The stock market has rebounded in recent weeks, with the S&P 500 up 8% since June 16, as investors fished out the bottom.

Some attribute stock market gains to second-quarter earnings exceeding expectations for some companies, like Netflix (NFLX) – Get the Netflix Inc. and Tesla (TSLA) – Get the report from Tesla Inc..

Others say inflation will peak soon and the Federal Reserve won’t have to raise interest rates much more. And still others say the economy is not about to enter a recession.

So what does all of this mean for the market going forward, can we expect more gains? Don’t hold your breath for it, says Mark Haefele, chief investment officer of global wealth management at UBS.

“High uncertainty”

“We don’t expect a sustained improvement in market sentiment until investors have more clarity on the outlook for the economy, central bank policy and political risks,” he said. wrote in a comment. “Uncertainty in all of these areas remains high.”

The US economy shrank 1.6% annualized in the first quarter, and many analysts are also forecasting a negative number for the second quarter.

“Recent inflation data has continued to surprise on the upside,” Haefele noted. This includes the 9.1% rise (a 40-year high) in US consumer prices in the 12 months to June.

“Many central banks around the world have tightened more than expected,” he said. Such was the case last week with the European Central Bank’s 50 basis point increase in its benchmark lending rate.

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As for the Fed, the consensus call is for a 75 basis point hike on July 27, but a bigger hike “remains a possibility, raising the risk of further volatility,” Haefele said.

Political risk

Then there is the war in Ukraine. “Political risk is also expected to remain high,” he said. “Russia has demonstrated that it is ready to use energy flows as a tool to increase pressure on its adversaries, regardless of sacrificed export revenues.”

The Russian company Gazprom PJSC announced on July 25 that it would reduce natural gas flows on the Nord Stream gas pipeline to Germany to around 20% of its capacity on July 27.

Any cuts to Russian energy exports combine to “create considerable headwinds for the European economy,” Haefele said.

Faced with all this economic and political ambiguity, he recommends investing in:

1. Value stocks. “Value sectors tend to outperform growth stocks when inflation is above 3%, which is likely to be the case for some time,” Haefele said. “We favor the UK market, which has a high weighting towards value sectors.”

2. Defensive and quality actions. “To build defenses against a potential crisis scenario, in which weaker economic data leads to lower corporate earnings expectations and further declines in equities, we believe investors should add exposure to quality income stocks. , the health sector, resilient credits and the Swiss franc.

Haefele’s uncertainty makes a lot of sense. It is very unclear how much further the Fed will raise rates, when inflation will peak and how far it will slip, and whether the economy will soon fall into recession.

So it would seem that a defensive investment strategy is quite conservative now. Part of that could involve buying bonds, which are showing much higher yields than in the past 10 years.