Our positioning: Financial markets overly optimistic

Financial markets remain in optimistic mood. Equity markets have continued their upward trend over recent weeks, with the US market in particular making strong gains. The main drivers were tech stocks, which had been under pressure over the course of the year to date. The “magnificent seven” recorded price gains of over 6 percent last month. It means US stock markets have now almost fully recouped the losses incurred at the beginning of April and are again trading close to February’s all-time highs. This development stands in sharp contrast to the ongoing US trade dispute and tense geopolitical situation. So far, the expiry of the deadline for reciprocal tariffs and domestic and foreign policy uncertainties have had no lasting negative impact on the US markets.

Ongoing caution towards US equities

We remain sceptical about current market developments. Consumer sentiment, a very important factor in the US economy, is below average and clouding the economic outlook. Meanwhile, comprehensive basic tariffs of 10 percent have been in place since April, despite the suspension of reciprocal tariffs. And punitive tariffs are even higher for imports from China and for specific products such as aluminium and steel. As a result, production costs for American companies will no doubt rise significantly sooner or later. These additional costs could be passed on to consumer prices or reduce corporate margins, or both. However, neither the resulting inflationary pressure nor declining profit margins are positive for the financial markets. That’s why we’re maintaining our underweighted position on the US equity market.

Downside potential greater for US capital market interest rates

On the bond markets, we currently still see potential in US government bonds. While US President Donald Trump’s draft legislation – the so-called big beautiful bill – caused short-term anxiety with regard to the US fiscal position and led to a rise in capital market interest rates, the increase was short-lived. Interest rates quickly fell back to the levels seen over the course of the month. On the one hand, the controversial debate in the US Senate was probably a decisive factor in this. On the other, the draft bill essentially extends existing tax breaks, which, while not improving the current fiscal position, does not overly exacerbate it either. Against this backdrop, we still see more downside than upside potential in US capital market interest rates and continue to overweight our position in US government bonds.

Money market and Japanese yen less attractive

With regard to the Swiss fixed income market, we are now back in low-interest territory. Money market investments are even at risk of negative returns. We have therefore decided to shift our positions from the money market back into liquidity. We now also see the Japanese yen as less attractive. Despite its continued significant undervaluation, momentum has slowed considerably. At the same time, the risks in Japan are growing. Rising inflation is putting pressure on monetary policymakers to raise interest rates – a move that entails considerable risks given the high level of government debt. In view of this, we are completely reducing our overweighted position in the Japanese yen.

Performance of asset classes

Our positioning – Swiss focus