Monthly Market Monitor
October 2025
Meanwhile, at its September FOMC meeting, the US Federal Reserve conducted risk management and cut its policy interest rate by 25 basis points
Chart of the Month
In a Nutshell
Our view on the markets
The Fed lowers interest rates (at last)
Swiss exports to the USA plunged 22.1 % in August to their lowest level since the end of 2020. The government of Switzerland has recently been trying to stem even greater long-term harm. It hopes to score points in Washington, D.C., by buying additional arms and more energy from the USA and by making fresh investment commitments there. It remains to be seen, though, whether that will succeed in persuading the US president to consent to a better deal for Switzerland. Meanwhile, at its September FOMC meeting, the US Federal Reserve conducted risk management and cut its policy interest rate by 25 basis points. The financial market expects to see five more quarter-percentage-point rate cuts by the Fed by the end of 2026. It’s questionable, though, whether that expectation will be fulfilled.
When will the bears throw in the towel?
For seven straight weeks, pessimists were in the majority among US individual private investors. For an equity market trading close to its all-time high, this was an unprecedented outcome in the history of weekly investor surveys and a reason why US stocks advanced further in September, which is normally the weakest month of the year for stock markets. The markets climbed a proverbial wall of worry – after all, a look at (geo)political developments gives ample reason for concern. The
streak lasted until the end of September, but optimists and pessimists today are still more or less in balance. There has been no capitulation by bears to speak of yet.
China rally: From TINA to FOMO
Chinese stocks have been in a silent bull market for over a year already and are gradually attracting international interest again. Is it too late to jump aboard the bandwagon? Although Chinese equities are no longer extraordinarily cheap, stock-market history shows that Chinese (retail) investors are particularly susceptible to the “fear of missing out” and that bull markets often end in spectacular bubbles. This process is still in an early stage. There are enough catalysts in place for further share-price gains.
US President Donald Trump would like lower (policy) interest rates – if it were up to him, he would gladly see a 1 in front of the decimal point. The first interest-rate cut by the US Federal Reserve after a nine-month pause at least brought him a step closer to that goal. Trump’s newly appointed Fed Governor Stephen Miran even voted in September to cut the federal funds rate by another 125 basis points. He also put forth a reminder that the Fed has a third mandate in addition to maintaining price stability and maximum employment: that of pursuing moderate long-term interest rates. However, despite support from the White House, it is uncertain whether US short- and long-term interest rates will decrease significantly in the quarters ahead. The weakening employment market makes a case for lower shortterm interest rates. At the same time, though, inflation risks, the gaping US budget deficit, and concerns about the Fed’s independence leave relatively little downside leeway at the long end of the yield curve. Part one of the current rate-cutting cycle was thus accompanied by a notable rise in long-term market interest rates. In the months ahead, the bond market is likely to continue to demonstrate that it is not so easily tameable.
Macro Radar
Taking the pulse of economic activity
Swiss exports to the USA plummet
The government of Switzerland in recent weeks has been trying to limit the damage in the aftermath of the 39 % tariff hammer dropped on the country at the start of August. It hopes to score points in Washington, D.C., by buying additional arms and more energy from the USA and by making fresh investment commitments there. It remains to be seen, though, whether that will succeed in persuading the US president to consent to a better deal for Switzerland. The harm has already been inflicted: Swiss exports to the USA plunged 22.1 % in August to CHF 3.1 billion, the lowest level since the end of 2020. However, the Swiss National Bank did not view that as a reason to cut its policy rate to below the zero bound. The SNB nonetheless had news to report: to enhance transparency, it will publish the minutes of its monetary policy discussion meetings in the future, in line with the international standard.
