U.S. equities climbed to record highs this week, but UBS is urging investors to stay diversified as energy market tensions, AI uncertainty and geopolitical risks keep the outlook clouded.
The S&P 500 rose 1.1% and the Nasdaq gained 1.6% on Wednesday, before edging lower on Thursday. The index was lifted by a strong start to earnings season and President Donald Trump’s comments that the ceasefire with Iran would remain in place indefinitely.
But UBS cautions that “the path upward may remain bumpy” despite expecting stocks to finish the year higher.
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Oil remains a central concern. Brent crude hit $106 per barrel, its highest level in more than two weeks, as the Strait of Hormuz remains closed.
UBS notes that Iranian gunboats fired on commercial ships in the strait on Wednesday while the U.S. intercepted two Iranian oil tankers, underscoring the difficulty of resolving the standoff.
The firm expects Brent to stay above $90 per barrel through year-end, warning that “the drag on global growth may be more severe than what markets have priced in so far.”
On AI, UBS remains constructive on memory, advanced semiconductors and enabling infrastructure, citing SK Hynix’s five-fold jump in quarterly earnings as further confirmation of robust demand.
However, the firm flags “early signs of soft spots in demand and intensifying competition,” suggesting AI infrastructure bottlenecks may be shifting. ServiceNow’s mixed results, it adds, point to “continued pressure in parts of the software sector due to AI disruption.”
UBS recommends diversification across sectors and geographies, with exposure to quality bonds, gold and broad commodities as essential hedges in the current environment.
“While we believe investors should position for medium- to long-term upside in equities, we continue to recommend diversification across sectors and geographies,” the bank’s analysts wrote.
“Structured investments may also be considered for more defensive positioning, especially after the recent rally. More broadly, portfolio exposure to quality bonds, gold, and broad commodities remains essential in navigating an uncertain environment.”
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