Newsletter | May 2025
The IMF has cut its growth forecast for global economic growth this year to 2.8%, compared with 3.3% in January
25.3% PERFORMANCE OF GOLD SINCE THE BEGINNING OF THE YEAR
Investment perspective
April will be remembered as the month of tit-for-tat tariffs, with the dramatic announcement of reciprocal tariffs. Indeed, on 2 April, the US President announced the details of these reciprocal tariffs. Although widely expected, they came as a surprise because of their magnitude (10% base tariff from 5 April + additional tariff equal to half the ratio of the US bilateral trade deficit divided by US imports from 9 April). The announcement of 34% reciprocal tariffs on Chinese imports prompted China to impose 34% tariffs on US goods on 4 April. On 9 April, Trump hit China with an additional 85% levy on all imports, bringing the total to 104%. On the same day, China announced retaliatory tariffs of 84% on imports of US goods, further escalating the trade war between the world's two largest economies. On the same day, Trump raised tariffs on Chinese imports to at least 145% before announcing a 90-day pause on "reciprocal" tariffs, except for China. On 11 April, China raised its retaliatory tariffs on US imports to 125%. These punitive tariffs are undoubtedly a bargaining chip in negotiations with US trading partners, and the tariffs ultimately imposed after negotiations may be less severe. However, the risk of escalation will ultimately weigh on economic growth and reignite fears of a resurgence in inflation. This recessionary scenario (more than 60% probability at Goldman Sachs) of tariffs has triggered a sharp downturn in financial markets, with the US dollar being a large casualty. Perhaps in response to the market turmoil caused by the growing risk of recession and a sharp tightening of financial conditions, the US President has announced a 90-day pause on reciprocal tariffs. The delay in implementation and the possibility of a more favourable negotiated agreement than the announced tariffs allowed markets to breathe a sigh of relief. This return to relative calm after an unprecedented shock allowed the main stock market indices to record a minimal decline of 0.5% for US equities in US dollar terms, with the Magnificent Seven even rising 0.7% over the month, and European equities in euro terms falling 0.8%. The cut in global growth forecasts led to a sharp fall in the oil price, which fell 18.6% over the month. In contrast to credit and equity markets, the US dollar did not follow this rally and fell 4.5% against the euro in April, following an already 4.1% decline in March.
Investment strategy
After a month of extreme uncertainty, as evidenced by the rise in volatility indices across all asset classes, the month ended on a note of optimism thanks to the de-escalation announcements from the White House. The disruption caused by Trump's tariff hikes has reduced the potential for American exceptionalism to continue. The attempt to reshape global trade by imposing tariffs on all US imports has increased the risk of a global economic slowdown and the perceived risk of a US recession. Economists have cut their global growth forecasts, with the median down to 2.7% from 3.0% in January. This turmoil, caused by Trump's policies but also by uncertainty about future relations with an unpredictable administration, sent markets into a sharp correction. In total, the Magnificent Seven lost $2.3 trillion in value since 21 January, the day after Donald Trump's inauguration, with $1 trillion lost on inauguration day alone. Are we witnessing a bear-market rally (usually fast and sharp), or the start of a new secular cycle following a temporary shock, in this case tariffs, fuelled by a prolonged artificial intelligence cycle? This is not a trivial question, as a pause in trade tensions has contributed to the recent rally in risk assets. A shift away from the original tariffs could indeed prolong the rally, although the economic impact will be felt in upcoming economic data. Since 1950, the US equity market has experienced 19 peakto-trough drawdowns of more than 15%. The current correction is mild compared to previous recessionary periods.
