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Monthly Market Monitor

December 2025

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FUCHS | RICHTER Quality Test

Number 1 in Liechtenstein and Gold again

Kaiser Partner Privatbank was the only institution in Liechtenstein to receive a gold rating in this year’s quality test conducted by the renowned FUCHS | RICHTER testing agency, securing its position as the top-ranked bank in Liechtenstein. Following on from the gold rating it achieved last year, this underscores the consistently high quality of the bank’s private banking advisory and other services.

Since 2003, FUCHS | RICHTER Prüfinstanz has been testing banks and asset managers from Germany, Austria, Switzerland and Liechtenstein on an annual basis. In the current test, Kaiser Partner Privatbank impressed with its excellent advisory services, high level of transparency and clearly structured investment process. The auditors particularly highlighted the bank’s individual customer focus and consistent implementation of tailor-made solutions.

In this year’s test case, a client who had built up his assets through early investments in Bitcoin turned to Kaiser Partner Privatbank. The goal was to transfer the capital to a conservative strategy. The bank impressed with its empathetic, expert advice and an investment proposal that intelligently combines stability and return opportunities. Even after the meeting, the bank remained committed to providing follow-up support and ensured transparent communication.

In the conclusion of its report, the FUCHS | RICHTER review body states: “Kaiser Partner impresses with its stability and high level of openness. For investors who value discretion and clear structures, this is a top address in private banking.”

The gold award and top position in Liechtenstein are both confirmation and motivation for Kaiser Partner Privatbank: The team remains committed to offering innovative and sustainable solutions of the highest standard and to continuously developing the level of quality it has achieved.

of the Month

Stumbling about in the data fog

In a Nutshell

Our view on the markets

Overdue pause to catch breath

November brought a long overdue correction on the majority of the world’s equity markets. In the USA, the broad S&P 500 index intermittently shed 5 % while the small caps in the Russell 2000 index corrected even more sharply by around 10 %. As so often happens in a bull market that has been underway for more than three years, the share-price declines quickly took a psychic toll on investors as the bears’ voices grew louder.

Question marks particularly about a potential AI bubble are looming increasingly larger, but corporate earnings in the latest reporting season have been sending an all-clear signal on that front (at least for now).

The art of defense

There is hardly a sector that has undergone a more radical reframing than the defense industry has in recent years. What was once considered a moral minefield is being viewed today as the backbone of Western security. Geopolitical security concerns have given birth to an investment story: semantics have shifted, war has become defense, weapons have become security, and state policy has become an investment theme. And with each new armaments order, the dilemma between economic rationality and ethical responsibility grows.

The record-long shutdown of the US government is over, but its fallout is likely to linger for longer. It includes economists and central bankers having to stumble about in the data fog – there is no clear visibility, particularly regarding the situation on the employment market. The tardily released September data surprised on the upside, but the November numbers have been delayed and won’t be out until mid-December, and the October employment report was canceled altogether. To stay abreast of economic activity, analysts have been examining available data all the more minutely and, in the process, came across conspicuous signs of job-market weakness: almost 40,000 Americans were notified in October about their forthcoming layoffs –the trend in WARN notices is clearly pointing upward. Another eye-catching development is the substantial increase in the unemployment rate among college graduates, which climbed to 8.5 % at last look for those in the 20 to 24 age bracket (70 % higher than the low recorded in 2022). Are these signs of an impending recession? Not necessarily – they may be the first quantifiable traces of the AI revolution in the macroeconomic data. An enormous challenge for policymakers and society is foreseeable in the years ahead.

Chart

Macro Radar

Taking the pulse of economic activity

Stumbling about in the data fog…

After 43 days, the longest-ever US government shutdown came to an end on November 12, though not without leaving behind considerable collateral damage. Federal employees tasked with collecting and processing macroeconomic data are among those faced with picking up the pieces from the wreckage. Data vital to judging the state of economic activity will be published in the weeks ahead with a long time lag, risk getting ignored, or may go missing altogether. The pace at which the US economy is operating at present is therefore unknown. Preliminary growth estimates for the third quarter have all been scrubbed, and a first official figure won’t be released until December 23, shortly before Christmas. The Federal Reserve Bank of Atlanta’s GDPNow data point to robust economic activity with an estimated growth rate of more than +4 %, but whoever has been waiting for his or her next paycheck due to the recent shutdown of federal agencies is likely to feel a bit differently about that.

