Monthly Letter | 26 June 2025 | Chief Investment Office GWM, Investment Research
UBS House View
Monthly Letter | 26 June 2025 | Chief Investment Office GWM, Investment Research
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After a volatile first half of
2025, we expect greater stability in US trade and fis- cal policy to emerge in the second half.
Geopolitical risk remains a
feature of the current envi- ronment. For investors, effective hedging and diver- sification strategies are key.
The Fed is likely to resume
cutting interest rates in the second half. We expect lower rates to support bond markets.
In equities, we favor growth
themes like AI, Power and resources, and Longevity.
We also like medium-
duration quality bonds and gold. We see the US dollar as Unattractive.
Five things to watch in the second
half
Entering the second half of 2025, investors find themselves at a crossroads
between recent market volatility and the emergence of potentially stabilizing trends. In the first half, investors contended with shifting policy, swings in senti- ment, and geopolitical events. Yet, beneath the surface, the outlines of a more constructive environment are taking shape.
We see five key factors that we expect to drive investment outcomes in the
months ahead: First, US trade and fiscal policies are gradually taking shape. While the expiration of the US “reciprocal” tariff pause and legal debates around the basis for tariffs risk near-term volatility, we expect the final contours of US trade policy to become clearer in the weeks ahead. Meanwhile, Treasury and legislative actions, including the likely passage of the One Big Beautiful Bill Act, should provide greater clarity on fiscal policy. Elevated tariffs and persistent deficits may periodically unsettle markets, but we do not expect them to end the broader economic expansion or trigger a sustained market drawdown. Second, geopolitical risk remains a feature of the current environment. Ongoing conflicts in the Middle East and Eastern Europe pose tail risks. The challenge for investors is how to effectively diversify and hedge the risk of further escalation. Third, we expect interest rates and bond yields to fall. The Federal Reserve has been on hold in the first half of the year, but we expect it to resume cutting in the second half. We believe lower rates, lower growth, slower inflation, and “safe- haven” flows will lead to lower high grade bond yields by year-end.
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