UBP House View - July 2025

The Israel–Iran ceasefire has eased concerns about energy prices, thus curbing inflation pressures and maintaining the prospect of a rate cut by the Federal Reserve this autumn. Investor sentiment remains strong, notably on the technology sector. However, the unpredictability of geopolitical developments, coupled with the looming 90-day tariff-pause deadline, leads us to maintain a broad diversification across asset classes and regions.

Despite the escalating geopolitical tensions between Israel, Iran and the US, equity and bond markets are – for now – not pricing in a worst-case scenario. In this context, a diversified allocation is warranted to contain tail risks and mitigate mounting volatility. Gold continues to serve as a hedge against extreme shocks.

Markets rallied on US–China trade deal progress and soft US inflation data, boosting risk assets and expectations of a Fed rate cut. Yields fell while credit spreads tightened. However, at the end of the week gains faded as Israel–Iran tensions flared up, but this lifted defence stocks. The US dollar weakened, while gold and oil rose on geopolitical tensions.

As we enter the second half of the year, the fading trade war rhetoric is paving the way for a renewed focus on diversified asset allocations.

Equity markets welcomed Trump’s 90-day tariff truce by rebounding swiftly. However, we are maintaining a wait-and-see stance during this pause, while hedging against potential US dollar weakness by increasing our exposure to gold.

Tactical risk management helped us ride out one of the sharpest market dips since 2020. Gold and cash remain reliable safe havens.

Trump’s activism on the US economy is creating fears of recession. To navigate short-term turbulence, we have tactically scaled back our exposure to macro-sensitive assets, such as US equities, including US midcaps, along with high-yield and emerging-market debt, while increasing our allocation to gold.

On his return to the Oval Office, Donald Trump swiftly sparked uncertainty with a trade offensive against Mexico, Canada and China. We expect the return of protectionist policies to fuel market volatility in the months ahead. In this environment, hedge funds and precious metals stand out as resilient investment choices.

Trump's agenda of higher tariffs, tax cuts, and stricter immigration measures could, if actually implemented, spur inflationary pressures, thus curbing the momentum for interest rate cuts. This ‘higher-for-longer’ interest rate environment favours hedge funds over fixed income investments – an asset class we have downgraded from 3/5 to 2/5.