From the studio

Video: Investors Club | Swiss equities, European health care, and China tech (9 mins)

Thought of the day

This week could prove a pivotal one in the Middle East conflict, with clear risks for investors. US President Donald Trump intensified threats to Iran on Monday, saying the Islamic Republic could be "taken out" quickly and renewing his demand for Tehran to allow the flow of shipping through the Strait of Hormuz. The president has warned Iran of strikes against civilian infrastructure, including bridges and power plants, if no deal is reached by his deadline of 8pm Eastern time.

Markets will be on the alert for any signs that the conflict is on the path to escalation or whether an end to US-Israeli strikes could be in sight. Against this uncertain backdrop, we have been advising investors to progressively de-risk portfolios the longer that oil prices remain high. We have become more cautious on equity markets that are highly sensitive to disruptions to energy supplies, including Europe, the Eurozone, and India. Given the headwinds and risks, we have also lowered our year-end target for the S&P 500 from 7,700 to 7,500.

But recent corporate and economic developments have also served as a reminder of why investors should remain engaged in markets, given the potential positives for risk assets over the medium and longer term.

Corporate profit growth should stay healthy. How the Iran war will develop in the immediate term remains highly uncertain, but we expect a path to de-escalation to emerge. While elevated energy prices pose a headwind to growth, the US economy in aggregate is not very sensitive to oil prices. Our analysis shows that every USD 10 increase in oil prices would lead to just a 0.1 percentage point drag on GDP growth and a 0.05 percentage point increase in core inflation. With energy spending accounting for only a small share of household budgets (3.7%), we expect the US economy to stay resilient and corporate profit growth to remain robust. We project that S&P 500 earnings per share will grow by 11% this year.

Federal Reserve policy remains supportive. While US job creation rebounded and the unemployment rate fell in March, the labor market remains soft in demand-sensitive areas. For example, the labor force participation rate last month fell to the lowest level since 2021, masking the drop in the unemployment rate. Average weekly hours also edged lower, and wage growth continued to decelerate. Additionally, we expect sequential core inflation to cool later this quarter as tariff effects fade, while growth may move below the Fed’s implied outlook in the second half of the year. So, while the US central bank will likely stay in a wait-and-see mode in the near term, interest rate cuts between September and December remain our base case. Further easing should support stock performance.

Rising AI adoption is still key in stock performance. A major chipmaker on Tuesday projected its first-quarter earnings would exceed its entire profit for last year, as demand for AI compute remains strong amid ongoing supply bottlenecks in memory chips. We think this forecast underscores the robust compute demand amid the rapid rise of AI agents and agentic models. In this new landscape, AI compute demand is becoming increasingly inference-centric, and we see beneficiaries across chipmakers, memory suppliers, advanced packaging, networking, and hyperscalers. We believe AI remains a key driver of equity performance, and see opportunities both within and beyond the tech sector.

So, we maintain the view that investors should stay in the market despite near-term uncertainty. Investors can improve portfolio resilience by diversifying beyond traditional asset classes, replacing a portion of direct equity exposure with capital preservation strategies and adding exposure to gold and broad commodities as hedges.