“Analysts Are Calling for Earnings Growth Rates of 6.4%, 8.8%, and 8.3% for Q2 2005 to Q4 2025"
Portfolio Activity/ News
After intense activity in the first quarter, which led us to substantially reduce equity and dollar exposure in our portfolios, we decided to leave our positioning unchanged in April. We remain neutral on equities, with a bias towards European assets at the expense of the US. This positioning has helped our portfolios to mitigate the impact of the sharp fall in the US currency, while capturing the strong outperformance of European assets since the beginning of the year. It should be noted that we may consider reducing this directional bias if a more constructive return on large US technology companies is confirmed. We have started this rotation towards more technology-focused content with a more global positioning, which proved profitable during the rally in the second half of April. We are also encouraged by the results and the constructive commentary accompanying the earnings releases, confirming continued investment and demand in the artificial intelligence sector. We have maintained our bond convictions, namely a preference for European duration, a clear path to the front end of the curve and a broad credit exposure across all sectors and geographies. In this uncertain environment, we believe it is essential to seek resilience through a large, uncorrelated and high-performing alternative allocation. While volatility has reached high levels, so too has the dispersion of performance across alternative segments. Our position selection and sizing have been prudent and have been rewarded in terms of performance. We are maintaining our positions and plan to increase the weighting of this type of strategy through new additions. We recognise the strategic stabilising role of gold but acknowledge that a return to a risk-on market environment and a correction cannot be ruled out, which would offer more attractive entry levels.
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Newsletter | April 2025
The Swiss National Bank cuts its key interest rate by 25 basis points to 0.25 per cent in March
11.4% PERFORMANCE OF COPPER
Investment perspective
We have an almost unanimous consensus that recent soft data, such as surveys, are pointing to a likely deterioration in US growth, while the reported growth and inflation releases have been in line with expectations at the start of the year. What will happen if the figures confirm the negative impact of the new US administration's economic policies on both growth and inflation ? Even if many economists have already revised their forecasts for US growth, indicators following economic surprises do not seem to show any major deterioration. However, we are back in a world where many forecasters are predicting a US recession within two years with a probability of more than 30%. While political uncertainty reigns in the United States, from tariffs to possible major cuts in government spending, the rest of the world, and Europe in particular, is showing renewed optimism. This more constructive attitude towards economies outside the United States stems from an easier reading of economic policies that could have lasting structural effects on growth. The lack of investments has for years undermined the attractiveness and competitiveness of the eurozone. The announcement of substantial spending plans to address, among other things, the vulnerability of supply sources and defence needs is undeniably encouraging investors, as the rally in European markets and the euro seems to confirm. We believe that we are on the verge of significant flows into European assets, due to the under-representation of the zone in portfolios, but above all sustainable because of the structural measures taken by the European authorities in relation to assets outside the United States. Certainly, the movements since the beginning of the year have opened investors' eyes to the degree of concentration of their portfolio due to the dominance of an ever-smaller number of significant contributors to performance and the imperative need to increase their exposure outside the US. As at the end of the 1990s, so-called ‘value’ assets such as Europe may remain in the penalty box for longer than anticipated but can prove to be very profitable in the event of a lasting turnaround, as US equities have been since the great financial crisis of 2008-2009.
Investment strategy
The next few days will be crucial, with important announcements on tariffs that will provide more clarity on the real impact on growth and inflation. These clarifications can help provide a clearer picture of the new policy framework, which markets, consumers and producers desperately need in order to operate with confidence. As a discounting mechanism, financial markets have already priced in these uncertainties and are now awaiting the announcements with some trepidation to understand the real impact of these new tariffs. In this context, economic growth has been revised downwards and is now expected to be around 1.5%, compared with over 2% at the end of 2024. Despite their one-off effect, the tariffs and their countermeasures will push up consumer prices by almost 3.5% year-on-year. Similarly, downward revisions to US economic growth and S&P 500 earnings growth estimates have been swift. Indeed, higher tariffs will not only hurt growth, but also lead to a new surge in inflation, which could negatively impact the earnings potential of many companies. Earnings growth forecasts for the S&P 500 have been revised sharply downwards from over 10%, with the consensus now expecting low single-digit earnings growth in 2025. The US equity market is the most exposed to the deteriorating economic environment, with the spectre of recession looming. Historically, US equities have fallen around 25% from their peak during recessions.
