Stock Rally Looks Shaky; Take Gains Now: UBS' McCartney

The narrowness of the U.S. stock market rally, along with high valuations and macroeconomic risks, indicate it’s time to capitulate and take some gains, according to Alli McCartney, UBS Private Wealth Management managing director.

“I think it’s time,” she said on CNBC’s “Squawk on the Street” on Friday, noting that seven to 10 stocks have fueled this year’s S&P 500 rally. “The narrowness of this rally really makes it very precarious,” she said.

Citing the cliche about past performance not being indicative of future performance, McCartney added, “we sort of think that’s where we are with the U.S. stock market full stop.”

Tech globally is trading about 25% over its 10-year average, and that was an extraordinary decade with “growth on fire” because companies could take risks due to low interest rates, she said.

“We think that it’s probably time to take some of that off the table. It doesn’t mean get rid of all tech but it means specifically stay in tech that has more secular themes behind it,” such as artificial intelligence and big data, said McCartney, adding that it’s hard to parse what exactly falls into the AI category.

McCartney also suggested that while the U.S. economy has been remarkable and resilient,  credit and related regulatory pressures haven’t come through it yet.

“We think that it’s really time to sort of capitulate a bit because at these levels,” she said, stocks are pricing in a Goldilocks economy or “immaculate” landing (in which the Federal Reserve lowers inflation without much harm to the economy or labor).

McCartney asked what is means if the U.S. doesn’t get a perfect debt ceiling deal or a perfect landing. “At these kinds of levels we are definitely pricing in the U.S. sort of hitting the high note on everything,” she said, “and that’s a terribly precarious place to be given the risks out there.”

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