The Fed lowers interest rates (finally)
At its September FOMC meeting, the US Federal Reserve conducted risk management and cut its policy interest rate by 25 basis points. The financial market expects to see five more quarter-percentage-point rate cuts by the Fed by the end of 2026. It’s questionable, though, whether that expectation will be fulfilled. It’s not discernible from the Fed’s latest dot plot – with one exception – that FOMC members have lost their independence. With core inflation in the USA at almost 3 %, a substantial lowering of interest rates would be irresponsible and would only be necessary if a sharp slowdown in GDP growth loomed. The latest economic activity indicators, though, are pointing in the opposite direction: the Atlanta Fed’s GDPNow model is signaling an acceleration to above 3 % for the third quarter. The more accommodative financing conditions and rising corporate earnings are also indicative of a robust state of economic activity in the end.
The Bank of Japan presses the sell button
The Bank of Japan left its policy interest rate unchanged in September, albeit on a non-unanimous 7-to-2 vote. However, a core inflation rate of 2.7 % at last look and the fact that the BoJ has missed its 2 % inflation target for three years running now put a lot of pressure on central-bank officials and dictate the direction for the next monetary policy meeting. But the real surprise
was a different one: the BoJ released an earlier-thanexpected disclosure of a plan to sell the mountain of shares in ETFs (exchange-traded funds) that it has accumulated over a span of 13 years. The sales campaign is slated to start off with a volume of USD 4.2 billion per annum to avoid disrupting the market. At that pace, BoJ Governor Kazuo Ueda says, it would take more than 100 years to sell all of the securities.
France at a watershed?
After French Prime Minister François Bayrou was ousted in early September after losing a vote of confidence that he himself had called for, Sébastien Lecornu, the successor appointed by President Emmanuel Macron, now faces the same daunting challenge: public debt in France has long since surpassed the psychologically important threshold of 100 % of annual gross domestic product, and high budget deficits are the rule there; austerity measures fizzle out because they get blocked by both the left and the right. The financial market is sending a clear warning signal – measured in terms of credit spreads, France by now is getting tossed into the same pot as Italy (whose creditworthiness, mind you, has improved a bit lately in the eyes of the rating agencies). France today already spends more money on annual interest payments than it does on the military or education. The country risks being relegated to permanent “periphery” status unless tough austerity measures and painful reforms are enacted.
Part of southern Europe? | France’s creditworthiness is tarnished Credit spreads in basis points (versus 10-year German Bunds)
France today already spends more money on annual interest payments than it does on the military or education.
Asset Allocation
Notes from the Investment Committee
Cash Equities
Fixed Income
Sovereign bonds
Corporate bonds
Inflation-linked bonds
High-yield bonds
Emerging-market bonds
Insurance-linked bonds
Convertible bonds
Europe
Microfinance UK
USA
Japan
Emerging markets
Alternative Assets
Gold
Duration Hedge funds
Currencies
US dollar
Euro
British pound
Equities: When will the bears throw in the towel?
• For seven straight weeks, pessimists were in the majority among US individual private investors. For an equity market trading close to its all-time high, this was an unprecedented outcome in the history of weekly investor surveys and a reason why US stocks advanced further in September, which is normally the weakest month of the year for stock markets. The markets climbed a proverbial wall of worry –after all, a look at (geo)political developments gives ample reason for concern. The streak lasted until the end of September, but optimists and pessimists today are still more or less in balance. There has been no capitulation by bears to speak of yet. Although other sentiment indicators here and there are signaling a bit more euphoria, on the bottom line, plenty of investors are still standing on the sidelines – they are bound to do some shopping on a pullback in stock prices, true to the motto “buy the dip,” and will likely limit the next setback. The overbought technical condition of US stock indices suggests that a dip happening sometime soon is only a matter of time. There at least is no shortage of reasons for an increase in volatility. In the latest survey of fund managers by Bank of America, institutional investors said they see a second wave of inflation, a no-longer-independent US Federal Reserve, and an abrupt increase in longterm market interest rates as the biggest risks. Asset Allocation Monitor
Structured products
Private equity
Swiss franc Private credit
Infrastructure
Real estate
Scorecard
Macro
Monetary/fiscal policy
Corporate earnings
Valuation
Trend
Investor sentiment
• The US equity rally, which has lifted the S&P 500 index by 35 % and has catapulted the Nasdaq 100 index upward by a whopping 45 % since the April low, has been driven not only by ongoing AI speculation, but also by better-than-expected corporate earnings and record-high stock buybacks that have fueled positive sentiment and buying demand. European stocks, in contrast, have seen disappointing sentiment and buyer demand this year. This explains the stagnation of the Euro Stoxx 50 index, which has practically been treading in place since the start of March. However, pessimism is inappropriate also with regard to Europe. From a technical analysis perspective, the ongoing consolidation is healthy and could act as a springboard to the next upturn. From the perspective of the fundamentals, corporate earnings and stock buybacks look set to pick up next year.
