Monthly Report 09/2025

The falling dollar and lower energy and commodity prices have depressed price levels worldwide and contributed to a general trend towards disinflation. Despite ongoing concerns about tariff- and trade-related supply chain disruptions, the New York Fed’s Global Supply Chain Pressure Index indicates no significant pressures. This data, which covers up to May 2025, could still reflect delayed effects, but conditions currently appear stable.

The US dollar remains under pressure to depreciate in the medium to long term. The reasons for this include the persistently high level of government debt in America, the structural current account deficits, and a gradually diminishing interest rate advantage over other currencies. These factors suggest that the purchasing power of the US dollar will decline over time. Nevertheless, technical countermovements and a short-term consolidation are possible in the immediate future.

The euro seems comparatively stable in the current environment. One reason for this is the robust position of the Eurozone, with its solid current account surpluses. In addition, the costs of currency hedging against the dollar have fallen significantly in recent months. They are currently only about half of what they were last year. This makes investments in euros more attractive for international investors and also contributes to the stability of the single currency.

The Swiss franc remained a classic safe haven in August, leading to structural demand. However, this often represents a burden for institutional investors, as liquidity in Swiss francs is sometimes associated with negative interest rates. This is also reflected in the swap curve, which is in negative territory at the short end. This gives rise to opportunity costs for investors with a short-term horizon, while in the long term, the Swiss franc is valued primarily as a stable anchor in the portfolio.

The long-awaited speech focused on the balance between a cooling labor market and the ongoing risks of inflation. Powell emphasized that although the US labor market is still operating close to its maximum, the momentum is slowing noticeably. While an average of around 168’000 new jobs were created each month in 2024, this figure recently fell to around just 35’000. Nevertheless, the unemployment rate remains at a historically low level of 4.2%. Powell described this as an unusual equilibrium characterized by a combination of declining demand and a shrinking labor supply. However, he pointed out that a deterioration in the labor market could emerge quickly and abruptly. The Fed intends to take this risk into account in its future monetary policy.

At the same time, Powell pointed out the possible inflation risks, which could be exacerbated by external factors. According to his assessment, the latest tariff measures in particular pose the risk of triggering one-off price increases. However, he stressed that the Fed would remain vigilant and would prevent such spikes from turning into sustained higher inflation. At the same time, he made it clear that although monetary policy is restrictive at the moment, the current framework conditions could suggest a reassessment. Powell thus signaled that interest rates may be adjusted in the near future if the risk profile between inflation and employment continues to shift.

Against this background, Powell explicitly opened the door for a key interest rate cut as early as the upcoming meeting in September. This prospect triggered a noticeable rally on the bond markets, as investors quickly revised the probability of an interest rate cut upwards. Yields fell noticeably, particularly in the shorter maturity range. The yield on the 2-year US government bond has now reached its lowest level since August 2024. The market reaction underscores how strongly expectations are now focused on monetary easing. However, Powell also stressed that the Fed would proceed cautiously and that these statements did not constitute a promise that any steps would automatically be taken.

Corporate bonds are becoming increasingly attractive in the current market environment and represent an appealing alternative to the widely used government bonds. The main reason for this is the persistently low interest rates. In Switzerland in particular, yields on 10-year Swiss government bonds have fallen to a very low 0.3%. For investors, this means that the potential to generate current income for the remainder of the term of these bonds is severely limited. In this environment, anyone who bases their portfolio primarily or passively on government bonds is generally faced with limited return prospects and, in some cases, even with losses of real purchasing power.

In comparison, corporate bonds offer a noticeable yield mark-up. Private sector issuers must provide investors with additional interest for the risk incurred. Depending on the creditworthiness, term, and market phase, this yield mark-up can be high enough to make the difference between a negative real yield and an attractive returns opportunity. This gives investors the opportunity to structure their portfolios in a more targeted manner, while generating higher returns at the same time.

Another advantage of corporate bonds lies in their different interest rate structure. While government bonds react very strongly to changes in the general interest rate level, corporate bonds are less susceptible in many cases. Their price development is largely determined by the assessment of the respective issuer’s creditworthiness. This means that periods of rising interest rates do not necessarily result in direct declines in the prices of corporate bonds. Especially in the current environment, in which the SNB is keeping the key interest rate stable and the USD market in particular remains volatile, this aspect can represent an important element of diversification.