“35% Probability That the US Economy Enters a Recession During the Next 12 Months” (GS)
Portfolio Activity/ News
The US administration's flip-flops on economic policy, in particular tariffs, influenced our portfolio activity, which was higher than usual. We started 2025 with an equity bias. However, in the first half of January, we considered it appropriate to reduce our risk for the first time and then to reduce the equity allocation in several steps to an underweight position by mid-March, compared to a near maximum overweight position at the end of December 2024. At the same time, we rotated more towards European equities and away from US equities due to their high valuation, strong performance and growing uncertainties about American exceptionalism. This proved productive as European equities (+5.9% in euro terms) outperformed US equities (-4.6% in US dollar terms). In addition, the euro gained 4.5% against the US dollar following the announcement of a fiscal turnaround in Germany. In euro terms, the difference between the two markets in the first quarter was 15%. After a sharp correction of more than 10% in 22 days (the 6th fastest correction in the last 75 years), while conscious of the risks associated with the tariff announcements of 2 April, we returned our equity allocation to neutral and strengthened our bond allocation by increasing our exposure to emerging market corporates. We continue to favour credit (investment grade and high yield) and European bonds (interest rate sensitivity around 6 years) due to their solid fundamentals, better future growth prospects and attractive carry. In these uncertain times, an allocation to so-called alternative strategies can have a crucial stabilising and risk-reducing effect. We currently favour macro and alternative trend-following strategies.
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A Collaborative Culture is the Winning Formula
We are delighted to be the recipient of three WealthBriefing accolades for 2025. Forum Finance has evolved over the last 30 years to become one of the leading EAMs in the Swiss market. With assets under management close to CHF2bn and 26 employees we rank among the top 3% of actors in the Swiss market.
What was the winning formula of your firm that explains why you won the awards?
We are very grateful to the independent panel of judges for their diligent work and could not be more delighted with our three awards. These awards are a real testament to our consistent investment and planning for the company over many years. Our winning formula may be the combination of our focus on how we can best serve our clients and how we can best inspire our employees. We have done so by engendering a highly collaborative and equitable culture at Forum Finance – something so very different from a cost-sharing or platform model. This however requires a generous spirit among our partners and employees, where everyone is incentivised and keen for the company as a whole to do well. The effects of this collaborative culture are very much felt by our clients and provides much better outcomes for everyone.
Newsletter | March 2025
The ECB cuts interest rates to 2.5% as inflation in Europe is under control
-8.7% PERFORMANCE OF THE MAGNIFICENT SEVEN
Investment perspective
The outstanding feature of the beginning of this year has undoubtedly been the remarkable performance of European equities compared with US equities. The former are up 10.3% in euro terms, while the latter are effectively flat. Investors had emphasised American exceptionalism as a source of explanation for the incredible returns of US equities, leading to a degree of concentration that many considered to be a potentially unsustainable trend. The rotation in market leadership coincided with a shift in focus from expensive global technology names, which are by nature more global and potentially negatively affected by a full-blown trade war, to cheaper and beaten-down sectors, regions and stocks such as Europe. At a macro level, the new US tariff policy of, for example, 25% on Canadian and Mexican imports and 10% on Chinese imports has kept political and economic commentators on their toes. Not only does it mark a clear break with current doctrine, but it is also a major source of uncertainty that could, like Covid, cause significant damage to supply chains. The announcement of the suspension of US military aid to Ukraine, following the debacle of the White House meeting and the failure to sign an agreement on mining resources, has provoked a wave of indignation from the major European countries, both in style and in substance. The breakdown in transatlantic trust could serve as a signal to Europe. Moreover, it seems that Europe is ready to take up the challenge of a US retreat in the Ukrainian conflict and to reaffirm its unwavering support for the Ukrainian cause. The outcome of the German elections is a source of optimism. Indeed, we could soon see announcements of a major investment plan and an easing of budgetary constraints. These investments are crucial for Europe's competitiveness and should provide a tailwind for European growth. In the bond markets, the favourable trend in credit continued, with a slight easing in US 10-year rates. In commodities, oil prices fell by around 3.8% in WTI terms, while gold rose by 2.1% in US dollar terms. The latter remained stable against the major European currencies over the month.
