The recent banking sector turmoil has drawn comparisons with the global financial crisis. Yet despite the market headlines, the S&P 500 is closer to its six-month high than its six-month low.

Policymakers have acted swiftly to try and contain the risks in the global banking sector, and we think the turbulence is unlikely to turn into a systemic crisis.

But confidence is fragile, market volatility is likely to stay high, and policymakers may have to go further to make sure faith in the global financial system stays solid. Financial conditions are also likely to tighten, which increases the risk of a hard landing for the economy, even if central banks ease off on interest rate hikes.

What does all this mean for investors?

Most importantly, we think investors who are already well diversified should refrain from making rash decisions and should keep focused on their long-term financial goals. History teaches us that for well-diversified investors, the biggest threat to real wealth isn’t being invested through periods of short-term volatility, but from being under-invested over the long term.

We think there are several ways investors should position in the current environment:

First, manage liquidity as rates peak. Many investors have held more cash than usual in anticipation of higher interest rates. But policy rates could now be approaching a peak. We think investors should stay (or get) sufficiently invested and diversified, and act soon to lock in current yields.

Second, buy quality bonds. We see an attractive opportunity set in fixed income given decent yields and the potential for capital gains in the event of a deeper economic slowdown. This month, we have moved bonds to most preferred relative to equities. We prefer high grade and investment grade bonds―which should be more resilient if there is a recession―relative to high yield.

Third, diversify beyond the US and growth. While equities should remain a key component of long-term portfolios, we expect global stocks to deliver limited returns and exhibit high volatility over the remainder of the year. We downgrade equities this month to least preferred.

Within the asset class, we think the outlook for US equities is challenged amid tighter financial conditions, declining corporate earnings, and relatively high valuations. By contrast, we see low-teens total returns from emerging market stocks (MSCI EM index) over the remainder of the year, powered by strong earnings growth, China’s recovery, and relatively cheap valuations. At a global sector level, we prefer consumer staples, industrials, and utilities.

Fourth, position for dollar weakness. We move the US dollar to least preferred. Elevated valuations and an approaching end to the Fed’s rate hikes mean we expect the US currency to weaken over the balance of the year. On a relative basis, we prefer the Australian dollar as well as the Swiss franc, euro, British pound, Japanese yen, and gold.

Investors looking to add return and to diversify their portfolios can consider real assets like commodities and infrastructure, or alternatives like hedge funds and private markets. We also see a variety of ways to position sustainably while earning attractive risk-adjusted returns.

To read more about our investment ideas for navigating the current market environment, see our latest Monthly Letter, “ Inflection point or breaking point?” and our second-quarter outlook, “ Stability amid uncertainty.” Watch a short video on these themes here.