World in turmoil: what matters now

The war in the Middle East and the resulting oil price shock have had a profound impact on the sentiment of businesses, consumers and investors. Now that the situation has calmed down somewhat, it is worth taking a closer look at the fundamental environment and the outlook going forward. One thing is certain: investors should keep a cool head and spread their capital as widely as possible.

4 July 2026 marks the 250th anniversary of the signing of the US Declaration of Independence. Under the banner ‘America250’, national highlights are planned across the States alongside numerous regional events: on 3 July, the famous ‘Times Square Ball’ is set to drop in New York for the first time outside of New Year’s Eve, and in a special design. On “Independence Day” itself, a grand concert will take place at the Memorial Coliseum in Los Angeles. The organisers of the celebrations can count on the support of prominent corporations. The long list of sponsors includes Amazon, Boeing, Coca-Cola, J.P. Morgan Chase and Walmart, amongst others.

A conflict with an uncertain outcome
It remains to be seen whether the nearly 350 million Americans are really in the mood to celebrate this summer. With the big anniversary fast approaching, the country is in turmoil as rarely before. Whilst last year’s trade war – particularly with China – frayed the collective nerves, the conflict with Iran is now causing uncertainty. By launching attacks in conjunction with Israel, Donald Trump has set off a conflict with an uncertain outcome. Iran is using the Strait of Hormuz in particular as a strategic weapon. By effectively blocking the sea passage, around a fifth of global oil and gas shipments have come to a standstill.

Although the US is relatively self-sufficient in energy, the oil price shock has also reached petrol stations across the country. The price of a gallon of petrol has settled above USD 4 – an increase of around USD 1 on the level seen before the war began. With fuel prices, general inflation has risen. In March 2026, the US Consumer Price Index (CPI) was 3.3% higher than in the same month of the previous year. This meant that inflation had not only reached its highest level in almost two years, but had also moved significantly away from the 2% target set by the US Federal Reserve.

A striking interplay
War in Iran, oil, US CPI – these three issues are currently setting the pace on the capital markets. As soon as the situation in the Middle East comes to a head – keyword: ‘escalation’ – the price of oil rises, whilst the US dollar strengthens and shares and bonds take a dive. If, on the other hand, hopes of a “de-escalation” emerge, the picture is reversed: whilst energy prices come under pressure, investors snap up shares and bonds. In this context, the dollar is sold off.

Behind these patterns of behaviour lie two fundamental projections for the near future. On the one hand, the negative scenario of stagflation – that is, a combination of sluggish macroeconomic growth and high inflation rates – is causing investors to flee from high-risk asset classes. And with good reason: in the past, a sharp rise in inflation has repeatedly derailed the economy. Figure 1 looks back to the 1970s, a period marked by oil crises. Even then, abrupt price rises were followed by economic slumps. At present, the prevailing sentiment in the markets is one of hope that things will not turn out so badly. Investors are banking on successful peace negotiations and on the global economy picking up momentum, with central banks providing active support through interest rate cuts.

Keeping a cool head
Speaking of monetary policy: here too, expectations shift as soon as the switch is flipped between ‘escalation’ and ‘de-escalation’. Until the first air strikes on Tehran in late February, the markets had firmly expected interest rates in the US to be cut twice in 2026. Now, the consensus is that monetary policy will remain unchanged until New Year’s Eve. This view has solidified following the latest Federal Reserve meeting. Fed Chair Jerome Powell used the occasion to deliver a fiery speech. In his view, it is important that US citizens can rely on a central bank that is free from political influence. “It is an absolute cornerstone of our great economy,” said Powell. The outgoing head of the US Federal Reserve has repeatedly come under heavy criticism from Donald Trump, who has been pushing for interest rate cuts. In doing so, the US President has sown doubts about the independence of the central bank.

Be that as it may, developments over the past few weeks have made it clear just how difficult it is for investors to get it right in the short term. For Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, it makes no sense to make abrupt changes to strategic portfolio allocation. The same applies to attempts to ‘trade’ on geopolitical events. He therefore advises long-term investors to remain invested. ‘Oil prices will remain the most important barometer for economic and market risks,’ says Haefele.

Equities: ‘Stay tuned!’
UBS Global Wealth Management expects equity markets to rise by the end of the year. Earnings prospects are cited as one reason. In the US, UBS Wealth Management forecasts earnings growth of 11% for the S&P 500 in 2026. J.P. Morgan shares this view. ‘Maintain a cautiously optimistic stance on risk assets,’ is the advice from the major US bank. The strategists also cite artificial intelligence (AI) as a reason for their confidence in equities. Anthropic, in particular, has recently caused a stir in this area. The US start-up is electrifying investors with its Claude model and rapid revenue growth.

