September was marked by geopolitical tensions and economic headwinds. The Swiss export industry was once again hit hard by new US tariffs, as the US imposed tariffs of 100% on pharmaceutical products, which came as no surprise. However, the Swiss pharmaceutical industry is likely to be only marginally affected by this, as companies such as Roche and Novartis generate a significant portion of their sales in the US but have already announced major investments in US production facilities or, in some cases, have already begun construction, and are therefore exempt from the tariffs. The same applies to manufacturers of generic drugs. The European economy is showing signs of stabilisation, and a moderate recovery can be expected. We continue to see risks for the European economy in the unpredictable US tariff policy and the uncertain geopolitical situation. The latter became more noticeable in western Europe in September, for example, when a Danish airport was brought to a standstill. While the geopolitical situation initially poses less of a risk to the American economy, we expect the effects of US tariff policy to become more apparent in the coming months in the form of higher prices. This is likely to make the US Federal Reserve's task more challenging. Stephen Miran, a proven advocate of loose monetary policy, is joining the Federal Reserve Board of Governors. Unlike his predecessor Adriana Kugler, Miran is clearly in favour of low interest rates and a growth-oriented monetary policy. Despite all the risks, last month was an exceptionally positive month for the financial markets, demonstrating that selective confidence and robust corporate data can provide positive momentum even in a difficult environment.
Global equity markets were mostly buoyant in September, with some markets even reaching new all-time highs. The performance of the technology sector was particularly striking, clearly dominating the market and proving to be the most important driver of returns. This is not least due to the meanwhile considerable weight that tech stocks have in most global equity indices. A forward-looking investment policy takes this into account through targeted diversification. In September, our clients benefited from strong selection on the one hand, while on the other hand we took advantage of historically low volatility to purchase long-running put options on several stock indices. This approach enables a measured response to the diverse risks and, in some cases, ambitious valuations. Although we do not expect a sharp price correction in the short term – there is no obvious trigger – a Shiller P/E ratio of nearly 40 for the S&P 500 calls for caution. Global stock market indices outside the US appear significantly cheaper, but they come with their own challenges. The weak US dollar is weighing on export-oriented companies that supply the US, in addition to the tariffs that have been imposed. Conversely, US companies with high foreign sales are benefiting from the weak currency, as they can report nominal sales growth even with stable sales volumes. In Swiss franc terms, the S&P 500 has performed significantly less well this year than, for example, the Euro Stoxx 50, the SPI or emerging market equities. The markets have so far been noticeably more optimistic about the prospects for global ex-US equities than for their American counterparts.
In the US, a government shutdown is now a fact – unlike in the past four years, when such a scenario was averted at the last minute. It is therefore all the more surprising that neither short-term nor long-term yields on US government bonds have reacted significantly so far. On the contrary: long-term interest rates for 30-year bonds have fallen by almost 20 basis points, while those for 10-year US government bonds have fallen by more than 7 basis points. Given the current economic uncertainties, we are treating nominal assets with increased caution and focusing more on real assets. Precious metals in particular appear promising to us in a potentially inflationary or even stagflationary environment. In addition to rising government debt in many countries, geopolitical tensions and growing protectionism also argue in favour of strategic allocation in this area. Oil prices have been trading mostly in a volatile sideways pattern in recent weeks and remain at low levels compared to previous years.
Looking at current developments on the stock markets, we feel satisfaction on the one hand – knowing that our clients are benefiting from continued price gains – but also a healthy dose of scepticism on the other. Valuations, as measured by the Shiller P/E , are reaching levels in the US that have rarely been exceeded in the past – most recently around the turn of the millennium. The good news is that even then, in the midst of the subsequent market correction, there were segments that bucked the general downward trend and generated attractive returns. We are seeing similar patterns today. In certain areas, we see opportunities that could stand out positively from the overall market. In addition to broad diversification, we are focusing specifically on real assets such as precious metals and equities. Within our equity portfolio, we favour attractively valued segments outside the US. We recently expanded our positions in the energy sector and carried out a targeted rebalancing in view of the positive price performance of gold mining stocks. In the bond sector, we participated in selected new issues, replacing securities with low yields to maturity with more attractive positions.