LIVE MARKETS-Prepare for near-term volatility - UBS
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PREPARE FOR NEAR-TERM VOLATILITY - UBS
With the S&P 500 back at a record high, optimism is clearly abounding, but investors should brace for potential volatility in the near-term, says Mark Haefele, global wealth management CIO at UBS.
Volatility generally has been low. Wall Street's closely-watched VIX volatility index .VIX is around 15.69, around its lowest since February, and down from an eight-month high of 60 in April.
He says a lot of the good news around trade has now been priced in, and sentiment has quickly become more cautious as investors brace for a slew of market moving events.
They include several major U.S. data releases, the outcome of the Federal Reserve's policy meeting and Q2 from a number of big tech companies.
Haefele also flags threats to Fed independence as a factor that could affect market sentiment.
"We do not believe external political interference with the Fed will make a material difference to monetary policy, and Trump has reiterated he does not intend to fire Powell," he writes.
"But fears about political influence and conjecture over a shift in Fed leadership have the potential to unnerve investors."
And even though recent trade deals have provided some clarity over tariffs, the impact can't be overlooked.
"While our base case is that the resilience of the US consumer should help the US economy avoid recession, a larger-than-expected impact on inflation or more severe hit to corporate margins could quickly change the current optimistic market narrative."
Overall, UBS expects equities to advance over the coming 12 months, but investors should be mindful of near-term market swings.
"We think capital preservation or phasing-in strategies can be effective in navigating near-term volatility," writes Haefele.
(Lucy Raitano)
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