U.S. stocks are rebounding from last week’s selloff, but investors continue to face uncertainty from geopolitical tensions, inflation concerns and elevated expectations for artificial intelligence-related companies. Rising oil prices and higher interest-rate expectations remain key risks for equities.
BNN Bloomberg spoke with Michael Zinn, managing director and senior portfolio manager at UBS, about the outlook for AI stocks, the role of energy as a portfolio hedge, and why healthcare and European equities could attract greater investor interest in the months ahead.
Key Takeaways
- Investors remain willing to buy pullbacks in AI-related stocks, but expectations are high and gains may become harder to sustain.
- Oil prices are a critical risk factor, as a significant move higher could reignite inflation concerns and weigh on equity sentiment.
- Energy remains an attractive portfolio hedge because of its small weighting in major indexes and its potential to offset technology-related risks.
- Healthcare, biotechnology and large pharmaceutical companies could benefit from AI-driven efficiencies and remain attractively valued relative to the broader market.
- European equities may offer opportunities due to lower valuations and the potential for improved performance if investor leadership broadens beyond U.S. technology stocks.
Read the full transcript below:
ROGER: Well, markets are in the green this morning after that big selloff on Friday, but there are still some dark clouds looming over the markets as the fighting renews in the Middle East. Maybe that’s on hold. There’s inflation pressure, though, because of oil, and that’s pushing the case for central banks to hike rates, and investors are worrying that the rally in AI stocks may have gone too far. Joining us now is Michael Zinn, managing director and senior portfolio manager at UBS. Michael, thanks, as always, for joining us. Is there any good news today?
MICHAEL: Yeah, good to be with you, Roger. Yeah, I mean, we are seeing a buy-the-dip kind of mentality, which is good, and I think we’re just going to have to see how far that goes. We may see investors have a bit of a higher bar now to get through because we have really seen expectations go pretty far. At this point, some of the other issues are beginning to percolate. You talked about energy, you talked about the war. Certainly, if oil reached new highs, that would derail some of the expectations. That’s not what we’re thinking is going to happen, but that’s definitely a risk.
The inflation piece is definitely here in the U.S., a potential fly in the ointment, and that sets up the meeting for next week with new chair Kevin Warsh and his debut. That’s going to make for some potential fireworks because he’s going to have to navigate some of these cross-currents, even within his own Fed members.
ROGER: All right, let’s talk about the Middle East first. It looks like things calmed down. The weekend seemed to be when everything happens, doesn’t it? But both Israel and Iran seem to have calmed down. Is that enough to reassure the markets?
MICHAEL: You know, it’s been headline to headline, and I think the markets have mostly faded what’s going on in the Middle East. I think the average investor has often been a bit perplexed as to how the market can be somewhat ignoring these very important issues in the Middle East.
I think some of the answer has been that we’ve been very well supplied, oil-wise, coming in. There have been alternative pipelines and suppliers that have rushed to fill the market. Of course, energy experts have begun to say we’re scraping the bottom of our inventories and the chickens are going to come home to roost.
So I think the positioning is generally expecting the war to resolve because it’s kind of in everyone’s interest for that to happen. Personally, it’s kind of an easy decision to still have a somewhat overweight position in energy because it is such a small percentage of the overall market that having a slight overweight in that area as a hedge against the more massive AI trade is pretty easy portfolio-management planning.
ROGER: All right, and then with AI, let’s segue into that. We saw that huge selloff, although it was fairly concentrated in spots, wasn’t it?
MICHAEL: Yeah, it certainly was. It’s funny. There was a huge selloff on Friday, but surprisingly, roughly half the stocks in the S&P were up on Friday. Of course, more of the higher-market-cap stocks were down a lot more, but it just shows the degree to which market leadership has been quite narrow in the AI infrastructure names.
I think there’s mostly been, for this year, a catch-up trade. Earnings expectations have gone up a lot, revisions have gone up a lot, and investors have been trying to play catch-up to get all those AI infrastructure stocks in their portfolios.
As we got toward the end of earnings season, we began to see guidance still be solid, but perhaps not as wildly optimistic. In those situations, those stocks began to get traded down.
So our sense is that the bar is high. The bullish trend for AI is far from over, but we may now be in a period where there’s more muted participation. We’re certainly seeing buy-the-dip activity today, but we also may see a bit of a sell-the-rally mentality going forward.
Branching out beyond the AI trade makes sense into some areas that have been ignored. Healthcare is an interesting area. Europe, which of course is always beset with its own issues, is an interesting prospect valuation-wise. We would look at diversification as being a better second-half strategy this year.
ROGER: And what are you liking in healthcare? We saw Eli Lilly up today, but what do you like? It seems like it’s been trying to find itself for the last little while.
MICHAEL: Yeah, it really does. There’s no question that we’ve had a lot of false dawns with healthcare. People have pointed to valuations, they’ve pointed to the prospects of speedier FDA approvals and drug discovery with AI, and we’re not really seeing a lot of palpable examples yet.
You’re right with the GLP-1 area. We are seeing a lot of advances there, but we’re looking for broadening. We do think biotech and large pharma are two areas that will benefit from streamlining through AI, as well as drug discovery.
We have our eyes on both of those areas as places to become more involved. I think the percentage of healthcare in the overall index is now near 20-year lows. Whenever we have that kind of valuation, as soon as you begin to see even a hint of relative performance from that sector versus the overall market, you’ll see investors become more interested.
But we have to continue to see sustained performance from healthcare before you get widespread support from the investment community.
ROGER: And you also mentioned Europe as a place to maybe take a look?
MICHAEL: Yeah. Valuation in Europe is very low relative to the broader world index. We know they’ve had inflation issues and that central banks there remain intent on raising rates on a number of occasions. Of course, oil is a more significant problem there.
But valuations are very low. We’re seeing the dollar near its recent highs as there’s been an acceleration of growth in the U.S. If we see the dollar begin to weaken versus the euro, I think you could see further interest in Europe.
It is always a little beset by the fact that people consider it less shareholder-friendly and less return-friendly than some other places you can invest. But we think it’s time to take a second look at Europe.
ROGER: All right, we have to wrap it up there, Michael. Always a pleasure. Thank you for joining us.
MICHAEL: Thanks so much.
ROGER: Michael Zinn, managing director and senior portfolio manager at UBS.
---
This BNN Bloomberg summary and transcript of the June 8, 2026 interview with Michael Zinn are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
