Investing.com -- Truist downgraded its outlook on equities and upgraded its view on cash in a note Thursday, citing rising risks to the U.S. economy and limited market upside following a sharp rebound.

“We are using the snapback to downgrade equities and raise cash one notch,” analysts wrote in a note, explaining the move comes after the S&P 500 rallied nearly 10% from its early April lows.

Truist now views equities as “less attractive,” shifting from a neutral stance. U.S. large caps were cut from “most attractive” to “attractive,” while mid caps were lowered to “neutral.”

Cash was upgraded from “neutral to attractive.”

The firm pointed to a weakening economic backdrop as a key reason for its more defensive positioning.

“Our work suggests the U.S. economy is set to slow in a meaningful way later this year given the current uncertainty and disruptions caused by the tariffs,” the note said.

While businesses may currently appear strong by building up inventory ahead of tariffs, Truist warned of a possible “air pocket later in the year,” as excess supply meets weakening demand.

On valuations, the firm flagged concerns as well. “The S&P 500’s forward price-to-earnings (P/E) is around 19.5x,” Truist noted, adding that this is “above the highest level reached in any of the 15 years prior to the pandemic.”

Forward earnings estimates may still be too optimistic given the risk to corporate margins from tariffs, according to the firm.

While acknowledging the possibility of a stronger-than-expected policy response or easing in tariffs, Truist concluded, “The weight of the evidence currently suggests a slightly more defensive near-term posture following the recent market snapback.”