Investment strategy
Merz's conservatives won Germany's election by a comfortable margin over rival parties. The other big winner was the far-right AfD, with a record 20.8% of the vote. The coalition agreement with the Social Democrats was followed by the announcement of an unprecedented fiscal plan that exempts defence spending from the debt brake and includes a €500bn fund for infrastructure spending over the next 10 years. While the proposal still needs to be passed by parliament later this month, the historic U-turn on public spending has been felt in financial markets, sending the euro and government borrowing costs higher. This radical departure from the obsession with debt sustainability, coupled with a clearer ECB policy thanks to moderating inflation and the prospect, albeit still distant, of a ceasefire in Ukraine, continues to support European equities. The publication of weak US economic figures and a deterioration in consumer confidence, linked to the growing uncertainties associated with the decisions of the new Republican administration, have revived fears in the markets, whether legitimate or not, about economic growth. These fears about the future health of the US economy have led to a reduction in risk appetite and a flight to quality that has allowed 10-year US government bonds to fall from 4.8% in mid-January to below 4.30% despite persistent inflation.
US Commerce Secretary Lutnick Hints at Possible Tariff Relief After Market Sell-Off
Portfolio Activity/ News
After convergence, we are entering an era of divergence and disruption in both form and substance. While nothing can be taken for granted, increased uncertainty will continue to weigh on markets and be a source of significant volatility, both up and down. Given the increased political uncertainty across the Atlantic, but also the persistence of high geopolitical tensions, we have continued to reduce our equity exposure. We continue to favour European equities. However, we are aware that the rise in European indices has been rapid and that a pause or a slight correction would be welcome to calmly consider the continuation of the upward trend. We are staying away from Japanese equities and maintaining a neutral stance on emerging markets. Reducing our exposure to US equities has also allowed us to reduce our exposure to the US dollar. As a reminder, we had more than 35% exposure to the US currency in the fourth quarter of 2024 and have gradually lowered it to around 20%. To take advantage of potential bouts of volatility, we are holding the proceeds of our equity sales in cash to mitigate the impact of any declines, but also to take advantage of any exaggerations. These reductions have brought our equity exposure to an underweight position. At the same time, we have increased our allocation to liquid alternative strategies to add resilience to our portfolios. We remain constructive on European yields, although we are not particularly pleased with the recent movement in German yields. We maintain our preference for European credit, where carry remains attractive, and fundamentals are strong.
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Forum Finance wins three awards at the WealthBriefing Swiss EAM Awards 2025
Forum Finance wins three awards at the WealthBriefing Swiss EAM Awards 2025
Geneva, 6th March 2025 – Geneva-based independent asset manager The Forum Finance Group SA has won three major awards at the fifth WealthBriefing Swiss EAM Awards 2025. In particular, it was declared winner by the jury in the Asset over CHF 1 Billion AuM, Fund Selection/Asset Allocation Offering and Wealth Planning Team categories.
Announced during the prize-giving ceremony held last night in Zurich, the awards showcase ‘best of breed’ in Switzerland, the awards have been designed to recognise outstanding organisations grouped by specialism and geography which the prestigious panel of independent judges deemed to have “demonstrated innovation and excellence during the last year”. Each of these categories is highly contested and is subject to a rigorous process before the ultimate winner is selected by the judges. It is this process that makes WealthBriefing awards so prized amongst winners. Participants around the world recognise that winning these awards is particularly important in these challenging times as it gives clients reassurance in the solidity and sustainability of the winner’s business and operating model.
With regard to the best Swiss EAM with Assets Over CHF 1 Billion AuM, the judges’ choice “stands out for its forward-thinking approach to regulation and succession planning. With strategic senior hires, a diversified client base, and a focus on emerging opportunities like AI, blockchain, and energy transition, FFG exemplifies successful adaptation and growth in a dynamic market”.
In relation to the Fund Selection/Asset Allocation Offering, the jury selected Forum Finance for “excelling in fund selection and asset allocation. With over 30 years of expertise, the group’s analysts carefully evaluate a broad spectrum of investment instruments to craft tailored portfolios, ensuring optimal returns for each client through a rigorous, proven selection process”.
