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Video: CIO's Sundeep Gantori on tech EPS revisions following first-quarter earnings results (02:32)

US Treasury Secretary Scott Bessent defended President Donald Trump’s tariffs at the Milken Institute Global Conference on Monday, telling the crowd of Wall Street chief executives and financial leaders in Beverly Hills that the administration’s policies would, over the long term, solidify the US position as the “home of global capital.”

He said trade, tax cuts, and deregulation are “interlocking parts of an engine designed to drive long-term investment in the American economy,” and that betting against the US economy was a time-tested mistake.

Investment managers and bankers at the conference, however, highlighted that companies have paused investment plans while waiting to see how trade talks play out. While they largely remain cautiously optimistic about the outlook, they warned that elevated uncertainty risks damaging the economy.

We expect the US economy to avoid a full-blown recession this year as trade deals are agreed and tariffs are reduced, but the expansion of GDP is likely to slow significantly from 2.8% last year to around 1.5% this year. While tariff headlines may start to improve, economic data could weaken as the impact of tariffs feeds into the economy.

For investors, this means that while we expect US stocks to grind higher for the remainder of the year, the journey is unlikely to be a straight line. Investors should co nsider quality bonds, gold, and hedge funds to help diversify their portfolios.

Quality fixed income provides liquidity, income, and portfolio stability. The volatility of the 10-year US Treasury yield has stabilized as investors regained confidence over Federal Reserve independence, but still elevated bond yields create an opportunity for investors looking for durable portfolio income. We see high grade and investment grade bonds as Attractive, as corporate fundamentals are robust, and they should prove resilient to slower growth. The ongoing global rate-cutting cycle and the resumption of Fed easing later this year should also contribute to investor inflows. We expect mid-single-digit returns for medium-duration quality bonds in US dollar terms over the next 12 months.

Gold’s outperformance this year should stay supported on strong demand. Recent data from the World Gold Council showed ongoing strong investment interest and central bank buying, with overall demand for the first three months of this year marking the strongest first quarter since 2016. We expect bullion to stay well supported this year amid “safe-haven” demand and a structural shift in allocations. With ongoing tariff and geopolitical uncertainties, gold remains an effective portfolio diversifier and hedge, in our view, and we recommend a mid-single-digit allocation to the precious metal as part of a balanced and well-diversified portfolio.

Hedge funds can offer unique return streams that complement traditional assets. Exposure to select hedge funds can play various roles in a portfolio, acting either as a pure diversifier or as a substitute for other assets. Known for their ability to deliver diversified returns, independent of traditional stocks and bonds, some hedge funds can also exploit market mispricing and manage fast-changing risks in periods of uncertainty and elevated stock dispersion. In addition, some strategies have consistently demonstrated an ability to generate compelling risk-adjusted portfolio income, particularly in volatile markets and technical dislocations. We favor global macro funds, equity market neutral strategies, and multi-strategy managers.

Diversification has been shown to help reduce portfolio volatility, increase exposure to more sources of return, and help investors avoid behavioral bias amid uncertainty. For those considering hedge funds, investors should be willing and able to manage the risks inherent to alternatives, including but not limited to illiquidity.