• A recent comment by Donald Trump, in which the US president called for an end to quarterly reporting
However, pessimism is inappropriate also with regard to Europe.
However, at the 4 % level, the US long-term market interest rate turned back upward, lifted in part by the latest data on economic growth for the second quarter, which surprised on the upside.
by publicly traded companies, caused – by now habitual – astonishment, particularly among (equity) analysts. Two half-year reports, he remarked, would be sufficient and would not only save money, but would also give managers more time to concentrate on running their companies. What’s more important: creating long-term value without being under constant outside scrutiny or delivering transparency for shareholders? There are good arguments for both views, so opinions are divided on the matter. Interestingly, Europe provides an experiment in real time on the subject – around half of all companies in Europe report on a quarterly basis and the rest halfyearly. The frequency of reporting does not make any difference with regard to valuations and return on equity, according to analysts at Goldman Sachs. In the end, the debate is perhaps much ado about nothing (or, at least, about very little).
Fixed income: Long-term interest rates likely to remain elevated
• The yield on 10-year US Treasury notes initially continued to decrease further in September, in no small part due to weak job market data and a surprisingly sharp downward correction in the annual revision of US labor market statistics. However, at the 4 % level, the US long-term market interest rate turned back upward, lifted in part by the latest data on economic growth for the second quarter, which surprised on the upside. Against this backdrop, it’s increasingly in question whether the employment market is a good barometer of economic activity at the moment. The Trump administration’s immigration and emigration policy isn’t the only thing causing distortions. The fact that compared to previous cycles, consumer spending, the mainstay of the US economy, is being driven this time more by the wealthier class, which is more sensitive to swings in the stock market than to changes in economic activity, also makes it harder to draw conclusions from the data. The robust state of US economic activity despite all the (geo)political turmoil appears to constrain further downside potential for yields (and inversely seems to limit price gain potential on long-term bonds). Even if the Fed lowers its policy rate further in the quarters ahead, the yield curve looks destined to stay steep and long-term market interest rates look set to tend to drift sideways. It nevertheless makes sense to blend (US) government bonds into a diversified portfolio because the existing risks are at least being compensated with a commensurate interest rate again these days.
Alternative assets: Rally in precious metals
• After a months-long sideways consolidation in a flag pattern, the price of gold broke out to the upside at the start of September in a movement straight out of the technical analysis textbook. The breakout was followed by an equally exemplary rally that propelled gold to the price target of around USD 3,800
per ounce implied by the flag pattern within a span of just three weeks. A renewed consolidation in the near future would be normal and healthy. In the bigger picture, though, the upward trend is more intact than ever, and an end to the gold bull market is not in sight. Other precious metals also rose significantly in September. The price of silver is just a few dollars away from its all-time high near the USD 50-perounce level, which may likely prove to be an insurmountable obstacle at first. While physical gold is up more than 40 % year-to-date, the price of the digital alternative, Bitcoin, has intermittently been up by only half as much. Bitcoin currently lacks narratives that could usher in a new upturn phase. If the price of Bitcoin falls further, (more) negative news might even loom about Bitcoin treasury companies, the business model of which would be put to a stress test.
