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This report has been prepared by UBS Financial Services Inc. (UBS FS).Please see important disclaimer and disclosures at the end of the document.

Wealth Management Research 11 July 2011

UBS Weekly Guide

Help Wanted

Fridays disappointing payroll report highlighted that thespring soft patch appears to have been even deeper thanmost economists had projected.

The surprisingly weak payroll report only serves to raisethe stakes for second-quarter earnings season, whichbegins in earnest this week.

We expect earnings results will be modestly better thanexpected with earnings growth of 17% excluding theFinancials, slightly higher than the 15% consensusestimates.

Based on our expectations for a good 2Q earningsseason and our economists expectations for a modestrebound in economic growth in the second half of theyear, we stick with our $100 earnings per share estimatefor the S&P 500 for 2011 and $108 for 2012.

We apply a 13x P/E multiple to our 2012 estimate toarrive at our 1410 year-end target for the S&P 500.

After having rallied sharply over the past two weeks, marketswere hit with a vicious backhand following Fridays payrollreport. Not only did non-farm payrolls increase by a distressinglylow 18,000 workers during the month, but the unemploymentrate rose to the highest level in six months as well - despite thelabor participation rate having dropped to just 64.1% as 272kworkers exited the workforce (see Figure 1). Those hopeful for asilver lining from an upward revision to prior employmentstatistics were left equally disappointed. Nonfarm payrolls were

revised lower during May (to 25K from 44k), leaving theaverage monthly payroll growth during the second quarter atan anemic 87k rate (see Figure 2). Not only has the pace ofhiring dropped off from the sluggish pace of the first quarter,but the current level is simply inadequate absorb new entrantsinto the work force and keep the unemployment rate fromtrending still higher in the months ahead. Whats more, itdoesnt appear that seasonal factors had much to do withJunes poor results. If anything, the spring soft patch appears tohave been even deeper than most economists had projected.

Mike Ryan, CFA, Chief Investment [email protected]

Contents Page

Feature article 1

Our Best Ideas at a Glance 5

Review/Preview of the Financial Markets 6

Earnings Calendar 7

Key Economic Indicators 8

Strategy and Performance 9

Reports of Note Published in the Last Week 10

Fig. 1: The labor participation rate continues tohead lowerUS labor force participation rate, shows proportion of US

population that is in the labor force

63

64

64

65

65

66

66

67

2007 2008 2009 2010 2011

Source: Bloomberg, UBS WMR, as of 8 July 2011

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Wealth Management Research 11 July 2011 2

Raising the stakesThe surprisingly weak payroll report only serves to raise thestakes for second-quarter earnings season, which begins inearnest this week. Not surprisingly, some market participantsare growing increasingly concerned that, as a result of choppiermacroeconomic data, downgrades to GDP growth and elevatedcommodity costs, 2Q earnings results could be below analystestimates. We do not share this view. Instead, we expect resultswill be in-line to modestly better than expected. Althoughearnings beats will not likely be as robust as in the past severalquarters (see Figure 3), we believe investors will view the resultsas good enough. After all, some moderation in earningsbeats is to be expected as the business cycle matures. And someof the headwinds will have an impact, but not by as much asthose who are most worried might think. Excluding theFinancials sector, we expect earnings growth of 17%, slightly

higher than the 15% growth reflected in consensus estimates.We exclude Financials due to the $8.5 billion charge that Bankof America is booking in 2Q, which is distorting the overallresults. This shaves almost $1 off of S&P 500 earnings. IncludingFinancials, we expect earnings to rise by 9%.

No soft patch for earningsKeep in mind that while Alcoa unofficially kicks things off onMonday as the first member of the Dow Jones IndustrialAverage to report, 28 S&P 500 companies have alreadyreported second-quarter numbers. So far, 79% have beatenearnings expectations and 74% have beaten sales estimates.The median earnings beat has been 6% so far in Q2 vs. 3% in

Q1 at this point last quarter, with revenues coming in 2%higher versus flat last quarter. This bodes well for a constructiveearnings season. Half of the companies that have reported thusfar fall within the consumer sectors, which suggests that highoil prices are not crimping consumer spending. In aggregate,these results are encouraging and suggest that earnings growthremains largely on track. Extending this earnings winningstreak will be critical this week if markets are to continue tobuild upon the rebound from the late June lows.

