Within fixed income, UBS likes government bonds, investment-grade coupons, sustainable bonds, certain senior financial debt, and emerging market credit. Diversifying across these assets at elevated rates is a sound strategy to hedge against downside risk, the firm believes.
If inflation stays persistent, real assets like commodities, real estate, and investments tied to infrastructure should act as a hedge while diversifying and providing income, according to UBS. UBS also thinks stocks that have lagged this year, like defensives and value-oriented firms, are set to catch up while valuations for outperformers moderate. Attractive valuations are top reasons to own stocks in the staples and energy sectors, in the firm's view.
Staples companies will also benefit from resilient earnings growth in a weak economy while energy stocks will gain as limited energy supply causes oil prices to rise. The thesis for industrials is centered around continued long-term investments in defense, infrastructure, energy capacity, and aerospace, UBS strategists wrote in a note.: Fading economic momentum and falling earnings should keep investors cautious, in Wells Fargo's view.
As for the economy, Wells Fargo is bracing for a short, mild recession. Despite the US central bank's best efforts, the firm think it's unlikely that the economy will continue to expand as economic indicators soften while interest rates remain historically high. However, Wells Fargo is optimistic about inflation's trajectory, as it expects price growth to slip below 3% later this year.: Wells Fargo favors high-quality, defensive investments as the economy loses steam.