According to chief strategist at UBS Investment Bank, global economic conditions will change next year and that will change underperforming markets and sectors. Bhanu Baweja told CNBC’s “Squawk Box Europe” on Wednesday that one-third to one-half of the countries it pays to globally are facing recession. “An inch deep but a mile wide,” he said of the expected recession. “Global growth is at 2% and that’s not priced into stocks.” UBS expects the core US consumer price index for November, which excludes volatile food and energy costs, to stay below 0.3% for the month. As a result, Baweja said market expectations for a limited Federal Reserve should soften somewhat, helping companies’ price-to-earnings ratios. Earlier this month, a lower-than-expected inflation print in October prompted a cautious market recovery. Baweja points to the S&P 500’s underperformance this year, down 15.5%, compared with a 9.6% drop for Europe’s Stoxx 600. “That’s because this is a valuation year, this is a year where your risk-free rate, your real rate, your real two-year real rate, goes up 500 basis points. So this is a down year. rank,” he said. But next year’s issue will be earnings, Baweja said, especially in the face of the headwinds of the recession. He expects next year’s stock returns to be “fairly normal”, given the competition from high bond yields, but he sees US stocks outperforming European stocks. “Life is not 0, 1 and black and white, but if the majority of next year’s problems will [earnings], then Europe will be hurt more than the United States,” Baweja said, predicting that the reversal will also happen in sectors. “Because we have such a large commodity squeeze, Covid, fiscal generosity… a lot of cyclical goods did a great job – materials and energy. These are the areas that most people would consider cyclical, these are the areas that have performed very well and that’s why the cycle has always stayed so high,” he said, adding Time to cite financial stocks with stable balance sheets. But he stressed that a number of factors change as you move towards global growth near 2%, “i.e. as close to a recession as possible.” , potentially healthcare, these will probably perform much better, and even some consumers will probably perform much better than the producer side of the economy, which is materials and industry,” added Baweja.