UBS On-Air: House View

Continued US-Iran tensions are testing markets, but there are ways investors can consider helping portfolios navigate uncertainty while staying positioned for potential upside.

The path toward a lasting peace deal between the US and Iran is proving to be bumpy, with President Trump saying further negotiations with Tehran were a "waste of time." The most effective method to navigate near-term volatility remains diversification, in our view. But with a diplomatic solution still likely, we expect global equities to move higher, bond yields to decline, and broad commodities to stay supported.

As investors assess the next phase of the AI growth story, we believe diversifying equity exposure remains key. We expect the next leg of stock gains to be marked by a broadening of market leadership.

We remain constructive on the AI theme, but the market narrative is gradually shifting from strong near-term growth to the durability of spending beyond 2027. Investors should ensure diversification and selectivity in their exposure.

Despite the recent decline in commodity prices, we believe fundamentals should provide support in the coming months. We also believe broad commodity exposure offers diversification, inflation hedging, and downside protection in a portfolio context.

Markets are looking to June’s payrolls today for clues on the Fed’s interest rate path after Chair Kevin Warsh offered little indication. We maintain the view that current market conviction around Fed rate hikes is too aggressive and see an opportunity to add to short- and medium-maturity quality bonds.

Global equities delivered a strong performance in the second quarter, and we think the momentum can continue in the coming months. The next phase of the rally should, in our view, see a broadening of market leadership.

Investors have shifted some capital back into health care amid tech sector volatility, seeking both stability and growth. Recent policy changes around GLP-1s and breakthrough therapies are fueling new optimism for the sector’s outlook in the coming months.

We continue to like the semiconductor complex of the AI story, but recent market volatility has pointed to certain risks worth monitoring. The key for investors remains diversification, both within and beyond AI.

While oil may stay under pressure in the near term, we expect prices to recover over the coming months, as the normalization of traffic through the Strait of Hormuz and the recovery of shut-in production may prove slower than expected. We continue to see value in broad commodity exposure in a portfolio context.