GDP and earningsAnother reason we are optimistic about earnings season is therelationship between earnings and GDP growth. While it is true

that 2Q consensus US GDP growth estimates have fallen overthe past few months, on our calculations, this should shave onlyabout 3% off of 2Q earnings. Considering that US companieshave been beating earnings estimates by 3% or more in the lastfew quarters, we believe this sets up US companies to reportresults that are at least in line with expectations. Meanwhile,elevated oil prices during the quarter have the potential to cutboth ways for earnings. High crude prices potentially may havedepressed consumer spending, but they also tended to boostearnings from the energy sector. With consumer spendingholding up overall during the quarter, elevated oil prices couldactually be a net benefit for S&P 500 earnings.

Fig. 2: The pace of hiring during 2Q dropped off

from sluggish pace of 1QNonfarm payrolls quarterly average, in thousands

-1000

-800

-600

-400

-200

0

200

2007 2008 2009 2010 2011

Source: Bloomberg, UBS WMR, as of 8 July 2011

Fig. 3: We expect earnings in aggregate to beatfor 2QAverage % S&P 500 company beat consensus earningsestimates by

0%

2%

4%

6%

8%

10%

12%

14%

16%

2Q09 3Q09 4Q09 1 Q10 2Q10 3Q10 4Q10 1 Q112Q11*

Source: Factset, UBS WMR estimates, as of 8 July 2011

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Earnings growth expected to drive the market higherContinued earnings growth is critical for equity markets tocontinue their advance, as equity market multiples are unlikelyto meaningfully expand from here. As we have pointed outbefore, the gains in the equity market have been nearlyidentical to the gains in earnings per share for the S&P 500since the March 2009 bottom. Based on our expectations for agood 2Q earnings season and our economists expectations fora modest rebound in economic growth in the second half of theyear, we stick with our $100 earnings per share estimate for theS&P 500 for 2011 and $108 for 2012. We apply a 13x P/Emultiple to our 2012 estimate to arrive at our 1410 year endtarget price on the S&P 500.

Buybacks and commodity pricesSome of the key themes we have observed from the early

reporters that we believe will resonate throughout the secondquarter earnings season include some key positive but alsonegative trends. With cash as a percentage of assets near all-time highs, companies are increasing share buybacks. Both Bed,Bath & Beyond and Best Buy have announced increases to theirshare buyback programs. Commodity prices have surged overlast year. How companies are coping with the rising input costswill be a key area of focus. FedEx has been able to pass onrising costs through surcharges, while food producer ConAgrahas not. Trading down continues to occur within the consumersector. This has been evident in the results from retailers such asWalgreens. On balance we do not expect rising commodityprices to derail earnings.

Expect most companies to reaffirm the outlookEncouragingly, so far guidance has been surprisingly upbeathighlighted by the CEO of FedExs comments that: the near-term softness in the economy will be temporary as fuel priceshave retreated from their April highs and the Japanese economyrecovers. Going forward, we see stronger economic growth.Given FedExs very broad based exposure to the economy, weare encouraged by these comments. That being said, in theaggregate we would be surprised to see companies raise 2011guidance in light of some of the recent choppy macroeconomicdata and still six months to go before the end of the year.Nonetheless, simply maintaining guidance will be a bit of a

relief for the market and should provide a lift to equity prices.

