Market overview: Financial markets remain largely untroubled

The bond markets again trended largely sideways last month. Having initially fallen significantly at the beginning of September, interest rates then rose again following the US rate decision. The latest fears of recession are clearly fading on expectations of significant monetary easing in the USA.

Indexed performance of government bonds in local currency

100 = 01.01.2025

There was little change on the bond markets compared to the previous month. Swiss government bonds actually stagnated at the previous month’s level. This is likely due in part to the Swiss National Bank’s (SNB) decision to leave the policy rate unchanged at 0 percent. The performance of German and US bonds, on the other hand, was slightly negative. Long-term interest rates again rose significantly, not only in the USA, especially following the US Federal Reserve’s policy rate cut in mid-September, but also in Europe. Market participants are clearly operating on the assumption that this cut is the first in a series of steps, and that this can effectively cushion signs of weakness in the US economy. Accordingly, any fears of recession would seem to have faded into the background. 

Trend in 10-year yields to maturity

In percent

Having fallen significantly last month, yields to maturity on 10-year US government bonds again rose by 10 basis points following the Fed’s interest rate cut this month and are now back above 4.1 percent. Yields to maturity also rose slightly in the eurozone. French government bonds in particular experienced stronger fluctuations over the course of the month. Yields rose very sharply at the beginning of October, likely due in particular to French Prime Minister Lecornu’s resignation after just one month in office. Since then, however, the French bond market has calmed down somewhat. In Switzerland, yields to maturity on Swiss government bonds remained stable at 0.2 percent, although still at a very low level.

Credit spreads on corporate bonds

In percentage points

Credit spreads on corporate bonds have stabilized at a historically low level. Sentiment both on the stock markets and towards corporate bond spreads remains positive, and there are few concerns about a recession. This is despite the fact that many companies are still uncertain about the impact of US trade tariffs and that the US labour market has recently shown clear signs of weakness.

Global equity markets made significant gains last month, driven mainly by tech companies as they continue to benefit from the artificial intelligence boom. The pharma sector also performed better after Pfizer reached an agreement with the US government on drug prices and trade tariffs.

Indexed stock market performance in Swiss francs

100 = 01.01.2025

There was a clear upward trend on the equity markets last month. The Swiss stock market made particularly strong gains at the beginning of October due to the positive performance of pharmaceutical giants Roche and Novartis. The favourable trend in the pharma sector both in Switzerland and worldwide is likely due to an agreement on price reductions and trade tariffs reached between the US government and US pharma group Pfizer. The global equity markets also benefited from the continued strength of tech stocks, particularly in the USA and Asia. This was largely driven by the share prices of companies in the AI space, which received a further boost from a large number of investment and partnership announcements. 

Momentum of individual markets

In percent

The positive momentum on the equity markets continued last month, with equity prices rising sharply worldwide. The Asian markets performed particularly well. They reached new highs, benefiting from both the ongoing state of euphoria surrounding artificial intelligence and significant US dollar weakness since the year began. In Japan, the leading index rose sharply to record a 10 percent monthly gain following the election of Sanae Takaichi as leader of the ruling party. Takaichi has promised a loose economic policy, which is likely to have boosted the Japanese stock market.

Price/earnings ratio

Price/earnings ratios (P/E ratios) on the global stock markets rose significantly last month, doubtless due mainly to strong price gains. In the USA in particular, the P/E ratio is moving incrementally towards the all-time high seen before the dotcom crisis. From mid-October onwards, when the third-quarter reporting season begins, things are likely to get interesting again on the earnings side. US corporate earnings are expected to remain higher than average despite the punitive tariffs.

Whereas exchange-listed Swiss real estate funds made moderate gains at the beginning of the month, this was followed by a slight decline in prices.

Indexed performance of Swiss real estate funds

100 = 01.01.2025

Exchange-listed Swiss real estate fund prices rose significantly last month, whereas, this month, prices declined. It means that, since May of this year, real estate fund prices have been trending sideways. Nevertheless, the annual return of just under 5 percent remains encouragingly high. Persistently low capital market interest rates in Switzerland are likely to continue underpinning demand from institutional investors.

Premium on Swiss real estate funds and 10-year yields to maturity

In percent

Although real estate fund prices fell back slightly, the premium paid by stock market investors versus the net asset value of properties rose again this month. Premiums have been on a clear upward trend for several months and are reaching levels previously seen only during periods of negative capital market interest rates.

Vacancy rate and real estate prices

100 = January 2000 (left) and in percent (right)

The housing shortage in Switzerland has continued to worsen. According to the latest estimates by the Swiss Federal Statistical Office (FSO), the vacancy rate has fallen to just 1.0 percent. At the same time, the Swiss National Bank (SNB) has significantly reduced its policy rates again this year, accompanied by a decline in long-term capital market interest rates. Lower interest rates increase the present value of future rental income as this is discounted at a lower interest rate. They also make it easier to finance real estate purchases. In this climate of scarce supply and favourable financing conditions, prices for single-family homes, owner-occupied apartments and rental properties rose considerably again last quarter. 

Currencies

The value of the Japanese yen fell sharply against the Swiss franc again last month. The euro weakened towards the end of the month, while the US dollar made slight gains.

Source: Allfunds Tech Solutions

The Japanese yen was significantly weaker against the Swiss franc this month. The downward trend follows the appointment of Sanae Takaichi as leader of Japan’s ruling party, which advocates an expansionary economic policy. The euro also weakened against the Swiss franc towards the end of the month, likely to be mainly because of ongoing political turmoil in France. The US dollar, on the other hand, saw a slight recovery, gaining almost 1 percent against the Swiss franc over the month.

^{Source: Allfunds Tech Solutions, Coin Metrics Inc}

Gold

Demand for gold remains strong. As a result, the gold price rose again to reach 4,000 US dollars per troy ounce for the first time. 

Indexed performance of gold in Swiss francs

100 = 01.01.2025

The price of gold continued its upward trend unabated last month, rising by another 10 percent. Measured in Swiss francs, the precious metal achieved an annual return of over 35 percent and moved above 100,000 francs per kilogram for the first time. Gold has likely been increasingly used as a hedge recently – for example against persistent inflation concerns or uncertainty surrounding the first US government shutdown in seven years.