UBS advises investors to focus on bonds despite market struggles
Investors should consider investing in bonds rather than stocks, according to UBS, despite recent market struggles in the fixed-income sector. UBS predicts that the key 10-year US Treasury yield will drop from the current 4.7% to 3.5% over the first half of 2024, potentially providing bondholders with returns of around 13%. The Swiss bank believes that as US growth slows and the Federal Reserve completes its tightening campaign, bond yields will fall and make bonds an effective hedge for investor portfolios. UBS also holds a neutral view on equities, projecting a modest 4% increase in the benchmark S&P 500 stock-market index by June 2024.
Although the bonds sector has experienced significant volatility recently, UBS anticipates that yields will continue to decrease as US growth slows and investors find bonds more attractive. Additionally, UBS expects the Federal Reserve to wind down its efforts to control inflation during the first half of 2024, which typically benefits bonds as they offer better returns compared to savings accounts. However, UBS remains cautious on stocks globally, stating that while there is potential for upside growth, uncertainty about monetary policy may lead to range-bound and choppy markets. In a downside scenario of a recession, global stocks could decline by 16% by June 2024. Conversely, in an upside scenario of positive economic growth, global stocks have the potential to rally by 16%.
