UBS sees two Fed hikes in 2026: what should investors buy

UBS’s forecast is moderately hawkish for the dollar and front-end rates, but not automatically bearish for equities. The key change is the removal of the assumption that the Fed will remain on hold in 2026: UBS now expects 25-basis-point hikes at the September and December meetings, following an August payroll gain of 162,000 and a 4.1% unemployment rate.

Market impact

• Treasuries: The immediate pressure should be greatest on two-year and other short-duration yields, as markets price a higher policy-rate path. Longer-duration bonds such as IEF and TLT face near-term volatility, but could outperform later if tighter policy successfully reduces inflation expectations or eventually slows growth. The bullish duration case therefore depends on disinflation and weaker future activity—not simply on the announcement of further hikes.
• US dollar: The outlook is positive if stronger employment and higher US rates widen the policy and yield advantage over other major economies. USD strength would be most likely against currencies whose central banks are easing or perceived to be less able to match US rates. The risk is that a growth scare or concerns about US fiscal credibility offset the rate advantage.
• Equities: Higher discount rates are a headwind for richly valued growth stocks, long-duration technology, utilities and other rate-sensitive sectors. However, if the hikes reflect durable growth rather than an inflation shock, earnings expectations may cushion valuation pressure. That creates a mixed, rotation-driven environment rather than a uniform equity selloff. AI, power infrastructure and resource-related exposures may remain relatively resilient if capital spending and productivity expectations stay strong.
• Gold: Near-term conditions are less favorable because higher real yields and a stronger dollar raise the opportunity cost of holding bullion. Gold could nevertheless retain strategic support from persistent inflation, geopolitical risk or doubts about fiscal and monetary credibility. Its role is more defensive and diversifying than a clean expression of the next Fed decision.
• Crypto and speculative assets: A higher-for-longer rate path would generally reduce liquidity support for high-beta assets, particularly if Treasury yields rise sharply or the dollar strengthens. A “growth-driven tightening” scenario would be less damaging than an inflation-driven repricing, but crypto would likely remain sensitive to real yields and global liquidity.

The most important distinction is why the Fed hikes. If policy tightening confirms resilient growth, cyclical equities and earnings-sensitive sectors can absorb higher rates. If inflation remains persistent while growth deteriorates, the result would be more damaging: broader multiple compression, weaker credit conditions and pressure on both long-duration equities and bonds.

The forecast is also only an investment-bank view, not a commitment from the Federal Reserve. Traders should monitor the September 15–16 Fed meeting, subsequent inflation data, payroll revisions, wage growth, Treasury term premiums and whether rate expectations move beyond the two hikes UBS currently projects.