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Market Monitor

September 2025

“To the man with only a hammer, every problem looks like a nail” – to the US president, the tariff cudgel seems to be the best problem solver in each and every case.

Chart of the Month

In a Nutshell

Our view on the markets

Tariff hammer dropped on Switzerland

Stormy autumn ahead on the stock market?

The rally on the US equity market continued for yet another month in August, albeit with considerably decreased momentum. The blue chips in the S&P 500 index and the technology stocks in the Nasdaq 100 hit new, marginal record highs. Punctually just ahead of September and October, which traditionally are somewhat bumpier months on the stock market, things looked downright rosy this year, as they not infrequently do at the end of summer. However, investors should brace themselves for a pickup in volatility in the weeks ahead. Seasonality makes a case for that happening, but so do technical analysis readings in the form of recently discernible negative divergences in momentum indicators.

No free lunch – earning money with price trends

“The trend is your friend… …until the end when it bends” – price trend trading has been an established, successful long-term investment strategy on financial markets for decades. This year, however, managed futures strategies that bet on long-term trends have repeatedly gotten caught on the wrong foot and stopped out by abrupt reversals in market direction. The latest episode, though, is less a change in regime and much more an entry opportunity. Trend-following strategies generate added value in a portfolio context in the long run, but that doesn’t come for free – it, first and foremost, costs patience and discipline

The big moment arrived in early August when ChatGPT 5, the newest chatbot from OpenAI, came into the world. However, the hype surrounding the new model didn’t last for long, and the update even seemed to disappoint some people. Evolution, not revolution – and yet, the fifth version is bound to open many a user’s eyes to the possibilities of AI because many are likely only just now to become acquainted with the more intelligent, “thinking” language models. Use of AI tools by businesses is also rapidly increasing, though this has not yet shown up in productivity statistics thus far. AI stocks nonetheless remain the biggest value driver on stock markets. In the USA, they already account for one-third of the S&P 500 index’s market capitalization. However, it remains questionable whether those companies’ enormous investments in data centers will pay off in the long run. A scenario in which a substitutable product makes it hard for the AI industry to hardly operate profitably, similar the situation facing airlines, doesn’t seem entirely far-fetched. So, a certain degree of caution is definitely advisable for investors in light of the AI hype. Even Sam Altman, the CEO of OpenAI, by now is of the opinion that investors are “overexcited” about this pathbreaking technology.

Macro Radar

Taking the pulse of economic activity

Tariff hammer dropped on Switzerland

“To the man with only a hammer, every problem looks like a nail” – to the US president, the tariff cudgel seems to be the best problem solver in each and every case. Donald Trump is bound to feel encouraged by the fact that US tariff revenue is gushing in by now and he has achieved almost all of his objectives thus far. On Switzerland’s national holiday, Trump gave the country an unwanted present: a 39 % tariff will soon be due on Swiss exports to the USA. That’s a much bigger punitive tariff than the ones imposed on Switzerland’s European competitors and one of the highest slapped on any US trading partner. This will take a toll even on traditionally adaptable Swiss businesses. The KOF Swiss Economic Institute foresees a 0.3 to 0.6-percentage-point decline in economic output for Switzerland. This, in turn, could ratchet up the pressure on the Swiss National Bank to think about further easing its monetary policy. However, currency interventions look set to slip down even lower in the SNB’s toolbox because they, too, would probably annoy Donald Trump and recall his tariff cudgel to his mind.

Disillusionment in Germany

The initial euphoria around the Grand Coalition has long since evaporated in Germany. The CDU / CSU and the SPD are more often than not in disagreement on major issues, and they cannot shirk facing up to hard economic realities forever. Not even German financial resources are inexhaustible, so the virtue of frugality must not go entirely forgotten. And in the end, growth-promoting reforms don’t come from talk alone and are incompatible with constant new social welfare giveaways. A small policy reset seems necessary after the summer break. However, the latest economic news isn’t helping Germany’s government at the moment: after a first data revision, GDP growth for the second quarter came in much weaker than originally presumed at -0.3 % compared to the prior quarter, leaving only marginally positive year-on-year GDP growth of +0.2 %. And although the Ifo business climate index is signaling rising corporate hopes of better times ahead, at the same time it is flashing an extremely subdued assessment of current conditions. Europe’s former growth engine appears destined to continue limping along for a while yet. In the best case it will pick up speed somewhat belatedly next year.

