Our positioning: The winds have shifted

The financial markets made a strong start to the new year. At first, the looming trade war had surprisingly little impact on this, with US stock markets even reaching new all-time highs in mid-February. Over the past month, however, the winds have clearly shifted and there is growing uncertainty about the economic consequences of the Trump administration’s changing trade policies. Consumer confidence in the USA has deteriorated significantly since Trump took office, and companies are also showing greater caution with regard to future investments. This is putting pressure in particular on private consumption, which is key to the economy, increasing the risk of recession in the USA.

US financial markets unsettled by erratic Trump scorecard

The US financial markets were unable to avoid this development any longer. On the contrary, the US stock markets suffered considerable losses. The price losses were so severe that the leading US indices are now trading back at the levels seen shortly before Donald Trump’s election. It means the stock markets’ verdict on President Trump’s economic policies is quite sobering. It’s worth noting that the big tech stocks are suffering the most. While the leading US index, the S&P 500, is down only around 3 percent since the beginning of the year, the “magnificent seven” stocks have lost more than 10 percent in value. Our decision, going back to April 2024, to reduce our position in the expensive US tech sector and instead focus more closely on global value stocks has proven to be right. 

There’s a high risk that the recent price losses on the US stock market don’t mark the end of the correction as the outlook remains clouded. The US government is likely to continue to use punitive tariffs to exert political pressure, further increasing uncertainty on the markets. In this context, we are strengthening our cautious positioning by reducing our position in the US stock market and holding on to the Japanese yen. At the same time, given the increased risk of recession in the USA, we see further upside potential in US government bonds and are maintaining our overweighted position.

Normalization of the Swiss yield curve

Whereas the US stock markets are under pressure, the equity markets in Europe and Switzerland are proving much more resilient. Most equity markets in Europe have gained more than 10 percent since the beginning of the year. Conversely, the European bond markets have suffered losses. Long-term interest rates have risen significantly as a result of the extensive EU and German economic stimulus and rescue packages. Swiss capital market interest rates have also been caught up in this development.

At the same time, pressure for an easing of monetary policy is growing in Switzerland. Inflation rates are continuing to fall and the Swiss franc is likely to come under further upward pressure in the face of the high debt packages in Europe. As a result, the previously sharply inverted yield curve is increasingly normalizing. We’re taking this opportunity to liquidate our underweighted position in Swiss bonds and take profits in the process.

Performance of asset classes

Our positioning – Swiss focus