Monthly Report 05/2026

Household liquidity depends on one key factor: the number of hours worked, which is ultimately the decisive determinant of household income. If the number of aggregate (gainful) working hours increases, this leads to additional consumption and, ultimately, to growing gross domestic product (GDP).

GDP growth can also be boosted by an increase in labor productivity, which ultimately leads to higher hourly wages over the long term. According to OECD analyses, it is primarily large companies that exhibit above-average productivity growth. This is likely due in many cases to product and process innovations. In addition, large companies benefit more from economies of scale and network effects and can, for example, better spread costs incurred to meet regulatory requirements across larger sales volumes.

As we also observe in the capital markets, larger companies typically exhibit greater profit resilience: due to their market position, they can either better absorb or pass on higher costs. This was already evident during the COVID-19 pandemic.

The global economy faces numerous challenges. Yet fears of stagflation seem exaggerated to us. Rather, we are observing robust revenue and profit growth. This is particularly pronounced in the technology sector, where investment plans for cloud and AI have recently been ramped up. Currently, the sustainability of profits across the entire economic cycle is being reassessed. Energy-related input costs account for only a small portion of the rapidly expanding revenues for cloud services.

Credit markets react sensitively to fundamental changes in the capital markets. Yet since the start of the year, they have remained resilient, suggesting that the recalibration of power dynamics in the Middle East is not viewed as fundamentally “earth-shattering.” Credit spreads, which widened amid heightened risks of escalation, have already narrowed again, indicating reduced stress, even though central banks have not responded by easing monetary policy. The strength of the U.S. dollar is in line with expectations but is likely to ease again once tensions subside.

Following a “$300 billion credit frenzy” in the AI sector that swept every corner of the credit market, investors are gradually showing signs of fatigue. Demand for such deals remains strong. However, bankers have recently had to work harder to sell them and offer investors—who are spoiled for choice—more incentives and higher returns.

Just a few days ago, they had the choice of participating in Meta Platforms’ massive investment-grade offering or taking on more risk and looking at CoreWeave’s latest leveraged loan deal.

There were clear signs of waning enthusiasm. Moreover, investors have recently been demanding more protection and more favorable terms. Borrowers are also agreeing to repay part or all of the principal before maturity—a clause known as “amortization,” which reduces risk over the long term. However, there are also other voices. Many rejected the billion-dollar bond issue for an Oracle data center in Michigan, in part because the bonds are callable. This increases the risk for creditors that a borrower could refinance at a lower interest rate once construction is complete.

The structures and terms of such bonds are likely to continue improving in the coming quarters. This is because there are many signs of underlying uncertainty in a market that has held up well so far but is still relatively young and untested.

Given estimates that the expansion of AI will cost around $3 trillion by 2030, the volume of borrowing is likely to rise even further from here. Because many investors hold these bonds via passive ETFs, they will automatically fuel the debt boom. We see a mounting wall of concerns here and are keeping our exposure to data center bonds relatively low for the time being.

The need for careful scrutiny is even more critical in the riskier segments of the credit market. What reassures investors is a connection to a hyperscaler—a company with a massive cloud computing operation like Google, Amazon, and Microsoft—either as a tenant or as a counterparty. A partnership with a tech giant can also help data center developers obtain investment-grade ratings.

The tech giants show no signs of slowing down. Five hyperscalers reported their financial results at the end of April and reaffirmed their intention to invest heavily in data centers and the chips needed to power them. Nevertheless, there are several factors investors should consider when thinking about buying data center bonds. A hyperscaler’s involvement does not eliminate all risks.

Activity in the bond markets was positive in April: numerous transactions were completed and new issuances announced. Investor interest remained strong, likely also because yields were pushed to a level that can be considered attractive in the longer term. Activity in the secondary market also improved. After a subdued start in April, sentiment turned more positive, and numerous bonds were once again trading with tighter spreads. Our bond fund, which focuses on credit opportunities, benefited from this in particular.

Most recently, market sentiment has been rather subdued, as uncertainty regarding the situation in the Strait of Hormuz persisted despite earlier signals from Iran. In the medium term, oil and gas futures point to a future accompanied by significantly lower energy prices. The Brent price reacts strongly to current headlines on the spot market for a short time. Prices can even exceed $120 per barrel at times. Most recently, it was $109, but the outlook remained volatile. Still, on the futures market, Brent was last trading at $80 for delivery in spring 2027.

In other words, the pricing of future energy deliveries anticipates a de-escalation of tensions. A formal peace agreement may not be within reach, but medium-term developments certainly remain focused on the reopening of the Strait of Hormuz. However, it is not facts but expectations that are traded in the markets. When expectations point to declining risks of escalation, bonds (and stocks) head toward higher prices. When expected risks of escalation rise, prices fall. Our two bond solutions, which proved stable amid the turmoil of the spring, thus still hold significant potential for recovery.

Global markets reflected expectations of an improved environment in the credit markets. While government bonds suffered slight losses in many places, corporate bonds gained slightly in April, particularly those with moderate credit ratings.

This can be observed in the risk premiums of the 75 most liquid corporate bonds in the European crossover segment. The iTraxx Europe Crossover Index surged to 362 basis points by the end of March as tensions in the Middle East escalated. Over the course of April, the index narrowed rapidly by 50 basis points and ultimately closed at 285 basis points. Similar developments were observed in U.S. high-yield bonds: The corresponding CDX-HY Index narrowed in virtually parallel fashion over the course of April. In other words, the dynamics in the high-yield market were such that the COF was able to benefit from them more than the ZIF.

The price trend over a longer period is impressive. Taking the beginning of 2000 as the base value (index = 100), prices for condominiums rose in virtually parallel fashion. Most recently, the index stood at 285 points in the lower market segment, 322 in the mid-range segment, and 310 in the upper-end segment. Over a 26-year period, these differences are practically negligible.