Looking aheadFor the week ahead, 12 S&P 500 companies are set to reportwith the Financials taking center stage during the first week anda half of earnings season. The second quarter did not have themost favorable trends for the Financials sector given lowertrading volumes, mortgage write-downs and a severecatastrophe season impacting the insurers. Keep in mind thatthe Financials sector is one we recently upgraded given enticingvaluations and our belief that many of the drivers of the sectorspoor performance in the last quarter will stabilize or reverse.Loan growth has been anemic, but recent data suggest thatbusiness loans and non-mortgage consumer loans are picking

Fig. 4: Earnings growth expected to drive

market higher

S&P 500 earnings per share and year-over-year change inearnings

$0

$20

$40

$60

$80

$100

$120

2006 2007 2008 2009 2010 2011 2012

+16% -3%

-23% -5%

+39%

+16%

+8%

Source: Factset, UBS WMR estimates, as of 8 July 2011

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up. The subsequent three-week period will be crucial, starting18 July, as 85% of the S&P 500 will be reporting quarterlyearnings results.

Beyond earningsBut markets will not focus exclusively on earnings this week. Inaddition to a fairly crowded economic release calendar (retailsales, PPI, weekly claims, CPI) several senior Fed officials arescheduled to offer their own take on the state of the economy -highlighted by Chairman Bernankes semi-annual testimony tothe House Financial Services panel. Bernankes remarks are aptto draw even more attention in the aftermath of last weekspayroll report. Meanwhile, Congress continues to debate bothan increase in the debt ceiling and budget cuts. With theAugust deadline fast approaching and little progress betweenthe two sides, the focus will increasingly shift toward

Washington. Finally, concerns that the Eurozone debt crisis maynow be extending into Italy will likely keep markets on edge thisweek as well. So while the earnings outlook remainsconstructive, it would appear that more help will be needed thisweek to extend recent market gains.

David Lefkowitz, CFASenior Equity Strategist

Joseph SaweEquity Strategist

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Our Best Ideas at a Glance

The following list represents investment strategy recommendations that we believe will provide attractiveopportunities over the next 9-12 months.

Asset Classes Preference for Equities over Bonds

Currencies Avoid Japanese yen. Preference for SEK, NOK, GBP, as well as selected Emerging Marketcurrencies

Equities International markets

Select Emerging Market equities, especially China, Poland and Taiwan

UK equities

Within US equities

Information Technology: hardwareand equipment, semis, data centers

Consumer Staples: companies with high emerging markets exposure, especiallyhousehold and personalproducts and beverages

Healthcare: managed care, genericmanufacturers, drug distributors

Within Financials: diversified financials (universalbanks, brokers, asset managers,exchanges), insurers

Within Industrials: air freight and select capital goods manufacturers with mid-to-latecycle exposure

Within Materials: chemicals and industrial gas

Within Energy: oilfield services

Within Consumer Discretionary: auto suppliers, cable, lodging

Within Telecom: wireless towers

Preference for small and mid-cap over large-cap stocks

Preference for growth over value

Fixed Income Within US dollar Fixed Income

High Yield Corporate bonds

Investment Grade BBB-rated Corporate bonds

Commodities We see upside potential for crude oil, selected base metals and agricultural commodities.

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Review/Preview of the Financial Markets

Review04 July 08July

Preview11 July 15July

The June labor market report wasdismal, missing consensusexpectations by a wide margin. Allkey indicators in the reportweakened. Non-farm payrolls rose ameager 18k and the past twomonths numbers were revisedlower by 44k. The unemploymentrate rose from 9.1% to 9.2% andhours worked fell. Finally, averagehourly earnings were flat over themonth and stalled at 1.9% y/y.Despite this very weak June report,quarterly average private sectorhours worked a critical input tothe economy's output rose at a3.3% annual pace versus 2.0% inthe first quarter. We still think thatreal GDP will likely rise by 2.5% q/qannualized in 2Q11, but the risk isclearly to the downside. The weaklabor data hurt the stock market,which ended little changed for theweek, while bonds rallied.

The ISM non-manufacturing indexslipped slightly from 54.6 in May to53.3 in June, a bit worse thanexpected. Key growth sub-indicatorsnew orders and business activityslipped, while employment heldsteady. The index still points tomoderate growth.