In addition, the market has developed strongly in recent years. The issuer base has steadily expanded, transparency has increased, and liquidity has improved. Corporate bonds offer various advantages, particularly for investors with a CHF perspective. They combine the yield mark-up with lower sensitivity to interest rates, giving investors the opportunity to make their portfolios more resilient and profitable.

Real estate stocks and funds listed on the Swiss Stock Exchange reached new highs in the first half of 2025. The main drivers behind this development were the expectation of further falling interest rates and the continuing high demand. However, the decision of the Swiss National Bank (SNB) on 19 June not to lower the key interest rate into negative territory brought this impressive upward trend to a halt for the time being, and prices hovered at a high level. In the following weeks, shares fell in line with the general stock market trend, while real estate funds remained virtually unchanged.

Despite this slight correction in real estate shares, the interim balance after 8 months is very positive. As of 31 August, real estate funds had achieved a total return of just over 5% and equities were up more than 12%. Both asset classes thus remain at historically high valuation levels. Real estate shares are currently trading at a premium of around 24% on the net asset value, while funds have an average premium of 33%.

Interest rate expectations remain the key factor for future developments. Noticeable price gains should be possible, especially if a return to the negative interest rate range becomes more likely. There is currently no consensus among market participants as to whether the SNB will cut interest rates again. In addition, new fund shares are currently being issued very actively on the primary market, which should also reduce some of the potential for further price increases.

On the other hand, the recent uncertainties surrounding US tariff policy are likely to have a limited impact on real estate companies, as their exposure to the affected industries is low. A possible reduction in employment in particularly affected regions could lead to a somewhat weaker demand for housing. However, this is unlikely to have a significant impact on companies’ total income. Nevertheless, shares in the sector could come under pressure if the stricter tariffs weigh on the Swiss stock market as a whole.

The US stock market has gone through numerous phases in its more than two-hundred-year history. Time and again, certain sectors have dominated market developments for a time before losing relevance or disappearing into oblivion. In the 1920s, it was railways and utilities; later, oil and chemical companies dominated, while in the 1980s and 1990s, financial stocks and telecommunications took center stage. Today, it is above all the big tech companies that are shaping the picture on Wall Street.

In particular, the euphoria surrounding artificial intelligence (AI) has recently given the technology sector an additional boost. Many companies are benefiting from massive investments in data centers, cloud infrastructure, and software solutions, further fueling the price rally of stocks such as Nvidia, Microsoft, and Meta. This major upswing is not only visible in individual share prices, but is also clearly reflected in the structure of the leading US index, the S&P 500.

The concentration of the index has increased massively in recent years. While the ten largest companies accounted for around 18% of the total stock market value in 2015, this figure has now risen to just under 40%. This means that today’s tech giants are significantly outperforming the historic highs of earlier market phases. Even the record concentrations during the dot-com bubble at the turn of the millennium or during the 2008/2009 global financial crisis are being significantly exceeded today. A similarly high level of market concentration was last seen in the 1960s, when industrial corporations and consumer goods manufacturers dominated the market.

In our opinion, this development also raises questions. On the one hand, the sharp share price gains reflect the innovative strength and growing importance of the tech industry. On the other hand, the high index concentration poses risks, as the performance of the S&P 500 is increasingly based on a few heavyweights. For index-oriented investors, this means that broad diversification will become more difficult and setbacks in individual stocks will have a significantly greater impact on the market as a whole than in previous eras.

The crude oil market is constantly caught between a possible economic downturn and a potential supply shortage that would drive prices upwards. For investments in alternative assets, this highlights that commodities can fundamentally serve as a diversification tool, but their price development is strongly driven by the same macroeconomic forces that also move the stock and bond markets.

There are also signs of structural developments that are likely to dampen demand for fossil fuels in the medium term. Technological advances in energy efficiency, the increasing electrification of transportation, and investments in renewable energies mean that oil consumption will grow more slowly in the long term than in previous economic cycles. This trend is also putting pressure on other commodity segments, particularly those that are closely linked to the traditional energy industry.

The other commodities developed differently in August. The performance of the commodity index was slightly positive in USD and slightly negative in CHF. Industrial metals such as copper and aluminum suffered from weaker growth stimulus from industry, while gold, as a safe haven, benefited from the increased uncertainty and the prospect of falling real interest rates.

Despite the short-term fluctuations and the historically rather low price level, we do not see a convincing reason to invest in the commodities sector in the current environment. Since the drivers of price movements largely coincide with those of traditional asset classes, the diversification advantage that usually makes alternative investments attractive no longer applies. In addition, efficiency gains and technological innovations are likely to limit the structural demand for crude oil.