UBS answers top 10 investor questions on U.S. markets

Investing.com -- UBS strategists addressed key concerns from clients in their latest “House View Briefcase” report, touching on recent debates over the U.S. fiscal outlook, market positioning, and global opportunities.

Despite lingering tariff and geopolitical risks, UBS maintains a constructive stance on equities and sees selective upside across asset classes and regions.

1) ‘What does the U.S. budget debate mean for markets?:’ UBS expects U.S. government borrowing to remain sustainable, despite President Trump’s proposed tax and spending bill potentially adding trillions in debt.

“We continue to believe high-quality bonds offer an attractive level of income along with diversification benefits.” Treasury yields have eased from late-May highs, suggesting improving sentiment.

2) ‘Will the U.S. dollar fall further?:’ UBS expects continued dollar weakness due to fiscal concerns and slower economic growth. “We rate the U.S. dollar as Unattractive,” it said in the note.

The bank advises reducing and hedging greenback exposure, forecasting EUR/USD at 1.20 by mid-2026.

3) ‘How should investors put cash to work?:’ While cash may feel safe, UBS argues high-grade and investment-grade bonds offer better long-term returns. They also recommend diversified income strategies like private credit and equity income to improve resilience.

4) ‘How can I phase into markets?:’ UBS sees merit in gradually deploying capital, especially amid volatility. Phasing into diversified portfolios can help mitigate timing risks while capturing rebounds.

“Investors who wait for clarity often miss the swiftest part of an equity recovery,” UBS points out.

“By sticking to a plan, maintaining diversification, and taking advantage of market dips, investors can position portfolios for recovery and future growth—even when the outlook feels uncertain,” it notes.

5) ‘Has the worst of the tariff threat passed?:’ UBS expects near-term volatility but sees tariffs settling around 15%. They do not view tariffs as a catalyst for a sustained market sell-off. Investors underallocated to equities may consider adding exposure during pullbacks.

6) ’What’s next for U.S. equities?:’ Despite a Neutral rating, UBS raised its S&P 500 target to 6,200 by year-end and 6,500 by mid-2026. The bank forecasts earnings to grow 6% in 2025 and 7.5% in 2026.

Sector-wise, it favors Financials, Technology, and Healthcare, Utilities, and Communication Services.

7) ‘Where can I find opportunities outside the U.S.?:’ UBS sees upside in Asia and selected European stocks. They favor Taiwanese and Indian equities and mainland China’s tech sector.

In Europe, the focus is on quality stocks and the “Six ways to invest in Europe” theme, which “includes defensive companies that benefit from increased market volatility, post-election spending in Germany, greater defense outlays, and the potential rebuilding of Ukraine.”

8) ‘Why invest in transformational themes now?:’ Despite short-term volatility, UBS maintains high conviction in AI, power and resources, and longevity.

“Innovation remains key to long-term returns,” with these themes expected to drive over half of global profit growth in the next decade.

9) ‘Does borrowing make sense in 2025?:’ With rate cuts expected later this year, borrowing may help investors manage liquidity and boost returns. UBS sees borrowing as a tool for achieving long-term financial goals—if managed prudently.

10) ‘How can investors deal with geopolitical risks?:’ Rather than retreating from risk assets, UBS favors diversification, capital preservation strategies, and exposure to gold.

“Geopolitical uncertainty remains elevated… but investors should favor strategies to cope with volatility.”