Concerning the Wealth Planning Team, the judges’ winner “demonstrates exceptional dedication to wealth planning with a specialized in-house team. Their commitment to delivering comprehensive wealth and tax planning solutions, coupled with personalised strategies from expert wealth planners, sets them apart in providing tailored, high-quality services that meet the complex needs of their clients”.
Hippolyte de Weck, Managing Partner and CEO of Forum Finance stated: “We are truly honoured to have our strengths and achievements recognized by these highly regarded industry awards. Over the past 30 years, our company has grown significantly to become today one of the leading players in the Swiss market. We are proud of what the whole team here at Forum Finance has achieved. It is our collaborative spirit that really sets us apart!”
Indeed, having anticipated the evolution of the wealth management industry, Forum Finance has strengthened its structure and organisation over the last few years, as evidenced by the CISA licence granted by FINMA in 2015 and its registration as investment adviser with the US SEC in 2016. Forum Finance invests constantly in its research, investment management and wealth advisory resources, as well as in technology, enabling it to respond effectively to the changing needs of its clients.
For additional information, please contact :
Egon Vorfeld
The Forum Finance Group SA
T: +41 (0)22 552 83 00
E: vorfeld@ffgg.com
ffgg.com
About Forum Finance
Founded in 1994 in Geneva, Forum Finance offers private banking and asset management services to a high-end global clientele. It has 26 employees who manage and supervise around CHF 2 billion. The company is authorised under the CISA licence by FINMA and is registered with the SEC as investment adviser.
WealthBriefing Awards recipients are chosen by an independent panel of judges, with selections based solely on merit. These awards are not predetermined and cannot be purchased.
Newsletter | February 2025
As largely expected, the ECB cut rates by 25 basis points in January
+8.4% PERFORMANCE OF THE SWISS EQUITY INDEX
Investment perspective
The start of President Trump's second term was undoubtedly at the forefront of investors' minds, particularly his stance and actions on tariffs. The uncertainty did not prevent financial markets from posting significant gains in January, both in equity and credit markets, led by high yield. Bond yields rose to their highest level since May 2024 following the release of the employment data. Investors were again concerned that the strong US economy would eventually translate into inflationary pressures, leading to an upward revision of inflation expectations. As a result, the 10-year breakeven rate, a measure of expected future inflation, has risen from a low of 2.0% in early September last year to 2.4% at the end of January. As widely expected, the Fed kept rates on hold. For the rest of the year, the market is now pricing in only one rate cut in 2025, significantly less than a few months ago. In contrast, the European Central Bank (ECB) cut rates for the fifth time, paving the way for further cuts in 2025. Finally, the Bank of Japan (BoJ) raised its key interest rate to 0.5%, the highest level in 17 years. For many investors, the surprise at the start of the year was undoubtedly the performance of European equities, which had lagged badly until early December due to the region's sluggish growth momentum and trade tensions. As a result, the main European equity index rose by 6.5%, while the Swiss equity market stood out with a gain of 8.5% in the first month of the year. The US market closed broadly higher, but there was a lot of excitement after DeepSeek unveiled a new version of its large language model, reportedly developed at a fraction of the cost of the leading US models, which appears to be much more economical to run. The US dollar fluctuated on the new administration's tariff announcements but ended the month flat against the euro and Swiss franc. Gold and silver posted strong gains and remain close to all-time highs as Trump's trade tariffs continue to fuel fears of a global trade war and its impact on US inflation, supporting the safe-haven price of gold.
Investment strategy
As we feared following Donald Trump's re-election to the US presidency, since he was sworn in for this second term, there has been a flood of executive orders. Although he initially appeared to have temporarily abandoned tariffs, we were reminded of his campaign promises in this area at the end of January. The announcement of tariffs of 25% on products imported from Mexico and Canada and 10% on those from China (effective 4 February) was immediately followed by retaliation, leading to a temporary suspension until early March. Announcements of possible measures against the European Union are also expected. According to Goldman Sachs, a 1 percentage point increase in the effective tariff rate raises the core PCE price level by 0.1%, implying a one-off boost to core PCE inflation of 0.5% y/y. If the tariffs on Canadian and Mexican imports are implemented as announced, we should see inflation that could exceed 3.0%. The consequences of a reacceleration in inflation could mean a premature end to US rate cuts and a major turning point for markets, especially at current valuations. Against this backdrop, we have taken a more cautious approach to our asset allocation. Although we have reduced our equity allocation, we are maintaining our preference for corporate bonds and favouring European government bonds to take advantage of monetary policy divergences.