…and a K-shaped economy

Consumer confidence surveys are particularly reflecting gloomy sentiment. According to the University of Michigan survey, consumer sentiment dropped to 51.0 points in November, the second-lowest level ever recorded. The index’s only lower reading was in the summer of 2022. However, US stocks were in a bear market at that time, whereas share prices today are close to their all-time highs despite the recent correction in the wake of a long rally. Consumers with higher incomes (and asset wealth) are thus in a much less pessimistic mood. Speaking metaphorically, the economic situation in the USA increasingly resembles a K. Charts showing two divergent lines in a K shape have been circulating by the dozen in recent weeks in the economic analyst community. This economic trend could become a problem for the US president and the Republicans in the runup to the 2026 midterm elections because public approval ratings of Donald Trump’s handling of his job as president are in a tailspin at the moment and are even worse than they were in 2017 during his first term in office.

“Live” meeting at the Fed

The lack of data has the US Federal Reserve as well flying half-blind at the moment, which is all the more why individual Fed officials have carefully weighed their words in recent days. The question of whether there will be another policy rate cut or a pause at the last FOMC meeting of the year on December 10 will probably be decided at the last minute – it will be a “live” meeting more than ever. Market expectations have swung sharply between those two options in recent weeks – at the end of November, the pendulum swung back a bit more toward a federal funds rate cut. The Swiss National Bank’s monetary policy assessment on December 11 is likely to proceed less suspensefully. Negative interest rates are not up for discussion, and the prospect of a tariff deal with the US administration as well as a look at the EUR / CHF exchange rate, which has recently rebounded from a new all-time low hit in mid-November, both give no reason right now to think more intensely about them. In contrast, talk about further rate-cutting may pick up again at the European Central Bank’s year-end policy meeting during the week before Christmas. Inflation in the Eurozone threatens to veer downward from the desired 2 % level during the next half-year.

The question of whether there will be another policy rate cut or a pause at the last FOMC meeting of the year on December 10 will probably be decided at the last minute – it will be a “live” meeting more than ever.

Sources: Bloomberg, Kaiser Partner Privatbank

Asset Allocation

Notes from the Investment Committee

Fixed Income

Sovereign bonds Switzerland

Corporate bonds Europe

Microfinance

Inflation-linked bonds

High-yield bonds

Emerging-market bonds

Insurance-linked bonds

Convertible bonds

Duration

Currencies

US dollar

Swiss franc

Euro

British pound

Equities: Overdue pause to catch breath

• On the majority of the world’s equity markets, the month of November brought a long overdue correction that many a market participant had been yearning. The broad S&P 500 index dropped a good 5 % from its year-to-date high while the small caps in the Russell 2000 index corrected even more sharply by around 10 %. Beneath the surface, many highbeta stocks even posted much steeper declines. As so often happens in a bull market that has been underway for more than three years, the share-price pullbacks quickly took a psychic toll on investors as the bears’ voices grew louder. Question marks particularly about a potential AI bubble are looming increasingly larger. In a recent Bank of America survey of fund managers, 45 % of the respondents cited an AI bubble as the biggest tail risk. For the first time since the inception of the monthly survey 20 years ago, a majority of investors are of the opinion that (technology) companies are overinvesting money (in chips, data centers, and the like). Thus far, however, the downward pressure on stock prices has not lasted for long. By the end of the month, a large part of the price declines had already been recouped.

• A look at the recently ended reporting season for the third quarter suggests that fears about a looming asset bubble are at the least premature. With

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

year-on-year earnings growth of +13 %, Q3 was the fourth consecutive quarter of double-digit profit growth rates. AI-related companies posted aboveaverage growth (+24 %), and the Magnificent Seven also maintained a fast growth pace (+18 %). However, the gap between US Big Tech and the rest of the market (+12 %) narrowed again, which should soften concerns about the high concentration in the US stock market. Another positive observation is that market participants are definitely differentiating and are not tossing every (tech) stock into the same pot. For instance, the possibly somewhat overambitious investment plans announced by Oracle are being criticized – the company’s shares have lost around 40 % of their value since mid-September.

• Momentum in Europe has remained sluggish lately. Corporate earnings continued to tread water in the third quarter as they have done all year and are part of the explanation for the European equity

Another positive observation is that market participants are definitely differentiating and are not tossing every (tech) stock into the same pot.

The days of government bonds being an interestfree risk are over for the time being. Nevertheless, investors should brace themselves for elevated volatility in this asset class in the years ahead because a bond bull market is unlikely to stage a comeback given the growing mountains of public debt.

market’s rangebound performance trend. However, there are valid hopes of a pickup in 2026. A mild acceleration in economic growth, fiscal stimulus, a fading headwind from the (strong) euro, less trade uncertainty, cheaper financing conditions, and stimulative impulses from China headline a long list of supportive arguments for European stocks. That list is long enough for them to surprise on the upside even if the overoptimistic earnings forecast of +15 % for next year isn’t quite met.

