Stocks still have a long way to go before reaching a bottom, according to UBS. The bank on Monday said the S & P 500 will bottom in the second quarter of 2023 at about 3,200. That's 15% below where the index closed last week. "The lows are not in," UBS economist Arend Kapteyn said in a note to clients. He noted that the economy has yet to feel the "full effect of the rapid recalibration of monetary policy." The economist also said the U.S. will likely see an economic contraction in 2023 that will be on the "mild" end of the historical range. Another source of pressure will be lackluster earnings. This all could give way to a disinflationary environment in which rates are falling, leading to a market bottom and paving the way for a disinflationary environment. That will lift the S & P 500 to 3,900 by the end of 2023, Kapteyn said. How to play a 'disinflationary environment' In what UBS calls the "disinflationary environment" expected around the globe next year, Kapteyn recommends having more exposure to health care, communication services and tech. Health care and communication services usually perform better than other sectors during declining inflation periods and feel less impact from changes to inflation, he said. Meanwhile, information technology and health care revenues are both considered the least correlated with changes in inflation indexes used by UBS. Within the U.S. specifically, Kapteyn said investors should capitalize on the fact that compensation tends to be "more resilient" than business investment spending during recessions by looking to consumer discretionary and staples instead of industrials and materials. He also said quality and growth stocks will perform better than value as the latter's structural challenges become more apparent during times of slowed growth. With these themes in mind, UBS made a list of U.S. stocks that will be most positively impacted by declining inflation. The list ranges from Big Tech names like Netflix , which have taken beatings following a mostly disappointing earnings season, to biotechnology stock Incyte — which has posted a small gain despite the S & P 500 tumbling into a bear market. UBS screened for how each stock's returns correlate with inflation, how inflation compared to forward sales and the average monthly performance compared to the six-month inflationary trend. Using these data points, the firm created a composite score to find the stocks most likely to see upsides from inflation decreasing. Of the more than 30 stocks listed by UBS as potential winners, the average composite score was 0.83. UBS also listed stocks that will be most hurt by declining inflation. Included on the list is oil company Exxon Mobil , considered one of the winners of 2022 with 85.6% growth in share value this year. How other markets will move Kapteyn also recommended being long on the U.S. 10-year Treasury note with declining inflation and a weaker economy. The note's yield has jumped in recent weeks in response to interest rate moves from the Federal Reserve and other central banks around the world. He said the risk-return on U.S. Treasury notes is "highly attractive for the first time in more than a decade If inflation remains sticky and the labor market remains robust." There's also an "attractive entry point" on the yield curve between the 5-year note and 30-year note , he said. Currencies and commodities are also expected to move in response to the period of declining inflation. The U.S. dollar will likely move lower compared to the yen and euro after surging this year and biting into foreign revenues of multinational companies. Meanwhile, after a rocky year, 2023 should be "the year for gold ," he said, with the risk-reward ratio looking attractive on expectations of less hawkish language on inflation from the Federal Reserve and lower interest rates in the second half of the year. To be sure, he noted that this scenario is driven in some cases by "luck" and can be considered "widely optimistic" as it is based on food and energy prices falling and cost pressures being increasingly absorbed into company bottom lines as opposed to being passed onto consumers. Kapteyn also said it's impossible to account for events that can drastically change the landscape, pointing to the Russian invasion of Ukraine as an example. He said a global housing downturn, 2% economic growth in China, sticky inflation or a rapid slowdown in the Russia-Ukraine war are all potential shake-ups that are hard to anticipate but could impact the markets in 2023. — CNBC's Michael Bloom contributed reporting.