US rate cut(s) in sight

At the annual symposium of central bankers in Jackson Hole in late August, Jerome Powell opened the door for an interest-rate cut on September 17. The Federal Reserve chairman, too, by now sees increased risks to the job market. A variety of labor market indicators are in fact flashing amber to orange in the meantime. The massive correction to the number of new jobs created in May and June also was hardly encouraging. The White House now finally looks set to get the interest-rate cuts for which it has been clamoring, not because of the pressure applied by the president, but due to hard economic facts. But this gratification doesn’t seem to be satisfying enough. Quite the contrary, in fact, attacks on the US central bank’s independence have escalated further in recent weeks. The climax thus far was Donald Trump’s recent attempt to fire the disagreeable Fed governor Lisa Cook to pave the way for a Federal Reserve board that is submissive to the US president. The reaction by financial markets to Trump’s onslaught on the Fed has been minimal lately. Hopefully, though, that will change soon – evidently no one else is capable of safeguarding the Fed’s independence.

The White House now finally looks set to get the interest-rate cuts for which it has been clamoring, not because of the pressure applied by the president, but due to hard economic facts.

Asset Allocation

Notes from the Investment Committee

Fixed Income Global

Sovereign bonds

Corporate bonds Europe

Microfinance UK

Inflation-linked bonds

High-yield bonds

Emerging-market bonds

Insurance-linked bonds

Convertible bonds

Duration

Currencies

US dollar

Swiss franc

Euro

British pound

Equities: Stormy autumn ahead on the stock market?

• The rally on the US equity market continued for yet another month in August, albeit with considerably decreased momentum. The blue chips in the S&P 500 index and the technology stocks in the Nasdaq 100 hit new, marginal record highs. In a mirror image, the volatility barometer (VIX index) inversely fell to a new year-to-date low. Punctually just ahead of September and October, which traditionally are somewhat bumpier months on the stock market, things looked downright rosy this year, as they not infrequently do at the end of summer. However, investors should brace themselves for a pickup in volatility in the weeks ahead. Seasonality makes a case for that happening, but so do technical analysis readings in the form of recently discernible negative divergences in momentum indicators. In the past they have quite reliably foretokened impending setbacks on equity markets. The near-term prospects at least are also dimming for US small caps, which have posted a stronger-than-average performance in recent weeks on the back of emergent speculation about upcoming interest-rate cuts. They’re dimming because the Russell 2000 index is closing in on a tough technical resistance level at around the 2,450-point mark. Its high reached in November 2021 and matched again in November 2024 is unlikely to be surpassed on the first attempt. Asset Allocation Monitor

USA

Japan

Emerging markets

Alternative Assets

Gold

Hedge funds

Structured products

Private equity

Private credit

Infrastructure

Real estate

Scorecard

Macro

Monetary/fiscal policy

Corporate earnings

Valuation

Trend

Investor sentiment

• More volatility in autumn? Yes. An immediate end to the bull market? Probably more likely no than yes. A concluding look at the reporting season for the second quarter at least doesn’t give cause for an end to the bull market because US companies are presenting themselves in fine shape despite serous macroeconomic uncertainty. More than 80 % of them beat analysts’ profit and revenue estimates. After projected earnings growth had been revised down from initially +12 % at the start of this year to below +5 % lately, the final figure ended up coming in at just under +12 % after all. Earnings thus rose at a double-digit percent pace for the third consecutive quarter, with Big Tech stocks remaining the principal driver. However, it is becoming increasingly difficult for them to meet investors’ high expectations. The tensely awaited and ultimately good numbers and outlook guidance reported by chipmaking giant Nvidia in late August were no longer enough

After projected earnings growth had been revised down from initially +12 % at the start of this year to below +5 % lately, the final figure ended up coming in at just under +12 % after all.

At the macroeconomic level, the US president’s tariff chaos thus far hasn’t led to weaker growth or a drastic jump in inflation (yet).

to ignite another skyrocketing rally. But one positive insight regarding the medium-term outlook gleaned from the latest round of numbers is the sharply receded recession concerns on the part of US corporate executives: fewer than two dozen companies in the S&P 500 spoke of a recession during their conference calls on their latest business figures, down from around a quarter of all companies in the first quarter.