Fixed income: A solid year for US Treasurys

• The 4 % mark has been acting like a magnet on the 10-year US Treasury yield lately. The foggy view of US economic activity obfuscated by the government shutdown, coupled with a Federal Reserve interest-rate policy that is hard to predict today even more so than before, gives little reason right now to stray much from that spot. The 10-year Treasury yield might rise toward 4.5 % in the first half of 2026 if inflation and GDP growth surprise on the upside. In the contrary scenario, if US economic activity hits the brakes, one could expect to see long-term yields drop toward 3.5 %. For this second possible case, government bonds remain a useful additive in a portfolio context. But even without weak economic activity, US Treasury bonds already have delivered a good performance in the current year approaching its end. The days of government bonds being an interest-free risk are over for the time being. Nevertheless, investors should brace themselves for elevated volatility in this asset class in the years ahead because a bond bull market is unlikely to stage a comeback given the growing mountains of public debt. Bond investors are bound to demand higher longer-term risk premiums, which will likely result in sustained elevated yield levels. A return to unconventional central-bank actions (quantitative easing, yield curve controls, etc.) is the only thing that could push market interest rate levels substantially back toward the zero bound. However, actions of that kind are not in the offing, at least not at present, and are undesirable in view of their pricedistorting impact on financial markets.

Alternative assets: Crypto correction

• The cryptocurrency price correction has continued in recent weeks with strong downward momentum. Ever since the Bitcoin liquidation event in early October, cryptocurrencies have decoupled downward from other risk-on assets. However, there has been a lack of (good) reasons for the selloff, which has already caused Bitcoin to plunge by 35 %. One commonly heard explanation blames it on self-reinforcing profit taking, particularly by institutional investors that have reduced their positions in Bitcoin ETFs. The sharp price collapse has left the majority of Bitcoin ETF investors underwater for the time

being. This is likely to hinder a rapid recovery in the weeks ahead. Anyone who isn’t a die-hard holder is likely to dump his or her position if Bitcoin drops to the price at which it was first purchased.

• Gold, in contrast, delivered a confirmation that its price declines in October arguably were just a pause in its uptrend. A trend-confirming triangle pattern has recently been forming on gold’s price chart, similar to the one that took shape during the summer months. Silver is also exhibiting a similarly constructive pattern. However, the precious metals are unlikely to experience as strong a rally as this year’s in 2026. Looking ahead to next year, investors should review their weighting of gold and should reduce any overweight position that may have arisen.

Currencies: EUR / CHF exchange rate hits yet another all-time low

• EUR / USD: The amplitude of EUR / USD exchangerate movements has continually deceased in recent weeks – the market is as undecided as the US Federal Reserve is on the question of whether there will be another interest-rate cut. In the bigger picture, the rangebound meandering over the last half-year could turn out to be a pause in the uptrend or, alternatively, could mark the formation of a major top. Economic growth and interest-rate dynamics next year will be a key driver of the hop-or-flop scenario. The current, rather “boring” market phase may drag on as long as those factors continue to more or less balance each other out.

• GBP / USD: The UK’s Chancellor of the Exchequer has been trying lately to regain lost credibility. Her budget plans presented in late November at least sprung no negative surprises this time and hardly moved the currency market. However, the efforts to cut spending will likely tend to slow economic growth in the UK. That, in combination with the prospect of further interest-rate cuts, tends to portend relative weakness for the British pound against the euro and the US dollar.

• EUR / CHF: The EUR / CHF exchange rate hit a new all-time low in November. However, its excursion below the 92 centimes level was very brief (it was just an intraday jaunt). Bargain shoppers quickly drove the exchange rate back to the middle of the trading range of the last half-year. Sideways to downward is the baseline expectation also for the months ahead. To interrupt the franc’s long-term uptrend, at least for a while, the euro would have to break upward through key technical resistance levels – 94.5 and 96.5 centimes are the first two target levels.