Currencies: EUR / USD cross rises to new year-to-date high
• EUR / USD: The EUR / USD exchange rate hit a new year-to-date high in September at the 1.19 mark, but was unable to defend that level. While the European Central Bank looks set to leave its policy interest rate unchanged at 2 % in the quarters ahead, the interest-rate direction at the US Federal Reserve seems preordained by political pressure. However, euro bulls shouldn’t be too sure of themselves. The Fed hasn’t given up its independence yet. Given the robust state of economic activity and in light of overly high inflation, it is not certain whether interest-rate differentials will actually evolve as markedly in favor of the euro as financial markets are currently anticipating.
• GBP / USD: The British pound has exhibited a less strong performance than that of the euro in recent weeks even though the Bank of England left its policy rate unchanged at 4 % in September and did not copy the rate cut in the USA. The market already seems to be pricing in the view that further interestrate moves by the BoE are only a matter of time because the UK will not lastingly decouple from the inflation trend in other industrialized nations. The outlook for the pound looks less constructive also from a technical analysis perspective, which is foreshadowing a rangebound trend.
• EUR / CHF: The EUR / CHF exchange rate stayed very stable again in September in contrast to the volatile news flow. Over the last six months, the trading range for the currency pair has been only two centimes wide. The latest monetary policy assessment by the Swiss National Bank, which left its inflation outlook practically unchanged, was equally unspectacular. According to current estimates, the inflation differential between Switzerland and the Eurozone is projected to amount to around 1 percentage point in the years ahead. This differential is the gravitational force that is likely to further strengthen the franc in the long term.
US Big Tech is (still) booming – the ten largest US technology stocks in recent weeks have been on the brink of crossing the 40 % threshold in terms of their combined weight in the S&P 500 index. Given the ongoing euphoria over artificial intelligence, the question of a potential bubble remains on one’s mind against this backdrop. It remains uncertain whether the billions in investment in data centers and energy sources will pay off for everyone involved. Unlike during the bubble around the turn of the millennium, earnings at today’s tech companies are actually existent and of better quality than before. However, speculation on the part of investors is also in overdrive this time, and tech stocks potentially have a long way to fall in the worst case. Investors should at least diversify their bets. It could pay right now to take a look at small caps. Their much cheaper valuations compared to that of the index heavyweights have been beckoning for quite some time now, and the prospect of a lower US federal funds rate puts an additional tailwind behind small-cap stocks, which are sensitive to changes in interest rates. And while the Russell 2000 index may soon sustainably break through the double top from November 2021 and November 2024, a potential double bottom may be in the process of forming on the Small vs. Large Caps chart, which could lay the foundation for a lengthy upturn.
Chart in the Spotlight
Fortunately, the investment experience wasn’t as wretched as a look at the standard indices suggests, or at least it wasn’t for talented stock pickers because China’s equity market, which is traditionally dominated by retail investors, is comparatively inefficient.
Theme in Focus China-Rally:
From TINA to FOMO
Chinese stocks have been in a silent bull market for over a year already and are gradually attracting international interest again. Is it too late to jump aboard the bandwagon? Although Chinese equities are no longer extraordinarily cheap, stock-market history shows that Chinese (retail) investors are particularly susceptible to the “fear of missing out” and that bull markets often end in spectacular bubbles. This process is still in an early stage. There are enough catalysts in place for further share-price gains.
A flop in the long run
A glance at the Chinese equity market’s long-term chart provides a sober look at its historical performance for any investor seeking one – there wasn’t much to be earned here over the last ten years. This stands in stark contrast to the Chinese economy’s intermittently torrid growth rates, which have not been mirrored by similarly large profit increases by publicly traded Chinese companies. Fortunately, the investment experience wasn’t as wretched as a look at the standard indices suggests, or at least it wasn’t for talented stock pickers because China’s equity market, which is traditionally dominated by retail investors, is comparatively inefficient. Existing misvaluations harbor high alpha potential that has enabled good managers to earn 10 to 20 percentage points of excess returns in recent years. Since the trough point in spring 2024, the alpha element has now been joined by a positive broad-market component (beta) as well. The Shanghai Composite Index has gained around 30 % year-to-date and is up by about 50 % from its low point last year.
What’s behind the rally?
