Navigating market volatility according to Nobel Laureates

In life and investing, uncertainty can be unsettling. But with the right support, it can also be reframed as an opportunity. Our UBS CIO team believes that after a strong market rally and with good news now well-priced, investors should prepare for potential market volatility in the weeks ahead. We asked three winners of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel – Bengt Holmström, David Card and Daron Acemoglu – to weigh in.

Following the US administration’s tariff announcements of April 2025, volatility spiked sharply across global markets. The S&P 500 index has climbed by close to 30% since the April lows, when worries over US tariff policy were at their most intense. “My assessment is that if we were to choose one word to describe our current situation, it would be turbulence,” said Daron Acemoglu who, together with Simon Johnson and James A. Robinson, was awarded the Prize in 2024 for “for studies of how institutions are formed and affect prosperity”.

How do non-financial and political risks affect markets?

“We don't really know what's coming,” said Holmström, who was awarded the Prize together with Oliver Hart in 2016 “for their contributions to contract theory”. “It's not so much finance volatility. The economy is remarkably calm and the US economy, and even Europe, isn't looking that bad. But it's really about the non-financial factors, which of course eventually will also affect the financial factors.”

These non-financial factors include political uncertainty. “I think the main problem is probably political – in the sense that, for instance, the war between Russia and Ukraine or the problems in the Middle East, which are in the background, have potential to cause even more turmoil,” said Card, who was awarded the Prize in 2021 “for his empirical contributions to labor economics”. And many Western countries have a fairly volatile political situation, he added.

Can uncertainty create investment opportunities?

What does this mean for investors? “With all these factors together, it ranks as a high uncertainty situation,” said Holmström, before adding: “It’s also somewhat positive. I mean, we could have some very big innovation.” As UBS’s Chief Investment Office (CIO) highlights: potential volatility could be a good opportunity for investors to build exposure to structural growth ideas.

Where does UBS see long-term investment opportunities today?

What are they? CIO continues to see strong long-term potential in three areas: artificial intelligence (AI), longevity, power and resources, which it refers to as the TRIOs, or Transformational Innovation Opportunities. Even amid market uncertainty, the long-term growth prospects for these three areas remain strong, it points out.

For investors with a long-term perspective, the TRIOs offer exposure to structural growth ideas expected to deliver attractive returns in the years ahead.

What are the TRIOs: AI, longevity, and power & resources?

Power and resources companies are well positioned to capitalize on surging electricity demand and the global energy transition. Longevity is supported by demographic shifts and innovation in health care, medtech, and wellness. And, as Daron said: “AI, if indeed it fulfills a quarter of the promises that the industry is making, is going to be completely transformative.” Increasing AI adoption could further contribute to cost optimization and earnings growth. monetization should continue to drive robust earnings growth. Moreover, rising use cases across industries suggest overall AI adoption is far from a peak.

How should investors respond to future market swings?

What does this mean for investors? Be prepared for more volatility ahead – but continue to seek out opportunities, guided by experts. Indeed, near-term market swings offer investors an opportunity to build long-term exposure to our TRIOs. And as always, diversification is key. As Holmström put it: “In such uncertain times, one thing is to really spread your assets broadly and see a lot of options. You just have to put your bets in a lot of places.”