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Video: Global CIO Mark Haefele on what could disrupt the recent “quiet” in markets (3 min)
Video: Three reasons why we like US financials (7 min)
Podcast: Investors Club on the risk of a US government shutdown, Fed independence, and the GENIUS Act (25 min)

US President Donald Trump criticized Federal Reserve Chair Jerome Powell over the cost of the central bank’s renovation project during his tour on Thursday. Powell pushed back on Trump's claim that the renovation costs had risen to USD 3.1bn, a figure that the Fed chair said included a building that had already been completed.

The White House has repeatedly put pressure on the US central bank in recent weeks amid President Trump’s efforts to get Powell to cut interest rates. On Thursday, Trump said he didn't "think it's necessary" to dismiss Powell, adding that "I believe he's going to do the right thing." The president has called for interest rate cuts of 3 percentage points or more, from a current target range of between 4.25% and 4.5%.

Threats to Fed independence could linger as a risk to markets over the coming weeks, in our view. We also see potential risks from any resurgence of trade tensions ahead of the White House's 1 August deadline, along with any signs of economic harm from tariffs. With global stocks at all-time highs, some combination of these has the potential to contribute to market volatility in the weeks ahead.

Nevertheless, we would expect market swings to be temporary.

We believe trade negotiations will ultimately lead to moderate policy (albeit with high tariffs by historical standards). We would expect a tariff-led economic slowdown to be mild and short-lived, rather than recessionary. Meanwhile, we believe structural trends, notably AI, will remain supportive of corporate earnings over the medium and longer term.

To prepare for potential near-term market volatility, we believe those investors already invested in equities in line with their strategic benchmarks should consider implementing short-term hedges, while those underallocated to stocks should prepare to add exposure on potential market dips.

Our preferred areas within equities include the US technology, health care, financial, and utilities sectors. In Asia, we like China's tech sector, India, and Singapore. In Europe, we favor Swiss high-quality dividend stocks, European quality, and our “Six ways to invest in Europe” theme. We also like the Brazilian market. We believe market dips would offer a good opportunity for investors to build exposure to our Transformational Innovation Opportunities of Artificial intelligence, Power and resources, and Longevity.

In fixed income, our preference is for high grade and investment grade bonds. We believe tight credit spreads and risks of changes to the market narrative around economic growth make the risk-return for both high yield bonds and senior loans less appealing at this stage.

We expect further US dollar depreciation in the months ahead, targeting EURUSD at 1.23 and USDCHF at 0.76 by June 2026. Meanwhile, we see scope for gold prices to rise further over our forecast horizon, with a target of USD 3,500/oz.

For more, read our Monthly Letter: Quiet…too quiet.