UBS lays out market strategies for all 3 economic-reopening scenarios, from a successful recovery to a COVID-19 resurgence

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• Uncertainty around the coronavirus pandemic's trajectory has led Mark Haefele — chief investment officer at UBS — to detail three strategies for various economic-reopening scenarios.
• The bank's more optimistic scenario sees the US avoiding a second wave of COVID-19 cases and reopening through June. Value and cyclical stocks would be best positioned for a faster-than-expected rebound, the CIO said.
• Haefele's baseline forecast pushes a return to normal economic activity into December. Investors would do well to sink cash in bonds and long-term themes like sustainability, he wrote.
• If an economic recovery falters, investors should turn to active management strategies, gold, and even Treasury Inflation-Protected Securities to ride out a lengthy recession, Haefele added.
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UBS chief investment officer Mark Haefele is covering all the bases.

He penned a letter to clients on Thursday laying out three market strategies for various economic trajectories. Haefele said the US sits at a key fork in the road, with lingering coronavirus risks, renewed US-China tensions, and high valuations threatening to drag markets back to March lows.

On the other hand, positive news out of coronavirus vaccine trials has lifted investor sentiments in recent weeks. Uncertainty around the pandemic's containment is the key variable to lifting markets from their now-narrowed range, Haefele said.

"For markets to catch a 'second wind,' investors need greater confidence that a 'second wave' of virus infections will not lead to renewed lockdowns," he wrote. "Even if current economic conditions are weak, markets are forward-looking and would likely trade higher if investors gain confidence that a robust recovery will take hold."

The best near-term strategies depend on how economic reopening takes place. Outlined below are the three scenarios and market plays highlighted by Haefele, from a swift summer upswing to a rush for defensive assets.

Read more: The world's biggest investors are notoriously skeptical of the stock market's bet for a quick economic recovery — and warning that the 'fantasy' rally will soon come crashing down

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