European debt markets were rattledby two developments. First,Portugals sovereign debt rating wasdowngraded to junk by Moodys.Second, the rating agencies said theywould view the French proposal toroll over Greek debt as a default.This news caused the yield spread onthe sovereign debt of the weakerEurozone countries (relative toGerman Bunds) to widen to recordlevels. For 10-year bonds,Portuguese and Irish debt now yieldaround 10 percentage points morethan Germanys. Italys debt alsosold off sharply with the yield spread

widening roughly 50 bps to hit arecord 240 bps.

Despite these problems, theEuropean Central Bank (ECB) wentahead and hiked interest rates by25 basis points to 1.50%, in linewith market expectations. The eurolost ground against the dollar,closing near EURUSD 1.43, downfrom 1.45 at the start of the week.

China also raised interest rates by25 basis points last week, part ofthe ongoing effort to restraininflationary pressure. JapansEconomy Watchers Survey jumpedto 49.6 in June (50 is a neutralreading) from 36.0 in May,indicating that economic conditionsare getting back to normal after thedisruptions caused by theearthquake in March.

Brian Rose, Strategist

This week the market is likely tofocus on economic data releases inthe US and China, second-quarterearnings results, the debate over theUS debt ceiling, and discussions onGreek sovereign debt.

The most important US statistic thisweek will be June retail sales. Theheadline number will be depressedby the weak auto sales recorded inJune. We forecast a drop of 0.5%m/m. However, the key componentex-auto ex-gas retail sales will likelyrise; we expect +0.3%. Such areading would be consistent withreal consumption growth of about0.7% q/q annualized in the secondquarter, lower than our currentforecast of 2%. Stronger net exportsand inventories reported thus farshould offset some of theconsumption growth weakness. We

a forecasting real GDP growth of

2.5% q/q annualized in the secondquarter (the data will be released on29 July), but the risk is to thedownside.

China will release several keyeconomic indicators this week. Weexpect the CPI to rise more than 6%year-over-year in June, up from5.5% in May. However, food pricesshould contribute less to inflation inthe months ahead, helping theoverall inflation rate to slow toaround 4% by the end of 2011. GDPfor the second quarter is likely toslow from the 9.7% year-over-yeargrowth rate recorded in the firstquarter, but growth should still beabove 9%. With China driving somuch of global economic growth inrecent years, there could be a strongmarket reaction if there is a surprisein the GDP data.

China will also release its trade forJune. The commodities markets areusually especially interested inChinas import data, since itsvoracious appetite for raw materialshas a big influence on commodityprices.

Debate over US fiscal policy and thedebt ceiling will of course continuethis week, but it is probably still tooearly to expect a majorbreakthrough. In Europe, theauthorities will continue to searchfor a way to roll over Greeksovereign debt without triggering adefault.

Brian Rose, Strategist

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Earnings CalendarThe Earnings Calendar provides publicly announced reporting dates and times of companies covered by WealthManagement Research Americas. Reporting dates and times are subject to change by the reporting companies.

Date Ticker Company Reporting Period Time (EST)WMR-A CoveringAnalyst

AnalystContactInformation

11-JUL-2011 AA Alcoa, Inc.Q2 2011 EarningsRelease After Market Andrew Sutphin

212-713-3646

11-JUL-2011 CVX Chevron Corp.

Q2 2011 Salesand RevenueRelease 5:00pm Nicole Decker

212-713-4743

13-JUL-2011 OZRKBank of theOzarks, Inc.

Q2 2011 EarningsRelease After Market Dean Ungar

212-713-3751

13-JUL-2011 YUM Yum! Brands, Inc.Q2 2011 EarningsRelease After Market

AlexandraMahoney

212-713-2825

13-JUL-2011 MARMarriottInternational, Inc.

Q2 2011 EarningsRelease 5:00pm

JonathanWoloshin

212-713-3635

14-JUL-2011GOOG Google, Inc.

Q2 2011 EarningsRelease Unspecified Bob Faulkner

212-713-3720

14-JUL-2011 PGR Progressive Corp.

