The UBS Chief Investment Office (CIO) published an update on Oct. 8 discussing the current market outlook, which remains positive despite rising geopolitical tensions, particularly in the Middle East.

The team explained that the fighting between Israel and Hezbollah, as well as missile attacks from Iran, have raised concerns. However, they noted that oil prices remain steady, and gold remains near record highs, while U.S. recession fears have diminished. Despite heightened geopolitical risks, the UBS CIO advises investors not to pull out of risk assets. They wrote:

Selling in response to immediate uncertainty locks in otherwise temporary losses and hampers investors’ ability to participate in the next market recovery.

Historically, international conflicts have had a short-term impact on markets, with the S&P 500 rising 32% in the last year alone, UBS described, emphasizing that economic data shows resilience, with stronger-than-expected job growth easing concerns of a U.S. recession. The focus is now on inflation data and the Federal Reserve’s expected rate cuts later this year.

The UBS CIO highlighted favorable conditions for equities, anticipating third-quarter earnings growth, particularly in sectors like AI. “We continue to like AI beneficiaries, including semi names and megacaps, as well as a broad suite of quality companies,” they concluded. “We also recommend utilizing capital preservation strategies, hedge funds, and exposure to gold and oil to improve the resilience of portfolios (albeit mindful of the unique risks of investing in alternative investments, such as illiquidity).”

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