Weekly Report 46/2025

Volatility returns

Surprisingly good corporate results kept the markets confident, partly due to the widely predicted interest rate cuts by the US Federal Reserve in the coming quarters. However, volatility returned last week due to high valuations in large parts of the technology sector.

This is because, alongside a few technological stars, there are also many average performers that have benefited from years of fiscal “state doping,” as the accumulation of US debt could also be called. However, clear side effects are increasingly becoming apparent in the form of structurally higher inflation, systematically higher interest rates, and growing fundamental investor skepticism. In addition, more and more investors are hedging their dollar risks, which, however, costs 4.1% annually.

The Nasdaq technology index (-3.0% last week) is still up since the beginning of the year (+5.7% in Swiss francs), while the Dow Jones is clearly down again (-2.0%). The MSCI World ended last week at +4.5% since the beginning of the year. The Swiss Market Index (SMI), on the other hand, is up +6.0%.

In periods of fear, the SMI has repeatedly demonstrated its typical defensive robustness. While all other European stock indices and, above all, North American indices posted negative performances last week, the SMI rose slightly (+0.5%).

Nvidia and BKW (both -7%) fell sharply in the first week of November, while Geberit (+6%), Engie and Roche (both +4%) posted the strongest gains. We hold Berkshire Hathaway (+5%) as a defensive position in some portfolios, a stock that typically gains when tech stocks fall.

Dealing with collective investor fears can be challenging. In a global economy that is growing at a structural rate of around 3%, achieving a real return of 5% per annum (after all costs and fees and inflation) is a success. Those who add conservative bond components to their portfolios will experience less volatility, but will also have to accept lower long-term return targets.

Those who strive for higher real returns inevitably have to take high risks. One example of this would be an investment in the Swiss sporting goods company ON, which is listed in New York. Although the Zurich-based company recently raised its profit expectations, its share price moved in the opposite direction (-36% since the beginning of the year with a 0% dividend). With high valuations, simply growing is no longer enough. Instead, companies must grow enormously – otherwise, their share prices are likely to decline.

However, it is also possible to take a conservative approach to portfolios, as we have done, by limiting the proportion of US and technology stocks. The world doesn’t just need soft­ware from Microsoft and streaming services from Netflix. It also needs building materials from Holcim and Amrize, as well as construction chemicals from Sika, to build buildings, roads, and data centers. It needs power generators and grid operators, and much more besides, which, incidentally, are still reasonably valued and yield juicy dividend returns.