Fixed income: Record-tight credit spreads

• On the market for government bonds, long-term interest rates have trended in different directions in recent weeks depending on the region. The yield on 10-year German Bunds has risen by around 30 basis points since mid-June – the prospect of a swelling pile of debt is prompting investors to demand higher interest. Swiss Confederation bonds have barely moved during the same period – the Swiss National Bank has reached the end of the rate-cutting cycle. The yield trend in the USA, in turn, has been edging downward because some future rate-cutting by the US Federal Reserve is now getting priced in also at the long end of the yield curve, albeit to a much lesser extent than into shorter-dated bonds. But even though long-term US interest rates have fallen a bit, a recession scenario is far from priced in yet. It accordingly is still sensible to blend in US Treasury bonds as protection against a slowdown in economic activity.

• Investor optimism about US economic activity is being reflected also in credit spreads. The risk premium on the Bloomberg index of investment-grade corporate bonds stood at just 75 basis points at last look and thus is at the lowest level seen in more in 25 years. Whence the optimism? At the macroeconomic level, the US president’s tariff chaos thus far hasn’t led to weaker growth or a drastic jump in inflation (yet). The vast majority of companies appear to be in fundamentally sound shape – the strong reporting season for the second quarter confirmed this impression. Add to that a technical factor: investors’ hunger for yield and correspondingly large net inflows of money into corporate bonds are compressing credit spreads. However, caution is advisable now. Current spread levels provide too thin a buffer in the event of a deteriorating climate. Investors should use the present opportunity to review their bond holdings, to take profits here and there, and to not buy more corporate debt securities at record-tight credit spreads.

Alternative assets: Gold price on verge of technical chart signal

• A “pennant” had formed in the gold price chart in recent weeks. This was broken upwards at the beginning of September and is likely to lead to new alltime highs – and pull the silver price with it. Greater volatility was observable in platinum and palladium

over the summer. However, investors should play those precious metals at most indirectly via an investment in trend-following strategies (CTAs).

• News on the private equity market, in the meantime, is mixed at the moment. On one hand, many managers are grumbling about difficulties in raising money from investors for new (closed-end) private equity funds. On the other hand, the secondary market is booming because investors anticipate capital redemptions from managers. Consequently, an unprecedentedly large volume of transactions was registered in the first half of 2025. For individual private investors, opportunities predominate in light of this because the evergreen funds that are appropriate for them are prowling the secondary market as buyers and can acquire high-quality assets at cheap prices.

Currencies: Tariff shock for Swiss franc

• EUR / USD: The US president’s unrelenting attacks on the Federal Reserve have brushed by the US dollar without leaving any major bruises lately. A September interest-rate cut by the Fed by now has become very probable, due mainly to the weak US employment market and not because Donald Trump is constantly clamoring for it. However, against the backdrop of overly high inflation rates, the several percentage points of rate-cutting that Trump is demanding are not in the offing. The dollar thus continues to have an interest-rate advantage to its credit. Impetus is lacking at the moment for a successful charge to even higher EUR / USD exchange rates.

• GBP / USD: After a lengthy pause, the Bank of England delivered its rate cut already in August, but the decision was a surprisingly close call – several members of the BoE’s monetary policy committee voted to hold the benchmark lending rate steady at a high level. However, inflation in the UK looks set to decline in the months ahead against the backdrop of a deteriorating employment market. Further interest-rate cuts therefore are only a matter of time. The pound, like the euro, could go through a consolidation phase soon against the US dollar. In the longer term, though, it has further upside potential because the greenback remains overvalued.

• EUR / CHF: The EUR / CHF exchange rate was not left unscathed by the 39 % US tariff hammer dropped on Switzerland. In the aftermath of that adverse surprise, the Swiss franc depreciated by 2 centimes against the euro. A scenario in which Switzerland suffers much more severely than other industrialized nations under Donald Trump’s tariff regime would indeed be a lastingly negative one also for the franc. But the agility of Swiss companies, sectoral exemptions, and potential renegotiations are likely to alleviate part of the shock. The evolution of inflation and interest rates remains the more important driver for the franc in the longer run. In this regard, the signs are pointing to sustained Swiss franc strength.