Q2 2011 EarningsRelease - JuneSales Unspecified Michael Dion

212-713-3825

14-JUL-2011 JPMJPMorgan Chase& Co., Inc.

Q2 2011 EarningsRelease 7:00am Dean Ungar

212-713-3751

15-JUL-2011 FHNFirst HorizonNational Corp.

Q2 2011 EarningsRelease Before Market Dean Ungar

212-713-3751

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Key Economic Indicators

Date Indicator Time (EST) Unit Consensus UBS Est. Previous

12-Jul-11Trade Balance (May)

8:30:00 AM lvl-$44.0 bil -$44.0 bil -$43.7 bil

13-Jul-11Import Prices (Jun)

8:30:00 AM mom-0.7% -0.6% 0.2%

14-Jul-11Jobless Claims (Jul 2)

8:30:00 AM lvl410 k 395 k 418 k

14-Jul-11Producer Price Index (Jun)

8:30:00 AM mom-0.1% -0.4% 0.2%

14-Jul-11Core PPI (Jun)

8:30:00 AM mom0.2% 0.2% 0.2%

14-Jul-11Retail Sales (Jun)

8:30:00 AM mom0.0% -0.5% -0.2%

14-Jul-11Retail Sales Ex Autos (Jun)

8:30:00 AM mom0.1% -0.3% 0.3%

14-Jul-11Business Inventories (May)

10:00:00 AM mom0.8% 1.0% 0.8%

15-Jul-11Consumer Price Index (Jun)

8:30:00 AM mom-0.1% -0.2% 0.2%

15-Jul-11Core CPI (Jun)

8:30:00 AM mom0.2% 0.1% 0.3%

15-Jul-11Empire State Manufacturing Survey(Jul) 8:30:00 AM index

4.2 3.0 -7.8

15-Jul-11 Industrial Production (Jun) 9:15:00 AM mom 0.3% 0.5% 0.1%

15-Jul-11Capacity Utilization (Jun)

9:15:00 AM% 77.0% 77.1% 76.7%

Source: Bloomberg & UBS estimates, as of 08 July 2011.In developing the WMR quarterly forecasts, WMR economists worked in collaboration with economists employed by UBS Investment

Research (INV). All remaining forecasts were developed by economists employed by INV. INV is published by UBS Investment Bank. Forecastsand estimates are current only as of the date of this publication and may change without notice.

m/m = month-over-month, q/q = quarter-over-quarter, k = thousand, bn = billion, y/y = year-over-year, mn = million

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Total return indices in USD: Barclays Capital