As so often happens on financial markets, the current equity rally in China was immediately preceded by a capitulation by investors (and by government authorities) that led to, among other things, the ousting of the head of the country’s securities market regulator in February 2024. Ever since that price and sentiment low point on the Chinese stock market, a confluence of factors has converged to put a steady tailwind behind it. In September of last year, the government of China initiated a comprehensive, coordinated package of monetary, fiscal, and regulatory measures to regain the trust of the Chinese public and, in no small part, to put a floor under the country’s equity market. Since then, one can speak of a “Beijing put” that safeguards Chinese stocks from falling because a solid, upwardheaded market is currently in the government’s interest. Late January then marked the arrival of DeepSeek –the astonishing capabilities of the Chinese chatbot put the US tech giants’ purported competitive edge into perspective, revealing that China is on a par with the USA in the field of artificial intelligence. A subsequent February meeting between President Xi Jinping and Chinese business executives was widely interpreted as a sign that Beijing’s tough regulatory crackdown on the private-sector economy would come to an end. Sentiment was also boosted by the relatively quick de-escalation of the trade war with the USA in late April and by the Chinese government’s “anti-involution” rhetoric aimed at curbing excessive, ruinous price competition in key sectors of industry.
Faith in the “Beijing put” has increased further in recent weeks. The government of China, for instance, announced subsidies for families with young children and plans to introduce free preschool education –highly symbolic steps aimed at spurring consumer spending. At the same time, Beijing approved a mega hydropower project in Tibet and authorized a gigantic
new railway link between Xinjiang and Tibet with an estimated total budget of 1.7 trillion renminbi (equal to USD 240 billion). At the meeting of the State Council in mid-August, Prime Minister Li Qiang reiterated the need for “solid” measures to stimulate consumption and investment. Although hard macroeconomic data in China have come in rather mixed in recent months, the ongoing monetary and fiscal policy easing measures have already contributed to stabilizing GDP growth despite a sharp drop-off in exports to the USA and the persistent strain caused by China’s struggling real estate market. China’s credit impulse index, a key leading indicator of economic activity, has turned positive again in the meantime and is especially inspiring optimistic confidence.
What stage are we in?
The climate is very favorable for Chinese stocks at the moment, and the bull market is unlikely to end soon, in part because retail investors in China still have lots of idle cash stashed under their mattresses. That money could soon flow into the equity market because TINA (“there is no alternative”) exists also in China, perhaps even more so there than in the Western world. Extremely low interest rates and a collapsed housing market have made stocks the most attractive investment vehicle for Chinese households. Their savings rate has long been the world’s highest and has increased even further since the pandemic. Private households have begun in recent months to shift their deposits from banks to non-bank financial institutions. It’s a trend that may have much farther to run because households’ aggregate deposit holdings are still almost twice as large as the total combined market capitalization of listed domestic companies in China. Their deposit holdings were just as large in the year 2014 before the last spectacular stock boom. However, unlike at that time, interest rates today are much lower, which could drive stock prices even more forcefully. In the Chinese domestic stocks space in particular, which is dominated by retail investors, rising stock prices often take on a life of their own that is determined more by momentum and sentiment than by economic fundamentals. If TINA suddenly turns into FOMO (“fear of missing out”), a reappearance of irrational exuberance cannot be ruled out.
Looking at the fundamentals and investors’ positioning, quite a lot there also suggests that we are nowhere near the end of the rally yet. Despite the recent significant share-price advances, the MSCI China index is trading at a (2026) price-to-earnings multiple just shy of 13 ×, which is only slightly above the average for the last ten years. There is still a striking valuation discount, especially relative to developed-country markets. At the same time, Chinese corporate earnings soon look set to swing onto a cyclical recovery path and to grow at rates in a solid high-single-digit percent range. With regard to investor sentiment, in turn, although trading volume reached record levels
Source: Bloomberg
Still a bargain? | Chinese stocks remain relatively cheap
Price-to-earnings ratio
Source: Bloomberg
in August, with more than two weeks of daily turnover exceeding 2 trillion renminbi, there have hardly been any signs of exaggerated risk appetite or speculative excesses thus far. And finally, individual private investors aren’t the only ones holding a lot of capital on the sidelines. Chinese equity funds and insurance companies so far are also only moderately invested in Chinese stocks. This is even truer for international investors, the majority of whom in recent years had written off China’s equity market as “uninvestable” and are just now gradually starting to show interest in it again
What could end the bull market?