Trump Announced Tariffs of 25% on Imports from Mexico and Canada, and 10% on Chinese Imports
Portfolio Activity/ News
Our positioning at the beginning of the year was very clearly risk-on, with a broad allocation to equity markets and high yield bonds. We have recently reduced our equity allocation but maintained our credit stance and added long-dated eurozone government bonds. Our expectation of an acceleration in the central bank's accommodative monetary policy confirms our belief in the potential for added value in this segment. On the other hand, we remain much more cautious on US yields, which are still likely to rise due to uncertainties on the inflation front. Having benefited greatly from our strong allocation to US equities, we began to move back into European equity markets in January, including Switzerland for clients thinking in these currencies. This move proved very profitable in January, given the excellent performance of these markets. In a scenario of lower European interest rates, we look at interest rate-sensitive assets such as the MDAX (the 50 largest companies after the DAX). Indeed, the pro-business policies proposed by the CDU, currently leading in the polls, would stimulate investment and could mark a turning point for Europe. Within US equities, we took profits on our Value Exposure, maintained a market-consistent weighting in technology and increased our exposure to small and mid-caps, which should benefit fully from the Republicans' pro-budget policies. We took advantage of the sharp fluctuations in the US dollar during the month to significantly reduce our position. Following these changes, we are still slightly overweight in US dollars. We reduced our exposure to Global Macro before exiting the segment altogether to build up a liquidity cushion that could prove useful in the event of excessive volatility.
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Outlook | 1H 2025
Executive summary
The new US administration will be more inward-looking, with an overall pro-growth agenda that includes tax cuts and deregulation. It has also significantly reduced fears of an imminent recession. However, these measures, combined with higher tariffs and more restrictive immigration policies, will add to inflationary pressures, and could force the Fed to slow or even question its rate-cutting cycle.
The combination of robust growth, loose financial conditions and healthy corporate balance sheets means that we remain optimistic about the credit segment. We favour high yield (HY) across all regions due to the attractiveness of the all-in yield. We are more cautious on investment grade (IG), not only because of extremely tight spreads, but also because of greater interest rate sensitivity.
Despite rising policy risks, the overall environment remains supportive for equities. With earnings growth expected to reach 15% in 2025, the US market should retain its structural advantage over other developed markets, but these ambitious estimates will be difficult to achieve and could lead to negative surprises, particularly for technology mega-caps.
Economic Outlook
US election resolution brings clarity to markets
Global growth remains resilient in 2025, in line with 2024 estimates
Growth divergence among developed economies widens
Global developed market policy rates normalizing
Fed rate cuts to be more measured
Inflation tilted to the upside, especially in the US under Trump 2.0
Key Risks
Fed forced to raise rates by one-off and persistent inflation shocks
Economic slowdown without fall in inflation leads to rise in term premiums
Ineffective policies lead to Japanification of Chinese economy
Japanese real interest rates on the rise
Investment Convictions
Eurozone growth headwinds give European Central Bank (ECB) room to cut rates
US yield curves could rise in 2025, adding duration if 10Y yield rises to around 5.0%
EM corporate spreads attractive, but volatility expected as trade tariffs unfold
Supportive policy should continue to underpin US Small and Mid-Caps
Interest-rate differentials remain as catalyst for flows into dollar-denominated assets
Table of contents
- OUTLOOK H1 2025 : EXECUTIVE SUMMARY
- 2024 REVIEW : KEY HIGHLIGHTS
- OUTLOOK 2025
- INVESTMENT CONVICTIONS
- ASSET CLASS VIEWS
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Newsletter | November 2024
Euro area headline inflation below ECB’s target in September
-5.2% PERFORMANCE OF THE US LONG TREASURY INDEX
Investment perspective