Another aspect concerns mortgage financing. If one had financed the purchase of a 500,000-franc apartment in the first quarter of 2000 with an 80% mortgage loan and had not amortized this loan, the 400,000-franc loan would now amount to only 26.7% of the market value. What is considered high leverage in the short term can be extremely attractive in the long term. This is because the initial equity of 100,000 francs has increased elevenfold to 1,100,000 francs over the same period.

Those who invested the freely available funds in a household with home ownership into high-yield securities markets via 3a pension solutions for the indirect amortization of mortgages were able to benefit even more.

The Swiss National Bank’s cycle of interest rate cuts has been considered complete since June 2025. We do not anticipate either negative or rising key interest rates. Rather, the status quo is likely to be maintained. With key interest rates remaining unchanged, money market mortgages with interest rates of around 1.0% remain attractive. Those who need more certainty regarding interest costs in the near and distant future should opt for a combined financing option with a ten-year fixed-rate mortgage.

Listed real estate investments have recovered from the price corrections resulting from the Middle East conflict. However, the outlook remains clouded, as premiums on the average book value of the largest real estate companies recently stood at around 40%. At the same time, the likelihood of negative interest rates has recently decreased. This also reduces the opportunities to lower discount rates and thereby drive up valuations.

For real estate funds, premiums recently stood at around 35% above the average book value. Their appeal has recently waned. The SXI Swiss Real Estate Funds Index has even been in negative territory recently (-0.5% year-to-date). This does not mean, however, that a few carefully selected funds do not still offer prospects. Yet numerous capital increases are weighing on price performance.

This observation is also the main reason why we are enriching our Swiss focus with international diversification. However, this also comes with higher volatility. In April 2026 alone, the S&P 500 Index rose sharply (+7.9% in Swiss francs), significantly more than the MSCI Europe (+4.6%) and the SMI (+4.2% including dividends).

The S&P 500 Index is heavily weighted toward technology stocks. During the first-quarter 2026 earnings season, these proved particularly resilient. 80% of all U.S. companies have exceeded expectations in the earnings season so far, and not just marginally: Earnings expectations have been significantly exceeded by around 23% to date.

In Europe, 62% of companies have exceeded expectations. However, the positive surprise factor for earnings expectations was only 2%. Double-digit earnings growth rates are also expected in the U.S. for the remainder of the year, while expectations in Europe are significantly lower. This is also related to the fact that the technology weighting in the S&P 500 Index is much higher than in comparable indices in Europe. For example, there is not a single major technology company in the SMI.

The latest reports are also factored into earnings estimates for the coming years. At the start of the year, Europe was projected to see earnings growth of around +11.7% (Stoxx Europe 600) and +12.4% (Euro Stoxx) in 2027. The picture has hardly changed following this earnings season. For the S&P 500, growth of +15.2% was still expected in January 2026; these estimates have since been revised significantly upward to +17.5%. In other words: Fundamentals are improving most rapidly for U.S. stocks. The current profit margin of 15.2% is expected to rise to a very high 21.0%, partly due to AI-related productivity gains, thereby increasing return on equity from 4.3% to 6.9%.

This is significant because it will lead to a substantial improvement in the price-to-earnings ratio (P/E ratio) in the future, particularly in the U.S. While the benchmark index is currently trading at a P/E ratio of 26, this valuation will decline to 22 by the end of 2026 and to a moderate 19 by the end of 2027 due to earnings growth.

The expected earnings and margin growth for the SMI is more modest. The profit margin is expected to improve only marginally overall in the coming quarters, causing the current P/E ratio of 19 to fall to 18 by the end of 2026 and to 17 by the end of 2027.

Fundamentally, it is a positive development that energy intensity in economic output has declined significantly in Europe over the past decades. The transportation sector, which is 73% dependent on oil, is less significant than in the U.S., where much greater distances must be logistically managed.

Not every sector is equally vulnerable to shocks. In European industry, a significant portion of final energy consumption is covered by gas. Supply chains also vary in robustness depending on the energy source. LNG imports from the U.S. now account for 45% of Europe’s imports and enhance resilience. In any case, when comparing gas prices in Europe in March 2026 with those in 2021/22, the most recent fluctuations were less pronounced.

Seasonality also plays a role in the European gas price. It has plummeted well below its oil equivalent, Brent, possibly in connection with subdued LNG demand in Asia and strong supply from the US. However, traders may also have underestimated the impact of the off-season. In Europe in particular, this period is known for low consumption and high demand flexibility.

In a world of energy scarcity, however, we maintain the view that oil remains the ultimate benchmark and plays a leading role in energy pricing, which is why the European gas price—at least in the short term—still has “oil-driven upside potential.” According to industry studies, the EU’s natural gas reserves stand at around 30%, which is about 6.5 percentage points below the previous year’s level.

Nuclear energy also plays a role, which is why inflation in France, for example, is significantly lower than in Germany, and Paris has the edge over Berlin in the competition for new industrial investments, stable energy supplies, and future-oriented jobs.

In the long term, structural transformation will be necessary to achieve robust energy autonomy by mid-century. A central role in this is played by the expansion and increased flexibility of the power grids, whose congestion costs could double by 2040 without countermeasures. Spain can produce a great deal of solar energy, but the transmission lines are lacking to harness this potential for continental Europe.

The potential for wind energy generation in the Atlantic off the coast of France is also untapped. Strategically, this has been neglected for decades to avoid competing with domestic electricity production from nuclear power plants. Overall, investments of around 2,200 billion euros are estimated for grids by 2050, as well as approximately 100 billion euros annually for renewable energy.