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Investing.com -- UBS downgraded U.S. equities to Neutral from Attractive following an 11% rally in the S&P 500 since early April. 

The bank pointed to reduced upside after progress on U.S.-China trade talks drove market gains.

“We downgrade U.S. equities to Neutral from Attractive,” UBS said, noting that “risk-reward in equities is now more balanced.” 

The firm had upgraded U.S. stocks on April 10, arguing that excessive trade-related pessimism was priced in. But with tariffs temporarily paused and markets rebounding, UBS believes the easy gains are behind.

On Monday, the S&P 500 rose 3.3% and the Nasdaq jumped 4.4% after the U.S. and China agreed to reduce tariffs for 90 days while negotiations continue. 

U.S. levies on Chinese imports will fall to 30% from 145%, while China will cut tariffs on U.S. goods to 10% from 125%. 

“The pace and scale of tariff reductions agreed in this initial round have exceeded market expectations,” UBS said.

Despite the downgrade, UBS emphasized it is “not a bearish view, nor a call to sell equities.” 

“Uncertainty is still high,” UBS cautioned, “and investors will soon begin to focus on whether this temporary fix can evolve into a lasting agreement.”

The bank continues to advise a full strategic allocation to U.S. stocks and expects equities to be higher 12 months from now. 

UBS’s sector preferences remain unchanged, with Attractive ratings on communication services, tech, health care, and utilities.

Looking ahead, UBS said the “durability of this rally will depend on two key factors: whether U.S.-China negotiators can turn this into a lasting trade agreement, and how Beijing proceeds with anticipated stimulus.”

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