Bubble talk has proliferated lately among financialmarket observers and has since spread also to the mass media. If the alleged AI bubble were to burst in the months ahead, it would arguably be the most anticipated collapse of any bubble in a long time. And that’s precisely why there’s a low probability of an event of that kind happening in the near term. Moreover, some key ingredients are missing, particularly compared to the dot-com bubble at turn of the millennium, which many like to cite as an analogy. Back in those days, share prices of US technology firms doubled in a span of just six months, their valuations were astronomically high, and most of the companies were unprofitable. This year, the tech rally has caused the Nasdaq 100 index to rocket by a likewise remarkable 60 % from its April low. But the big difference between then and now is that the elevated valuations this time are being sustained by torrid earnings growth, at least at US Big Tech companies. A rising tide raises all boats, so it has also lifted shares of companies less profitable or with a less promising future. However, quite a bit of air has already escaped from those stocks since mid-October. That can only be healthy for the overall market.

Chart in the Spotlight

Theme in Focus

The art of defense

From niche to narrative

Not all that long ago, the defense industry in Europe was widely considered a fringe sector economically as well as on stock exchanges. Defense budgets stagnated, order books collected dust, and institutional investors steered clear of the sector. Then war broke out in Ukraine, bringing about a paradigm shift. What was once a niche turned into a global investment theme driven by geopolitical realities, industrial necessity, and growing public acceptance. According to the Stockholm International Peace Research Institute (SIPRI), worldwide military spending in 2024 reached a historic record of USD 2.7 trillion. That equates to 2.5 % of the world’s total annual economic output, marking the highest percentage spent on defense since the end of the Cold War. Europe in particular experienced a boost: defense budgets in 18 of the 32 NATO countries have reached 2 % of gross domestic product (GDP) in the meantime, and new projects have filled the order books of European arms manufacturers like Airbus,

Rheinmetall, and BAE far into the 2030s. Forecasts even indicate that all of the NATO member states will reach the 2 % target for 2025. Moreover, NATO has set itself an ambitious long-term goal of raising military spending to an average of 3.5 % of GDP by 2035. This stepped-up commitment underscores the strategic importance of the defense industry and opens considerable opportunities for those investors who grasp this shift as a long-term investment story.

There is more than just a security policy response behind those figures. Defense today is being understood again as an industrial value driver, an engine of innovation, a guarantor of employment, and a political signal. The defense industry is experiencing a structural renaissance driven by geopolitical uncertainty, technological innovation, and institutional capital that is increasingly willing to position itself between these poles.

Europe’s secure boom…

In Europe, industrial policy and defense are increasingly becoming intermingled. Countries that for decades had lived off the peace dividend are now drawing up new funding programs, speeding up procurement processes, and strengthening their industrial sovereignty. The EU defense fund is channeling capital, joint initiatives are harmonizing standards, and national programs are creating production capacity. This is all aimed at establishing a new industrial base set up for the long term and not just for ad hoc responses to sudden crises. Defense is no longer being understood as a rare exception, but instead as a structural element of European economic strategy. Security is thus becoming an investable concept. For capital markets, this means predictability. For businesses, it means profit margin stability. And for investors, it means a new narrative.

According to the Stockholm International Peace Research Institute (SIPRI), worldwide military spending in 2024 reached a historic record of USD 2.7 trillion.

Arms buildup | Rapid increase in defense spending

Number of NATO members with defense spending equal to 2 % of GDP or more

Sources: NATO, Kaiser Partner Privatbank

…and its faultlines

But this is precisely where the danger lies. When security becomes an investment theme, the line between defense and profits becomes blurred. And EU member states are not all following the new charted course. In Italy, for instance, pacifist groups and legality concerns are hindering the EU’s plan to ramp up ammunition production directly with EU funding. To some, that would mark a break with the European vision of peace, whereas others view upholding that ideal as clinging dangerously to a past that cannot be resurrected. Europe’s security architecture is coalescing at the industrial level, but remains fragmented politically. But that’s just the visible surface. Behind the debates on strategy, there’s a second, quieter discussion underway about the material rudiments of defense, i.e. about supply chains, production capacity, and technological know-how.

Economics of defense

While developments on the war front dictate the headlines of the day, in the background there’s a supply chain operating in overdrive. Gunpowder, semiconductor chips, software, satellites, logistics. The modern defense industry is globally intermeshed, even in areas where policymakers promise autarky. This also explains the rise in share prices in recent years: Rheinmetall, Leonardo, and Thales are no longer niches stocks and have become growth stories. But the economic impact of stepped-up defense spending is less clear-cut than order books seem to suggest. Research has shown that although military spending generates demand in the short run, it does not automatically strengthen productive capacity. It is stimulative, but not necessarily transformative. So, what decisively matters is not how much money gets invested, but to where that money flows. If funds are tied up in obsolescent platforms, that does little to build a future. However, if resources flow to technologies with dual-use applications beyond military contexts (sensor technology, robotics, cyber defense, communications), this sets cycles of innovation into motion, and defense becomes the mainspring of technological modernization.

