showing value. Despite rapid inflation transmission, he anticipates the Bank of England will begin cutting interest rates starting in 2027, rather than raising them this year.