Monthly Report February 2025

Contrary to President Trump’s catchy campaign slogan – “Make America Great Again” (MAGA) – it was mainly the European equity markets that embraced this motto in January. The pan-European Stoxx 600 gained 6.3%, while the DAX surged more than 9% since the end of December. Even the usually sluggish Swiss stock market joined the party: led by Richemont, which soared over 28%, both the Swiss Market Index (SMI) and the Swiss Leader Index (SLI) advanced by 8.6%.

In the US, the rally was relatively modest. The S&P 500 climbed 2.7%, while the tech-heavy NASDAQ Composite managed only a 1.6% gain. The equal-weighted S&P 500 (RSP ETF), where each stock carries a 0.2% weighting, fared slightly better with a 3.4% increase. One major drag was former market darling NVIDIA, which lost over 10% in January.

Asian markets, in contrast, started the year in reverse. The Shanghai Composite declined by 3.0%, while Japan’s Nikkei 225 posted a slight loss of 0.7%.
The global MSCI World Index gained 3.5% year-to-date.

Yields on 10-year US Treasuries ended January at 4.54%, slightly below their year-end levels but having touched 4.80% intra-month. As expected, the Federal Reserve kept interest rates unchanged at 4.50% at its 29 January meeting. In Europe, yields on 10-year German Bunds inched up from 2.36% to 2.46% over the month. A day after the Fed, on 30 January, the ECB cut rates by 0.25% to 2.90% and signalled further reductions later in the year.

Gold hit a new all-time high of $2,835 per ounce at month-end, surpassing its previous record from October 2024.

The US Dollar Index (DXY), which measures the greenback against a basket of six major currencies, ended the month slightly below its year-end level but had, at one point, reached its highest mark since December 2022. The Swiss franc weakened slightly against both the US dollar and the euro in January.

„They don‘t ring a bell at the top.” – old stock market adage

Several equity indices reached record highs during the month. The S&P 500 hit 6,119 points, while the Stoxx 600, DAX, and SLI also set new all-time highs. The SMI, however, remains about 3% below its early 2022 peak of nearly 13,000 points.

We remain broadly optimistic for 2025 but expect increased volatility in the near term. The first quarter following a US presidential election is often a weak spot in the four-year market cycle. Historically, February has proven particularly challenging – since 1950, it has been the worst month for the S&P 500, NASDAQ, and Russell 2000 in post-election years.

We anticipate that the Federal Reserve will cut interest rates by 0.25%, at most 0.50%, in 2025, while the ECB is likely to implement three to four additional 0.25% reductions. In Switzerland, policy rates – currently at 0.50% – are expected to approach zero by year-end.

Additionally, we foresee positive growth surprises in Europe, while US economic growth is likely to slow. Inflation rates on both sides of the Atlantic are expected to remain slightly above the 2% target for the time being. As a result, we expect a reflationary scenario in Europe and a stagflationary one in the US. This should continue to support European equity markets relative to their overseas counterparts.

We remain cautious on Asia – China’s structural issues are simply too severe. Given the anticipated US slowdown, we do not expect further rises in long-term yields. We also foresee a weaker US dollar and declining oil prices. Our strategic gold position remains unchanged, while we maintain a small allocation to inflation-linked bonds as a hedge against unexpected inflation surprises.