Chinese stocks are booming once again. The broad Shanghai Composite Index is already up 50 % year-todate and in August reached its highest level in more than ten years. Some recent days have seen trading volume in China shoot above 2.5 trillion renminbi. Like in previous cycles, the rising stock prices are attracting retail investors, who traditionally play a price-setting role in the Chinese equity market. The beginnings of FOMO (the fear of missing out) have become discernible in recent weeks, in part because concurrently there is no alternative (TINA) – the Chinese public by now has ceased viewing the housing market as a good investment while bonds and term deposits are hardly yielding interest anymore. In the end, the current boom is likely to be followed by another bust, but that time has not come yet. The share-price gains to date have merely corrected the previously existing undervaluation, and Chinese stocks are still inexpensive. Moreover, China’s new bull market particularly has government backing. Signs of excessive speculation are missing as of yet. The upward momentum is likely to beget further shareprice increases. Warning lights won’t start flashing until Chinese stocks have become overly expensive and the “Beijing put” has been removed (i.e. not until Chinese monetary and fiscal policy have become more restrictive).

From TINA to FOMO | China is in a new equity bull market Shanghai Composite Index

Source: Bloomberg

Chart in the Spotlight

Whether causal or coincidental, the presidential inconstancy and the ensuing abrupt changes in price directions in many asset classes have been very challenging for trend-following managed futures strategies.

Theme in Focus

No free lunch – earning money with price trends

The trend is your friend… …until the end when it bends” – price trend trading has been an established, successful long-term investment strategy on financial markets for decades. This year, however, managed futures strategies that bet on long-term trends have repeatedly gotten caught on the wrong foot and stopped out by abrupt reversals in market direction. The latest episode, though, is less a change in regime and much more an entry opportunity. Trend-following strategies generate added value in a portfolio context in the long run, but that doesn’t come for free – it, first and foremost, costs patience and discipline.

Managed futures under the spell of tweets Donald Trump has been posting more than ever on social media in his tenure as the 47th US president. Although it’s easy to overrate his actual influence over financial markets, it cannot be denied that the USA’s political course during Trump’s second term in the White House has already left a number of conspicuous marks on them this year, including a temporary nosedive on the equity market, intense bondyield volatility, and an extremely weak US dollar. Whether causal or coincidental, the presidential inconstancy and the ensuing abrupt changes in price directions in many asset classes have been very challenging for trend-following managed futures strategies. That’s because trend followers need trends –sawtooth markets (with jagged ups and downs in rapid-fire succession) or quick reversals in the style of V-shaped recoveries (like the ones that occurred in April and May on the equity market) are the worst conceivable environment for them. So very bad, in fact, that the stock-price movements triggered by Liberation Day caused the SG Trend Index, which

and lows | Returns on trend-following strategies are cyclical

tracks the performance of the ten largest trendfollowing managed futures funds, to experience one of its largest drawdowns (-20.8 % peak-to-trough) in its more than 25-year history

Crisis or correction?

For those invested in managed futures, this development was both painful (due to the asset price losses) and disappointing (due to the failure of the hoped-for insurance protection against weak stock markets to materialize). It wasn’t unusual, though, because like most other asset classes or investment styles, the performance of managed futures is cyclical – after it rains the sun shines again, and vice versa. And the missing parachute function also isn’t an anomaly, but instead follows a pattern that was last observable during the COVID-19 pandemic: to wit, classic trend-following strategies deliver protection only against prolonged crises like the 2022 bear market, the 2008 financial crisis, or the aftermath of the bursting of the technology bubble in the year 2000, for example. In the face of shorter-term corrections lasting less than a half-year, they in contrast are too slow-acting to adjust to and profit from new (downward) trends. It’s not the emergence of a trend, but its maturation that is the real source of return for trend-following managed futures.

A proven diversifier

So, nothing new then. Investors therefore shouldn’t furrow their brows unnecessarily deeply in worry. Managed futures strategies, in fact, actually rank among the most tested and intensively scrutinized alternative investment styles by analysts in the history of securities exchanges. While the beginnings of managed futures hark back to the advent of commodity futures trading, as illustrated by the name “commodity trading advisor” (CTA) still commonly used today, the adoption of the modern multi-asset approach by institutional investors began in the 1970s. Since then, managed futures have systematically profited from both rising and falling

prices across a broad investment universe ranging from stocks and bonds to currencies and natural resources. CTAs have proven their added value for an investment portfolio again and again in recent decades. The added value is based mainly on a low and partially inverse correlation to the performance of traditional asset classes. In recent years in particular, a period that has seen a renewed increase in synchronism between stocks and bonds (positive correlation), this property of CTAs has been especially valuable.

A good entry point?