So, the light is flashing green for China bulls. From a risk management perspective, though, there’s the question of what would turn the stock-market traffic light to amber or red. Stock-market history says that a bull market in Chinese equities usually ends under three conditions, none of which are in place at present:
• Speculative excess: Danger exists when speculative forces quickly take on epic proportions and
With a tailwind | China’s government also wants a strong equity market MSCI China index (in US dollars)
valuations greatly exceed what the fundamentals warrant. For example, at their peak in 2007, domestic Chinese stocks traded at a valuation multiple of more than 70 times earnings. The mania in 2014/15, meanwhile, was driven by an explosion in debt-funded positions, the unwinding of which triggered a cascading stock-price meltdown. Valuations at the moment are in the normal range while market sentiment is anything but euphoric and the ratio of debt-funded positions to total market capitalization has hardly increased thus far. There is not enough speculative exuberance as of yet to cause the market to collapse under its own weight.
• Restrictive monetary and / or fiscal policy: The stock-market boom in 2007 imploded spectacularly after the People’s Bank of China (PBoC) aggressively raised interest rates. The market bubble in 2015 popped after regulatory authorities cracked down on investors’ debt-funded positions and took action to rein in margin lending by financial institutions. Today, in contrast, the “Beijing put” exists, as described above. Policymakers have an explicit goal of supporting prices on the equity market. Last year, the PBoC set up a swap facility to give non-bank financial institutions access to funding for investments in stocks. It also launched a special lending program that enables publicly traded companies
and large shareholders to borrow money to fund stock buybacks. This policy is unlikely to change in the near future unless the burgeoning bull market escalates into another speculation craze.
• External shock: A severe external shock like the bursting of the technology bubble in the year 2000 or the 2008 financial crisis also can short-circuit a bull market. Trade War 1.0 between the USA and China in 2018 likewise triggered a large-scale selloff of Chinese stocks. This risk of a shock occurring really shouldn’t be underestimated and has to be constantly monitored. However, despite continual tit-for-tat provocations, the rivalry pendulum in USA-China relations has been inching more in the direction of de-escalation lately.
In view of the equity market’s increasing strategic importance for China’s economy with regard to the allocation of resources, the financing of new productive growth drivers, and the creation of prosperity and positive sentiment among Chinese households, the probability of a policy-induced downturn in stocks is low at the moment. However, anyone who would like to jump aboard the Chinese stock-market bandwagon should wait until the next dip because FOMO has never been a good investment advisor.
The Back Page Asset Classes
This document constitutes neither a financial analysis nor an advertisement. It is intended solely for informational purposes. None of the information contained herein constitutes a solicitation or recommendation by Kaiser Partner Financial Advisors Ltd. to purchase or sell a financial instrument or to take any other actions regarding any financial instruments. Furthermore, the information contained herein does not constitute investment advice. Any references in this document to past performance are no guarantee of a positive future performance. Kaiser Partner Financial Advisors Ltd. assumes no liability for the completeness, correctness or currentness of the information contained herein or for any losses or damages arising from any actions taken on the basis of the information in this document. All contents of this document are protected by intellectual property law, particularly by copyright law. The reprinting or reproduction of all or any parts of this document in any way or form for public or commercial purposes is expressly prohibited unless prior written consent has been explicitly granted by Kaiser Partner Financial Advisors Ltd.
Publisher: Kaiser Partner Financial Advisors Ltd.
Freigutstrasse 16 8002 Zurich, Switzerland
T: +41 44 752 51 11
E: financial.advisors@kaiserpartner.com
Design & Print: 21iLAB AG, Vaduz, Liechtenstein