UBS points to equities, bonds and gold as Fed odds rise

UBS told clients to allocate fresh money to equities tied to artificial intelligence, power, resources and longevity, to the medium‑to‑long part of the yield curve, and to gold as markets prepare for volatility around the Federal Reserve’s September decision.

Strategists led by Mark Haefele said investors should focus on the economic conditions that would prompt Fed action rather than the meeting itself. In commentary to clients, the team wrote that a Fed responding to US economic strength is different from a Fed responding to inflation problems and that distinction matters for portfolio positioning.

Recent US data have shifted market pricing. Nonfarm payrolls increased by 162,000 in August, above consensus forecasts of 55,000, while the unemployment rate remained at 4.1%. Traders have repriced the path for policy after those figures and hawkish remarks at Jackson Hole from Fed Chair Kevin Warsh. The Federal Open Market Committee meets on September 15-16.

CME FedWatch placed the probability of a September rate hike at about 60.4%, 70.9% for October and 85.8% for December.

On equities, UBS said price dips would probably occur first if corporate earnings stay intact and recommended sectors tied to AI, energy infrastructure, raw materials and health and longevity trends. The bank described those areas as combining structural growth with potential resilience to changes in rates and the economy.

For fixed income, UBS pointed to the medium‑to‑long end of the yield curve. Recent rises in longer‑term yields have created what the bank called improved entry points, offering income and diversification. At the same time, UBS removed a prior bond recommendation and urged clients to reduce excess dollar holdings after the currency’s recent strength.

The bank warned against locking in yields in short‑ to medium‑duration bonds as an alternative to cash, writing, “We would no longer recommend that investors lock in yields in short- to medium-duration bonds as an alternative to cash.”

Gold was listed as UBS’s third recommendation, to be held as a hedge and diversification tool rather than as a tactical bet on the next Fed decision. The bank noted higher real rates and a firmer dollar are near‑term headwinds for bullion but said persistent inflation and concerns about fiscal credibility could support prices over time.

Investors will watch August core consumer price index data due on September 11, four days before the FOMC meeting, as a key indicator for whether recent hawkish repricing holds. UBS emphasized the importance of distinguishing rate moves driven by solid growth from those driven by sticky inflation when positioning portfolios for the coming period.