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S&P 500 still the best bet even if US jobs disappoint, says UBS strategist

Both the S&P 500 and the Dow Jones snapped a multi-month winning streak in August as investors grew jittery of a potential rate hike by the U.S. Federal Reserve, but one investment expert told CNBC that there are few attractive alternatives.

"If on Friday everything turns around and instead of 200,000-250,000 (jobs created) you get 150,000 or below then people will start to ask questions like: 'OK, have we seen the best of it now?' But even in that context when you look around the world, where else do you want to be?," Geoffrey Yu, head of U.K. investment office at UBS Wealth Management told CNBC Thursday.

He advised investors to remain diversified if they were worried about the S&P 500 declining.

"The Fed still looks on course (to gradually increase interest rates) and I think there's a gradual acceptance that that might not be a bad thing for the world, so good news is actually good news (for investors) but our mantra is still: stay diversified, stay protected as well," Yu added.


Traders in the Standard & Poor's 500 stock index options pit
Joshua Lott | Getty Images
Traders in the Standard & Poor's 500 stock index options pit

Many economists have noted that equity markets around the world have largely benefitted from central banks trying to prop up economic growth with extensive quantitative easing programs (QE), causing a flood of liquidity, and low interest rates. U.S. markets, in particular, have been on a tear despite jitters over the Fed's tapering of its QE program and its first interest rate rise, last December.

Since then, investors have been trying to second-guess the timing of the Fed's next rate hike with this month a distinct possibility - but by no means a done deal. The non-farm payrolls report on Friday is being eagerly watched by investors and could determine whether the central bank increases rates in September.

Daniel Waldman, a strategist at UBS, summed up investor sentiment towards the possibility of a September rate, saying that "a below market expectation (180,000) August employment report would likely move market pricing for a September hike toward zero, while a strong number (200,000 to 250,000) doesn't guarantee a hike." Indeed, most market analysts expect a further rate hike in December.

Ahead of the Fed's next rate decision on September 20, investors have become jittery once again. In August, the S&P snapped a five-month winning streak, while the Dow ended a six-month winning streak. The tech-heavy Nasdaq, however, rose 0.99 percent in August.

Market participants are still carefully monitoring valuations and some aren't as bullish at UBS' Yu. Peter Oppenheimer, chief global equities strategist at Goldman Sachs, told CNBC in early August that a 10 percent drop in developed market equities could happen in the coming months.

Others like Credit Suisse are fairly positive on stocks in the short term. At the start of August, the Swiss bank raised its year-end targets to 2,250 points and 3,100 points for the S&P 500 and Euro Stoxx 50 from 2,100 points and 2,950 points, respectively.

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