The startup front

In the midst of the general upturn in the defense industry, demand, too, is changing fundamentally, shifting away from traditional heavyweights like tanks and artillery and toward high-precision, autonomous, and technology-based solutions. The conflict in Ukraine is acting as a catalyst of innovation that is steering the focus more toward AI-assisted targeting systems, drone swarms, and electronic warfare. Seminal impetus is increasingly coming not from state-owned arms manufacturers, but from the private sector, particularly from agile startup companies that have shrewdly positioned themselves at the intersection of software development, sensor technology, and security solutions. The inflow of capital has been impressive: according to a study by McKinsey &

Arms rally | The sector outpacing the broad market Performance of MSCI Europe Aerospace and Defense, MSCI Europe, and S&P Aerospace & Defense Select Industry indices (in USD, 100 = outbreak of war in Ukraine, 24.2.2022)

Company, venture capital allocated to defense tech in Europe increased 500 % between 2021 and 2024. This dynamic momentum is not only generating technological diversity, but is also rearranging the competitive landscape. This change is nowhere more visible than in the field of drone technology. In Germany, for example, a network of young enterprises is working together with Rheinmetall on a new generation of loitering munitions, i.e. drones capable of tracking down and attacking targets autonomously. The startups supply sensors, software, and artificial intelligence, and Rheinmetall supplies the platform. What’s being built here is not merely a new weapons system, but a new industrial ecosystem because the future of defense will no longer be cast in steel alone, but will also be programmed in computer code. It will be defined in data, trained in algorithms, and conducted by networked swarms. The frontline of power no longer runs along fortified borders, but in the control logic of autonomous systems, and it is adjacent to technologies that shape civilian life in our cities, factories, and networks. Defense will become an engine of innovation here.

What’s being built here is not merely a new weapons system, but a new industrial ecosystem because the future of defense will no longer be cast in steel alone, but will also be programmed in computer code.

Security comes at a price | And these countries are paying it Share of worldwide military spending

Sources: SIPRI Military Expenditure Database, Kaiser Partner Privatbank

Sources: Bloomberg, Kaiser Partner Privatbank

“King of the Mountain” prize | The climbers in the arms rally Year-to-date performance (as of 19.11.2025)

Source: Bloomberg, Kaiser Partner Privatbank Rheinmetall

Innovation in security technologies | Startups in the USA are attracting the most venture capital Venture capital funding of defense startups in NATO countries (2018 – 2024)

The moral compass of the markets

It was a long-held tenet that arms production is unsustainable. Period. But this moral clarity is starting to crumble. Security, the new argument goes, is a public good itself and thus a part of sustainability. A shift is afoot also in the investment fund landscape: while ESG funds continue to underweight the arms industry, a growing minority is warming to the sector. Some apply a best-in-class principle while others differentiate between defensive technologies and offensive weapons. A third approach combines the two by excluding controversial weapons but allowing dual-use technologies. This is more than a semantic trend – it shows that the very concept of sustainability itself is being contested. After all, what does responsibility mean when security becomes a precondition for reaching all other goals?

Security as a growth engine

Sources: Dealroom.co, Kaiser Partner Privatbank

The defense industry today is more than just a government contracts sector. It drives technological advancement, creates opportunities for startup companies, and ties industrial policy, capital markets, and security policy together. Investments in cyber and sensor technologies, robotics, and artificial intelligence produce not just military solutions, but also accelerate innovation in the civilian economy. Even symbolic steps like the renaming of the US Department of Defense by the Trump administration shows how tightly language, politics, and industry are interwoven with each other. This is bringing a quiet but powerful infrastructure of the future to life that strengthens technological and economic resilience. The defense theme remains challenging for investors because opportunities and risks here are closely connected. The sector’s structural importance is increasing, but the right way to approach it as an investor depends greatly on one’s investment needs and personal stance on the defense theme. Your investment horizon, your tolerance for risk, your personal understanding of sustainability, and the composition of your portfolio determine whether and how large of a position may be sensible. There is no onesize-fits-all recommendation. It is crucial to thoughtfully analyze your personal context and to have a clear idea of what role the defense theme is to fill in your portfolio.

The Back Page Asset Classes

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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 Privatbank AG 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 Privatbank AG 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 Privatbank AG.

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Editorial Team: Oliver Hackel, Head of Private Markets & Liquid Alternatives

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