Asset Class Strategy & Performance

Market ReturnsExtendedAsset

AllocationStrategy* MTD YTD 2010

US Equity + 2.7% 9.2% 16.9%

Non-USDeveloped Equity

+ 0.7% 5.9% 9.4%

Emerging MarketEquity

+ 2.0% 3.0% 19.2%

US Fixed Income 0.1% 2.8% 6.5%

Non-US FixedIncome

-0.6% 4.8% 4.9%

Cash (USD) n 0.0% 0.1% 0.1%

Commodities n 1.9% -0.8% 16.8%

Total return indices in USD: Russell 3500, MSCI EAFE & Canada, MSCI

Emerging Markets, BarCap US Aggregate, BarCap Global Aggregate ex-USD,

Citigroup 3-month T-bill, DJ UBS

US Equity Sector Strategy & Performance

Market ReturnsSectorStrategy* Weekly MTD YTD 2010

Cons. Discr. 3.5% 3.5% 12.1% 27.7%

Cons. Staples + + 1.9% 1.9% 10.0% 14.1%

Energy n 2.6% 2.6% 14.3% 20.5%

Financials + 2.0% 2.0% -1.1% 12.1%

Healthcare + 1.2% 1.2% 15.3% 2.9%

Industrials n 2.7% 2.7% 11.0% 26.7%

IT + + + 3.8% 3.8% 6.0% 10.2%

Materials n 2.9% 2.9% 6.7% 22.2%

Telecom 1.4% 1.4% 8.5% 19.0%Utilities 1.2% 1.2% 10.4% 5.5%

Total return indices in USD: S&P 500 sector indices

US Dollar Fixed Income Strategy & Performance

Market ReturnsStrategy*

MTD YTD 2010

Treasuries 0.1% 2.4% 5.9%

TIPS 0.5% 6.3% 6.3%

Agencies 0.0% 1.8% 4.7%

Inv. Grade Corporates + 0.3% 3.6% 9.5%

High Yield Corporates + 0.7% 5.7% 15.1%

Preferred Securities + 0.4% 5.9% 13.7%

Mortgages + -0.2% 2.7% 5.7%

Emerging Markets n 0.1% 5.0% 12.5%

Municipals n.a. 0.0% 4.8% 2.3%

Total return indices in USD: BAS / Merrill Lynch

Bond Regions Strategy & Performance


MTD YTD 2010

US + 0.1% 2.8% 6.5%EMU** n -1.1% 7.5% -4.5%UK + 0.1% 4.8% 4.6%Japan -0.9% -0.1% 17.5%Other + n.a. n.a. n.a.

Equity Region Strategy & Performance


MTD YTD 2010

US Equity n 2.7% 9.2% 16.9%

S&P 500 n.a. 2.5% 8.7% 15.1%

DJIA n.a. 2.5% 11.3% 14.1%

Nasdaq n.a. 3.6% 8.8% 18.0%

EMU** -0.6% 12.6% -3.4%

UK + 1.4% 7.0% 8.8%

Japan 1.9% -2.8% 15.6%

Other Developed n.a. n.a. n.a.

EmergingMarkets

+ + 2.0% 3.0% 19.2%

Total return indices in USD: S&P 500, DJIA, Russell 3500, MSCI for non-US.Price return indices in USD: Nasdaq

Equity Size, Style Strategy & Performance

Market ReturnsStyleStrategy*

MTD YTD 2010

Large-Cap Value 2.0% 8.1% 15.5%

Large-CapGrowth

+ 3.2% 10.3% 16.7%

Mid-Cap + 2.8% 11.1% 25.5%

Small-Cap + + 3.7% 10.2% 26.9%

REITs 4.6% 15.7% 27.9%Total return indices in USD: Russell

Regional Indicators

2011 Consensus S&P 500 EPS USD 99

2011 UBS WMR S&P 500 EPS USD 100

2012 Consensus S&P 500 EPS USD 113

2012 UBS WMR S&P 500 EPS USD 108

UBS WMR2011 year-end S&P 500 target 1410

Price to earnings+ 13.2x

Price to book value+ 2.3x

+Consensus 12-month forward estimates, as of 08 July 2011.

Total return performance as of close of business on 07 July 2011.

*Please see the scale in the Appendix and the most recent InvestmentStrategy Guide for an interpretation of the tactical deviations and an

explanation of the corresponding benchmark allocation. **EMU = EuropeanMonetary Union and is comprised of European countries that have adoptedthe Euro as their currency.

Please note these important color designations:

+ Indicates +/- change in mostrecent update

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Reports of Note Published in the Last Week

Friday, 08 July Asia Pacific Economics: Exports: Light at the End of the Tunnel

Export growth in Asia ex Japan is normalizing towards long term averages and shouldbottom out in the next few months. With Japan's economy bouncing back stronger,supply chain disruptions seen in the region should be overcome swiftly and more visiblyin upcoming trade data. The structural decline of the US, Japan and Europe's importancecompared to intra-Asia trade is set to continue. In the near term the developed world iscrucial and remains a risk factor for the region.

Thursday, 07 July Global Economy: ECB Rate IncreaseAs expected, the European Central Bank (ECB) has increased its refinancing rate by0.25% to 1.50%. The governing council continues to see upside risks to price stabilityand regards monetary policy as remaining accommodative. Mr. Trichet announced thatthe ECB will suspend the minimum rating requirement for Portuguese government debt.

