Michael Zinn, Managing Director and Senior Portfolio Manager at UBS, stated that geopolitical and macroeconomic fears are pushing sovereign bond yields to perilously high levels, with gold emerging as a primary beneficiary. He indicated that commodities, small-cap stocks, and international equities are likely to overshadow large-cap tech stocks ahead of the US midterm elections.
When asked during a Tuesday interview how concerned he was about the ongoing market impact of US threats towards Greenland, Zinn remarked that markets appeared more focused on Japanese fixed-income bond yields. He described the current environment as a year filled with policy uncertainty, of which this is just another example, noting it is a US midterm election year. While the Greenland issue wasn't necessarily anticipated a week or two ago, he believes what is more profoundly driving markets today is the situation in Japan, where a spike in yields is occurring. Zinn expressed greater concern over the rise in Japanese government bond yields, as they have been pulling global yields higher for some time.
Days like this, where Japanese yields push to the upper end of their range and consequently drive US interest rates to their own range highs, begin to inhibit investors from taking on risk and encourage a shift towards other assets like gold, Zinn explained.
Zinn observed that as Tuesday's trading neared its close, he saw little improvement in market conditions, with US and Japanese 10-year yields remaining elevated and stock prices hovering near session lows. He pointed out that gold prices were near their daily highs, suggesting this might indicate that investors should exercise a bit more patience to see how the situation unfolds.
He added that all this is happening against a backdrop of fairly strong fundamentals and does not necessarily mean it will be a persistent issue for the remainder of the year. However, he cautioned that this type of yield-induced sell-off can cause sharp declines, and sometimes it pays to be watchful, as patience may be rewarded.
When discussing which sectors might perform well in 2026, Zinn suggested opportunities would lie more in the commodities space rather than the technology sector. He characterized this as a departure from the dominant narrative of previous years, where tech stocks, particularly the "Magnificent Seven," led the market. This year feels genuinely different, he noted.
Firstly, he said, the rest of the world is performing very well, similar to last year. Tech stocks have lagged this year, while the energy sector has performed very strongly, materials have done well, small-caps have shown strength, and real estate has performed relatively better. Consequently, other sectors—the "other magnificent 493 companies"—are coming to the fore. Zinn expressed finding many interesting opportunities in areas further from tech, such as materials and energy, which they are watching closely.
Zinn also identified the upcoming US midterm elections this fall as a driver of increased volatility and another reason for investors to remain cautious. He noted that volatility has increased and that, based on the four-year election cycle, this year typically has the worst average returns—a seasonal analysis that offers no guarantees. He highlighted many conflicting trends, including a domestic US push for affordability, with discussions around credit cards and permissible interest rates. Last week, power producers were singled out, with talks of a different auction mechanism, and large data center hyperscalers potentially needing to build their own power plants. Zinn sees potential for populist policy shocks that could disrupt markets.
Zinn stated that such short-term volatility often presents good buying opportunities, but investors need to have patience.
He also commented that the Trump administration's efforts to push for lower rates will have a significant impact—an impact that could intensify if yields continue to rise. The government emphasizes keeping rates low and can pull various levers to achieve this, such as having government-sponsored entities purchase mortgage bonds. Obviously, they also have some influence over who the next Fed Chair will be and what their policies will be, he added.
Days like today, which see yields spike, are concerning, Zinn concluded. One must also watch for some degree of intervention, where the government reacts to keep rates low and improve affordability.
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