"We reduce our U.S. equity overweight to neutral, and initiate an underweight position on U.K. equities," Mark Haefele, chief investment officer at UBS Wealth Management, said in his monthly letter to investors on Friday.
"For the first time in years, the U.S. does not have the most attractive profit outlook compared to other regions, particularly the euro zone. With relative valuations also more attractive outside the U.S., a neutral stance is now warranted."
UBS Wealth Management had been tactically overweight U.S. stocks for the last three years. The downgrade follows a record breaking close from the Nasdaq Composite index on Thursday, with tech stocks propelling the index to an all-time closing record, topping the previous high of 5,048.62 set in March 2000. The index was up around 0.7 percent at 5,090 shortly after market open on Friday.
Also on Thursday, the benchmark S&P 500 index briefly topped its intraday record of 2,119.59, while the Dow Jones Industrial Average came within 1 percent of its record close in intraday trade, before paring gains.
"I don't think we're far enough down the road of high valuations and speculation yet to raise real concerns about stability. However, if we continue down this path and see risks emerging, we have to be ready to exit risky assets," said Haefele.
UBS Wealth Management said it remained positive on risky assets in general, despite lofty valuations. It remained neutral on emerging markets and overweight on euro zone stocks, but did warn of the potential of a bubble in valuations forming.
It also revised down its outlook for U.K. stocks, after London's FTSE 100 broke through 7,000 for the first time last month.
"I think the key to a more sustainable path forward for the developed world is higher rates of investment. Today's interest rate policies might represent a once-in-a-generation opportunity to build the roads, bridges, and ports for the decades ahead. It would be a shame if all the policies do is blow a bubble," Haefele said.
The MSCI AC World Index, which tracks large- and mid-cap companies across 46 developed and emerging market countries, is now 10 percent above 2007 highs.
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Given the subsequent 2008 global financial crisis, this makes investors nervous, according to Citi, although its chief global equity strategist, Robert Buckland, said the bull run was backed by positive data.
"We are reassured to find that the rebound in share prices reflects a rebound in GDP, EPS (earnings per share) and DPS (dividend per share). Therefore, we think this bull market is maturing but not over. Of course, this doesn't mean we won't get further corrections," Buckland said in a note Friday.
"We are not overly scared by global equities regaining levels previously followed by ferocious bear markets. But nor are we complacent. We continue to watch for a build-up of factors that would make us worry that an end to this 6-year equity bull market is imminent."