Monthly Report March 2025

Nervousness in equity markets increased significantly over the past month, driven by “Trade, Trump & Tariffs”. The closely watched VIX volatility index briefly surged above 20% towards the end of February, a level often seen as a warning signal by market observers.

Following the US presidential election, initial expectations centered around “America First” policies leading to stronger growth, rising inflation, higher interest rates, and a stronger dollar. However, these assumptions have come under scrutiny. Bitcoin also failed to impress, shedding more than 22% since its January peak. The S&P 500 retreated more than 3% from its all-time high of 6,144 points on February 19, leaving it with a slim year-to-date gain of just 1%. The tech-heavy Nasdaq Composite fared even worse, down over 2% since the beginning of the year.

Particularly noteworthy was the performance of the “Magnificent Seven” stocks (Apple, Microsoft, Amazon, Alphabet, Meta, Tesla, and Nvidia), which had driven most of the index gains over the past two years. Measured by the Roundhill Magnificent Seven ETF (MAGS), these stocks lost about 6% year-to-date. Tesla saw the sharpest decline, tumbling 40% since mid-December.

European equities fared better, with the Stoxx 600 and the Swiss Leader Index (SLI) both rising around 10% in the first two months of the year.

In Asia, performance was mixed. While the Shanghai Composite lost 1% year-to-date and the Nikkei 225 fell 7%, the Hang Seng in Hong Kong rebounded, posting gains of over 14%.

Yields on government bonds eased. The yield on 10-year US Treasuries recently stood at 4.20%, while 2-year yields dropped below 4%. Three-month bills yielded 4.30% (compared to Fed fund rates of 4.50%), leading to renewed yield curve inversion. An inverted yield curve, where short-term yields exceed long-term ones, is often viewed as a harbinger of recession.

Gold hit an intraday high of $2,974 per ounce before retreating slightly below the $2,900 mark by month-end. Nevertheless, it remained up over 8% year-to-date. Oil prices, meanwhile, declined more than 2% since the start of the year.

In currency markets, the Russian ruble (RUB) appreciated over 20% against the US dollar year-to-date. “Make Russia Great Again”?
The Japanese yen also strengthened against most major trading currencies. The Swiss franc, in contrast, saw only marginal gains against both the euro and the US dollar. Meanwhile, the closely watched EUR/USD exchange rate remained largely unchanged since the beginning of the year.

Showdown in DOGE City?

“The Gunfight at Dodge City”, a 1959 American Western, may have found its modern-day equivalent in “DOGE City” – a reference to the Department of Government Efficiency, led by Elon Musk, which is spearheading US budget cuts. These measures are likely to weigh on short-term economic growth. At the same time, President Trump’s mercantilist trade rhetoric is fueling uncertainty and dampening investment. Should economic conditions deteriorate further, tensions between Trump and Musk could escalate.

The Atlanta Fed’s GDPNow estimate for US economic growth in the first quarter was revised down sharply from 2.3% to -1.5% (as of February 28, 2025). Inflation remains above the 2% target but is expected to decline as the economy cools. The bond market has already priced in two to three rate cuts later this year.

We anticipate weaker growth and inflation in the coming months. Not only financial markets but also the political landscape are likely to become more volatile.

Against this backdrop, we remain cautious. In equities, we favor defensive sectors such as consumer staples, utilities, and healthcare, alongside interest-sensitive segments like financials and real estate. Given geopolitical uncertainties, the defense sector could also stand to benefit. Regionally, we maintain our preference for Europe over the US.

Medium- and long-term government bonds remain a valuable addition to a balanced portfolio, as further declines in long-term yields are likely. We continue to hold our strategic allocation to gold as a portfolio stabilizer. In currency markets, the euro may surprise to the upside in the coming months.