The S&P 500 is up nearly 15% year-to-date, driven by enthusiasm for artificial intelligence (AI). Here’s the latest.
Ten days ago, chipmaker NVIDIA briefly overtook Microsoft as the world’s largest company by market capitalization before retreating. In addition, the cycle of interest rate cuts is in full swing. Switzerland, which started the process in March, surprised the markets again last Thursday by lowering its rates for the second time.
We can expect the markets to remain influenced by political themes, including the current French legislative elections and the presidential election in the United States, in the second half of the year. Therefore, investors can be recommended three basic strategies.
- Preparing for a drop in interest rates
The monetary easing cycle is already well underway, with rate cuts by the Swiss National Bank, the Bank of Sweden, the Bank of Canada and the European Central Bank. The key for markets, however, will be the timing and pace of the US Federal Reserve’s (Fed) rate cuts.
UBS Research still sees a cumulative 50 basis point cut this year, likely starting at the September meeting. The latest release of the personal consumption expenditures (PCE) index, the Fed’s preferred inflation barometer, should confirm that price pressure is easing.
As the US elections approach, investors should be reminded that they should vote at the ballot box, not with their wallets.
In this context, investors should prepare for a gradual decline in the remuneration of cash. A portfolio of bonds with staggered maturities can meet liquidity needs over a horizon of one to three years and the yield on quality bonds remains attractive.
- Seizing the AI investment opportunity
AI is expected to emerge as one of the greatest investment opportunities in history and investors should ensure their portfolios are “AI-enabled.” We will appreciate semiconductor companies that are benefiting from the rise of AI investment, as well as vertically integrated mega-caps that are well positioned throughout the value chain.
That said, in the second half of the year, the specter of overinvestment could lead to a correction. Capital preservation strategies can help investors mitigate this risk.
- Preparing portfolios for the US elections
As the US elections approach, investors should be reminded that they should vote at the ballot box, not with their wallets. These electoral deadlines are likely to fuel volatility in the market, hence the need for investors to manage risks.
In terms of equities, US consumer discretionary and renewable energy stocks could be vulnerable if the White House and Congress swing to the Republican camp. On the other hand, financial stocks could benefit from such a scenario.
Gold can also be an effective hedge against concerns about geopolitical tensions, inflation or the high US budget deficit.
A period of transition and volatility
The second half of the year therefore promises to be a period of transition and volatility. The decisions that investors make today will be decisive in getting through this period smoothly.
We will recommend a balanced approach, diversified between bonds, stocks and alternative assets, in order to position yourself for long-term financial objectives while dealing with short-term uncertainty.