However, this very same property also has its pitfalls because the uncorrelated returns generated by managed futures are often at the same time counterintuitive to the human psyche. Trend-following strategies can fall behind and underperform traditional assets during torrid (equity) bull markets and when trends abruptly get interrupted. The frequently observable periods of flat or negative performance are also psychologically challenging. They test an investor’s conviction and raise the issue of potential opportunity costs. But even if episodes of that kind sometimes cost an investor a lot of sweat and nerves, on the flipside of the coin a “patience premium” beckons in the form of aboveaverage returns after periods of market weakness or after major drawdowns. In this sense, there’s a lot suggesting that patience with trend-following strategies will pay off again. Each of the nine largest drawdowns in the SG Trend Index since its inception has been followed by a double-digit percent gain over the subsequent year, with only one exception.

But managed futures are more than worth taking into consideration right now not just on the grounds of the statistics. Trend-following strategies have become attractive again in the 2020s also because the era of globally coordinated monetary policies (read: negative interest rates and quantitative easing), which compressed risk premiums, distorted prices, and constrained profit opportunities for managed futures, is over. Cash has resumed earning interest ever since (except in Switzerland). This, too, directly benefits an investor’s performance: since trend-following strategies typically trade liquid futures or forward contracts that require little upfront collateral, that enables a large part of the fund assets to be invested in interestbearing securities.

When the damage is longer-lasting… | …trend-following strategies provide good insurance Performance of trend-following strategies during (US) stock-market corrections exceeding -5 %, since January 1, 2000*

strategies.

Source: Bloomberg

A genuine diversifier | Trend followers deliver added value to an investment portfolio Correlation matrix, data from January 1, 2000, onward

ten largest drawdowns (and subsequent one-year performance)

Source: Bloomberg

*The size of the circles reflects the magnitude of the positive (blue) or negative (gray) performance of trend-following

Source: Bloomberg

Tips & tricks

S&P 500 Peak-to-Trough Periods S&P 500 Peak-to-Recovery Periods

S&P 500 Peak-to-Trough Periods

19.02.20-23.03.20 -33.9% (33 days)

-18.7% (48 days) 20.09.18-24.12.18 -19.4% (95 days) 03.01.22-12.10.22 -24.5% (282 days) 09.10.07-09.03.09 -55.3% (517 days)

19.02.20-23.03.20 -33.9% (33 days) 19.02.25-08.04.25 -18.7% (48 days) 20.09.18-24.12.18 -19.4% (95 days) 03.01.22-12.10.22 -24.5% (282 days)

S&P 500 Drawdowns

19.02.20-10.08.20 (173 days) 20.09.18-12.04.19 (204 days) 03.01.22-13.12.23 (709 days) 09.10.07-02.04.12 (1637 days) 01.09.00-23.10.06 (2243 days)

S&P 500 Drawdowns

Put Protec on Trend

Put Protec on Trend S&P 500 Peak-to-Trough Periods S&P 500 Peak-to-Recovery Periods

S&P 500 Peak-to-Revocery Periods

(173 days) 20.09.18-12.04.19 (204 days) 03.01.22-13.12.23 (709 days) 09.10.07-02.04.12 (1637 days)

19.02.20-10.08.20 (173 days) 20.09.18-12.04.19 (204 days) 03.01.22-13.12.23 (709 days) 09.10.07-02.04.12 (1637 days) 01.09.00-23.10.06 (2243

Sources: Bloomberg, AQR

Here’s a tip and a trick for those who, despite the good prospects outlined above, find fault with this year’s “claims event” with managed futures and are grieving over their missing insurance payout. The tip: There are other “insurance strategies” besides managed futures that offer protection against falling prices on equity markets. (Put) option-based strategies and tail hedge strategies, for example, have become increasingly popular among investors. Both quite reliably deliver the desired protection if stock prices tank in a short space of time like they did in April. However, one pays a high price for that instant protection – in the form of negative returns during calmer market phases and across lengthier cycles. Trend-following strategies, in contrast, provide protection only during prolonged bear markets and require patience and discipline, but in exchange they tend to generate an absolute (positive) return over the long run. The trick: Diversification – so, nothing new here again. But what’s meant is diversification within the managed futures universe. Besides strategies that follow long-term price trends in traditional asset classes – the strategies that are the main focus of this article – there are also ones that bet on short-term price trends. They have been joined in recent years by trend-following strategies on alternative to even exotic asset classes and on economic trends. It seems to be a law of nature that the financial industry never stops innovating. Trends are just as much a law of nature – they are embedded in the (immutable) crowd psychology of market participants.

The Back Page Asset Classes

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