UBS On-Air: House View

Markets are facing renewed pressure from geopolitical escalation, higher oil prices, rising bond yields, and questions over AI investment returns. Investors should focus on portfolio resilience and strategies that can help manage downside risk while preserving long-term upside potential.

While we remain constructive on semiconductors amid solid AI demand, recent market performance highlights the case for broader equity exposure. Strong earnings momentum across sectors and regions points to a wider set of opportunities for investors.

With equity markets near record highs, attention is turning to whether corporate earnings can continue to justify market valuations. As the AI investment cycle evolves and opportunities emerge across global markets, investors are also assessing the outlook for inflation, interest rates, the risk of renewed geopolitical tensions in the Middle East—and what they could mean for markets and portfolios.

US Treasury yields have risen as renewed Middle East tensions and higher oil prices have revived inflation concerns, but we expect yields to move lower over the coming quarters. In our view, current elevated yields offer an opportunity to add quality bonds for income, diversification, and potential capital gains.

Earnings from hyperscalers will be a key test for the AI trade as investors look for greater clarity on capex, revenue durability, and margin resilience. While we remain constructive on AI’s longer-term growth story, a balanced approach across and beyond the AI value chain remains important.

Hostilities in the Middle East are weighing on investor sentiment already weakened by the sell-off in chipmakers over the past week. But we maintain the view that equities have room to move up, supported by robust earnings strength.

Global stocks came under pressure this week amid a selloff in chipmakers and escalating tensions in the Middle East. We think strong earnings growth should continue to support global markets, and investors should seek diversified exposure to participate in market upside.

South Korea's equity benchmark has fallen more than 25% since its all-time high in June amid regulatory concerns and investor worries over the durability of the broader semiconductors rally. We retain a constructive view on the industry, but think selectivity is key. Investors should also ensure diversified exposure to AI.

We expect second-quarter earnings to deliver another strong set of results, with all sectors likely to report an increase in profits. Our forecast of 28% earnings growth for the S&P 500 is supported by strong AI investment, improving cyclical activity, and solid consumer spending.

Markets are on edge as renewed US-Iran tensions pushed oil prices and Treasury yields higher. Investors will now look to June CPI data and Fed Chair Kevin Warsh’s congressional testimony for clues on the path of US interest rates. We expect inflation pressures to ease in the coming months, which should ultimately lead to lower bond yields.