Thursday, 07 July Technical Market OutlookA monthly technical review of key financial markets, including US Equities (SPX Index),Currencies (US Dollar Index), Commodities (CRB Index, Gold and Crude Oil), Fixed Income(US 10-year Treasury), S&P 500 Sectors, and Emerging Markets.

Tuesday, 05 July Valuation Report: All About the MacroIt was a tale of two markets in 1H11. Early on, market participants were focused onstrong corporate credit fundamentals against a backdrop of self-sustaining growth andrange-bound to moderately higher Treasury yields. Demand for corporate credit washigh, and credit spreads tightened, gradually for investment grade (IG) corporate bondsbut much more pronounced for high yield (HY) corporates. The result was significantexcess returns over Treasuries that reached roughly 5% for HY and 2% for IG throughApril. Since then, however, risk aversion has returned with investors shedding risk, mostacutely demonstrated within the HY space. Overall, we sit at the halfway point of the

year with corporate bond segments moderately outperforming Treasuries, but much lessso than just a few weeks ago

Friday, 01 July US Top 25 Stock List: July Update

Thursday, 30 June US Equities Healthcare: Monthly - Hospital PowerHospitals are becoming a key player in the evolving US healthcare system, increasing USpricing pressure on medical suppliers. Healthcare subsectors that reduce healthcarecosts, create efficiencies or produce meaningful innovation are best positioned

Thursday, 30 June US Equities Consumer Staples: Monthly - Bracing for Earnings SeasonThe S&P Consumer Staples index was down 2.4% in the past month, slightly worse thanthe S&P 500's 1.6% decline. However, over the last three months, Consumer Staples

have outperformed.javascript:void(0);javascript:void(0);

Thursday, 30 June US fixed income: July update: Higher or Lower?Worries over a Greek sovereign debt default and slower economic growth causedinvestors to shun risk assets in June. However, UBS economists believe the economic softpatch will prove to be temporary, and that growth will accelerate in the second half ofthe year. A bailout package for Greece should helped allay sovereign credit riskconcerns, and put the US credit markets on firmer footing. We increased the tacticalallocation on agency mortgage backed securities to overweight, and increased theunderweight on Treasuries.

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Thursday, 30 June Investment Strategy Guide US: The summer of our discontent?Risk assets may well come under additional pressure in the weeks ahead as participantscontinue to focus on risk factors. However, it remains our view that the economic softpatch is just thata soft patch. A still supportive policy backdrop, robust earnings cycle

and attractive valuation position risk assets to outperform in the second half of the year.We caution however, that investors need to maintain flexibility to navigate both thechallenging macro environment and tight trading range.

To access these reports please contact your Financial Advisor or access the reports via online services.

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Appendix

Scale for tactical deviation charts Performance and Strategy tables

Symbol Description/Definition

+moderate overweight vs.benchmark

moderate underweight vs.benchmark

nNeutral, i.e. onbenchmark

++ overweight vs. benchmark underweight vs. benchmark n/a not applicable

+++ strong overweight vs. benchmark strong underweight vs.benchmark

The overweight and underweight recommendations represent tactical deviations that can be applied to any appropriate benchmark

portfolio allocation. They reflect WMRs short- to medium-term assessment of market opportunities and risks in the respective assetclasses and market segments. The benchmark allocation is not specified here. Please see the most recent Investment Strategy Guide for

definitions/explanations of benchmark allocation. They should be chosen in line with the risk profile of the investor. Note that theRegional Equity and Bond Strategy is provided on an unhedged basis (i.e., it is assumed that investors carry the underlying currency riskof such investments). Thus, the deviations from the benchmark reflect our views of the underlying equity and bond markets in

combination with our assessment of the associated currencies.

Source: UBS WMR, All market performance data is from Bloomberg data as of date listed on top of this document, using representative

indices and is provided for information only.

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Disclaimer

Wealth Management Research is published by Wealth Management & Swiss Bank and Wealth Management

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Ubs Weekly 7.15

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