Regardless of this, both UBS and J.P. Morgan are urging clients to hedge their portfolios. ‘The relatively sharp fall in implied volatility makes these hedges cheaper,’ note the US strategists. Indeed, the frenzy on the markets has noticeably subsided following the turbulence at the start of the war (see Chart 2). This argues in favour of hedging equity positions using put warrants. At the end of the article (Investment Solutions), you will find an example of such a hedging strategy.

Commodities: A ‘must-have’
Commodities offer another way to prepare for further turmoil. This is all the more true given that the fundamental outlook for this asset class also points to rising prices. “We see structural appeal across the entire commodities complex,” says UBS expert Haefele. In addition to low inventories in the energy sector, he points to the demand for industrial metals resulting from investment in infrastructure and electrification. Added to this is the appeal of gold as a hedge against geopolitical and fiscal policy risks.

Recently, this characteristic has not held true for the most important precious metal. Instead, the surge in inflation, coupled with the resulting shift in monetary policy expectations, has put a damper on prices. Rising interest rates are, by their very nature, unfavourable for gold, an asset that does not generate income. However, the dip in prices following the historic rally could present a new buying opportunity. After all, the fundamental drivers remain intact. These include, alongside geopolitical risks, the interest of central banks in diversifying their foreign exchange reserves with the help of the precious metal. The commodities market as a whole is on a bull run despite the correction in gold and silver; compared with the level at the end of 2025, the UBS CMCI Composite Index has recorded a 22% increase in value (see Chart 3).

Bonds: Europe first
The fixed-income segment also offers opportunities to allocate capital with a relatively high degree of security. In the short term, prices here are also heavily dependent on prevailing market sentiment – whether the situation is seen as ‘escalating’ or ‘de-escalating’. Investors wishing to include bonds in their portfolio on a long-term basis should look beyond this. For them, this asset class provides stability and generates regular income. The former attribute applies above all to the debt securities of Western nations. Here, the US Treasury is the benchmark. Admittedly, US government bonds offer significantly higher yields than Swiss or German bonds. However, particularly with a view to the coming months – think Iran war, the Fed and mid-term elections – there are also a great many uncertainties surrounding this issuer. In any case, we would give preference to European government bonds.

Investment solutions
The Vanguard EUR Eurozone Government Bond ETF (VETA) comprises more than 500 bonds. France, Italy and Germany clearly dominate the portfolio, with these three countries accounting for nearly two-thirds of its holdings. Just under a quarter of the ETF, which has a market value of approximately EUR 4.5 billion, is invested in government bonds with an AAA rating. If we add bonds rated A and AA to this, the total comes to more than three-quarters. With a current yield of 3.3% p.a., this index fund not only offers security but also meets the desire for decent returns.

The CCMCIU tracker certificate on the UBS CMCI Composite CHF Monthly Hedged TR Index focuses less on regular income and more on price potential and its hedging function. This structured product allows investors to incorporate the entire range of commodities into their portfolio. The underlying is calculated using the CMCI methodology, which aims to eliminate as far as possible the uncertainties associated with commodity trading. For diversification purposes, the index is positioned across the entire forward curve. Traditional commodity indices, by contrast, tend to be concentrated at the near end of the maturity curve.

Finally, we will show how an equity portfolio can be hedged. Investors with significant exposure to Wall Street may wish to consider the WSPKSV put warrant. Vontobel has set the strike price for this S&P 500-based warrant at 6,500 points. Assuming that hedging is to be established for a position worth USD 50,000. With a subscription ratio of 100:1 and an index level of 7,130 points, approximately 702 warrants are required (calculation: (50,000 / 7,130) * 100) At an ask price of CHF 2.09, the cost of this ‘homemade’ hedge – excluding fees – amounts to CHF 1,467.

As soon as the US benchmark falls below the strike price on the expiry date in December, the hedge will take effect. We assume a fall in the S&P 500 to 5,500 points. In that case – assuming a stable USD/CHF exchange rate – the put would expire at CHF 7.91. The hedge would therefore generate a profit of around CHF 4,086. This would offset just under 36% of the loss on the equity position. This ratio can be controlled via the strike price – a higher strike price results in stronger protection. Should Wall Street remain in rally mode, the put would expire worthless. Investors would have to treat this loss as an insurance premium.