Investors unnerved by recent swings in prices may feel compelled to step aside, but UBS argues that market volatility on its own does not warrant leaving equities. The bank points to historical patterns and portfolio construction principles as reasons for maintaining exposure to stocks even amid heightened uncertainty.
UBS notes that the current bout of market unrest is being amplified by geopolitical tensions - including the ongoing conflict involving Iran - and by disruptions to oil markets that have pushed commodity prices higher. Those developments, the bank says, have added to uncertainty around both growth and inflation, contributing to larger price swings across markets.
Despite those pressures, UBS emphasizes that periods of market stress are commonplace. One key data point the bank highlights is that, since 1981, the S&P 500 has experienced an average maximum drawdown of about 14% within a given year. Historically, the index has nevertheless ended the calendar year in negative territory only on a limited number of occasions over past decades.
The bank also draws attention to the relationship between spikes in volatility and subsequent returns. When the VIX volatility gauge moves to elevated levels, UBS says the S&P 500 has historically produced above-average returns over the following 12 months compared with more typical volatility conditions.
UBS warns that attempts to time markets can substantially reduce long-term investment results. The bank uses a hypothetical example to illustrate this point: a $100 investment in the S&P 500 made in 1989 would have grown substantially by early 2026 under a buy-and-hold strategy, but missing the market's best week or best quarter during that period would have materially lowered the ultimate return.
Over longer horizons, UBS points out, equities have tended to generate positive outcomes more often than not. The bank cites data showing the S&P 500 posted gains in roughly 72% of calendar years since 1960, underscoring the potential advantage of maintaining exposure through market cycles.
Rather than advocating an exit from equities, UBS recommends investors retain diversified portfolios and expand exposure across sectors and regions. The bank suggests allocating to assets such as quality fixed income, gold, and alternative strategies as means to manage downside risk while remaining invested in the market.
Implications for investors
- Volatility driven by geopolitical and commodity shocks can be disruptive but has not historically been a reliable signal to abandon equities.
- Maintaining diversified equity exposure, complemented by fixed income, gold, and alternatives, is UBS's recommended approach to navigating uncertainty.