After a month in which all eyes were on central banks, October focused on the future of economic growth, particularly in the US, before early November gives way to the great circus that is the US election. On the growth front, the IMF's latest publication raised its forecast for US economic growth to 2.7% in 2024, up 0.6 percentage points from its January forecast. The move underlines how the US is outperforming other developed economies. The strong performance of the US economy mainly reflects robust productivity gains and employment growth. Labour productivity in Europe is lower than in the US. A lack of investment, especially in technology, has led to a growing divergence in income per capital on both sides of the Atlantic. Former European Central Bank (ECB) President Mario Draghi, in a report commissioned by the European Union (EU), proposed increased investment, financial market reforms and greater regional integration to boost productivity in response to accelerating competition from leading companies in the United States and China. The removal, albeit partial, of uncertainty about the future and pace of monetary policy normalisation has temporarily pushed inflation into the background. This is a very temporary situation, as the return of a possible Republican victory in the upcoming US presidential election is causing renewed concern in the interest rate market, not least because of the fiscal slippage and tariff increases advocated in the Republican platform. Treasuries have sold off sharply, with the yield on the 10-year Treasury rising 60 basis points, reflecting both stronger-than-expected economic growth and more inflationary policies in the event of a Republican victory. The proximity and closeness of the US election has pushed volatility higher. Implied volatility in the US Treasury market has risen by almost 40% since the end of September. The rise in bond yields, and in particular the expected yield differential between the US and other countries, has led to a strengthening of the dollar against almost all developed and emerging market currencies.
Investment strategy
Following the interest rate cuts by the major central banks in the developed world, except for Japan, the path towards a "soft landing" scenario has become the most likely. In terms of seasonality, we're entering the most productive part of the year for the US equity market. Since 1945, the months of October, November, and December have averaged gains of 1.04%, 1.56%, and 1.58%, respectively. However, it is interesting to note that the month of October, in a presidential election year, saw a decline of 0.46% without affecting the behaviour of November and December. At the end of October, the US index was down 0.9%, broadly in line with historical performance. At the time of writing, the forecast remains a perfect toss-up. Christophe Barraud, ranked by Bloomberg as the best economic forecaster of the US economy over the past 11 years, predicts a Trump victory in the upcoming election. If Trump wins and Congress is divided, much of the domestic agenda would be stalled, which could lead Trump to retreat into tariff wars that could slow the US economy and hinder global growth. We continue to believe that economic data, particularly in the US, remains supportive, e.g. labour market, consumer confidence, monetary support and earnings growth will continue to underpin US equities, but we recognise that inflationary policies will put pressure on long-term interest rates.
Regardless of Who Takes over the White House, Economy will Likely Continue to Move Along
Portfolio Activity/ News
The swing in the polls towards a Trump victory on 5 November has dictated a more cautious approach to US interest rates. Indeed, rising government deficits and tariffs are likely to push up long-term interest rates. As we have seen in recent weeks, we could therefore see a bear-steepening (lower short-term rates and higher long-term rates). We have reduced long-dated US Treasury positions in favour of medium-dated US bonds with maturities of 3 to 5 years. We maintained our long euro zone bonds as the fundamentals continue to point to a general downturn. In Switzerland, we had already fully exited our government bond exposure in favour of real estate investments. The macro context remains supportive for equities, even if we could see volatility increase in this earnings season and just a few days before the US elections. We would take advantage of any excess weakness to buy the dip. It looks increasingly likely that Europe could be the victim of a second Republican term. We first downgraded our European equity rating to neutral in September on the back of political uncertainty. To reflect recent dynamics, we are now downgrading European equities to negative despite attractive valuations. In mid-October we also reduced our positions in European small and mid-caps. On the currency front, we have taken advantage of the dollar's weakness to add to our positions across all our currency bases. Since the end of September, the US dollar has gained 2.8% against the euro. We remain positive on the US dollar in the short term. Against a backdrop of high divergence and volatility, we remain convinced of the benefits of liquid alternative strategies such as global macro, alternative trend and even long/short strategies, whether in equities or credit.
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