UBS tips on investing in the stock market in the bear market from

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Author: Jessica Bahia Melo – The ongoing crisis in Ukraine, signs of inflation, quarantine in China and fears of a recession caused by the Federal Reserve, the central bank of the United States, led to a fall in US stocks. Even the introduction of a technology index for the bear market (when the fall in one period is equal to or exceeds 20%) in 2022, with the current fall to 21.25% at the end of trading on Friday. (29). But the fall is not just on Wall Street.

Market volatility continues, and according to the UBS report, negative sentiment is exacerbated by the US employment cost index, which showed wages up 1.4% from the previous quarter, which is above consensus expectations and is a record in the historical series with this methodology . This increased the yield on 2-year and 10-year US Treasury bonds, rising by about 10 basis points on Friday to monthly growth of 39 and 59 basis points, respectively.

“As the Federal Reserve meets this week to decide on its interest rate policy, there are growing concerns that the central bank may choose a more aggressive move of 75 basis points instead of the widely expected increase of 50 basis points. more than 280 basis points stronger this year, which raises concerns about the economy’s ability to sustain that rate without falling into recession. Concerns about growth have been heightened by China’s ongoing struggle to contain COVID-19 – new restrictions have been announced for Beijing over the weekend, as well as the impact of restrictions on Russian gas flows on the European economy, “the document said.

What are your expectations from UBS?

According to UBS, the central question for investors is whether the Fed will be able to return inflation and growth to the trend without causing a recession.

“Under our baseline scenario, inflation is expected to fall from current levels but remain above the pandemic range. We expect growth in 2022 to be slower than last year, but not fall. Not in a recession. We believe that the right strategy to position oneself for inflation is a clear and current fact, not a recession, which is still only a possibility in the future, ”the document reads.

How to invest in this scenario?

The UBS report emphasizes that under the baseline scenario, markets will end the year above current levels, but active portfolio management is seen as important with a focus on sectors that are expected to exceed inflation.

1 – Invest in value

UBS’s first recommendation is to increase the risk of investing in value, including energy, as growth-oriented sectors are under pressure.

2 – Management of inflation and interest rates

UBS supports the idea that there is an increase in profits in the fixed income sector, and sees opportunities for good profits in the ESG sector. However, prefer private credit zones.

3 – Integrate hedging into the portfolio

To reduce volatility and risk, UBS advises choosing products that tend to perform well during inflation, and the US dollar may continue to act as a short-term hedge. UBS recommends increasing the influence of defense sectors such as healthcare and pharmaceuticals.

4 – Follow your plan

Increased uncertainty can motivate investors to make emotional decisions and jeopardize financial success.

“If you are confident that you can meet short-term spending needs, you are better prepared to avoid responding to market volatility and sell assets in your longevity strategy that are designed for long-term growth.” Falling markets, as well as further recovery, are known to be unpredictable.