Market Outlook 4th Quarter 2025

• The first signs of  the impact of US import tariffs are already evident. However, a significant slowdown is not expected in Switzerland until next year.
• The US Federal Reserve is expected to cut interest rates twice more before the end of the year, while the Swiss National Bank is likely to leave interest rates at zero per cent.
• In Europe, the trade agreement with the US brings only limited relief.

• Stock markets are expected to remain stable to slightly positive until the end of the year, with emerging markets remaining attractive. There is however uncertainty in the pharmaceutical sector.
• The US dollar is likely to remain weak, weighed down by the economic slowdown, erratic economic policy and high government debt.
• No significant widening of credit spreads is expected in the fourth quarter. Caution is advised in the medium term.

• New US tariffs of 100% on medicines could weigh even more heavily on the Swiss economy.
• High US government debt is becoming critical - further fiscal stimulus is hardly possible without causing major collateral damage.
• Trump's attempts to undermine the independence of the US Federal Reserve are increasing uncertainty and could lead to higher inflation expectations in the long term.

US tariff policy is having a significant impact. At the beginning of the year, many export-oriented companies ramped up their exports to the US for fear of impending tariffs. As a result, Europe's economy grew more strongly than expected at the beginning of the year, while the US economy contracted in the second quarter for the first time in three years. With the introduction of import tariffs, this trend has now reversed.

Switzerland: exports slump  

After a 142 per cent year-on-year increase in goods exports to the US in March, Swiss exports have slumped in recent months. Since 7 August, Swiss goods have been subject to an import tariff of 39 per cent – higher than originally feared. However, only a fraction of exports has been affected so far. The machinery, precision instruments and watch industries have been hit the hardest so far as the US is a key market for these sectors. Around one-fifth of their exports went there last year. 

Despite weaker export momentum, macroeconomic indicators in the aggregate are not yet showing any signs of a slump. Expansionary monetary policy and a robust labour market are supporting the domestic market for the time being.  

2025, economic growth of 1.4 per cent is therefore still expected.

Talks between the Federal Council and the US government are ongoing, but the outcome is still open. If the 39% tariffs remain in place, a significant slowdown is to be expected in 2026: in this case, the KOF Institute expects growth of only 0.9 per cent and rising unemployment.

The most important exception with regard to customs duties has so far been the pharmaceutical industry. However, drugs are now also facing tariffs of 100 per cent, which would place a further heavy burden on the Swiss economy. This could lead to even weaker growth in 2026 than currently forecast by the KOF Institute. However, the direct impact on the stock market is likely to remain limited (more on this here).

EU: Trade agreement brings limited relief 

The EU was able to reach a last-minute trade agreement with the US. Nevertheless, the remaining US import tariff of 15 per cent is weighing on growth, especially in the export-oriented German economy. After a brief boost from frontloading, exports are falling again. Only minimal growth of 0.3 per cent is expected in Germany for 2025. However, thanks to new investments in infrastructure and defence, economic growth is likely to pick up from 2026 onwards.

France, on the other hand, is sliding deeper into crisis and becoming Europe's new problem child. The political dispute over urgently needed austerity measures to curb public debt has plunged the country into a prolonged political crisis. Any improvement is hardly in sight. And it is increasingly clouding economic propsects. 

USA: Consumer confidence at an all-time low 

At the beginning of the year, the US economy was in a much stronger position than Europe. However, President Donald Trump's economic policy has clouded the growth outlook. The slowdown is likely to intensify in the coming months.

Consumer confidence remains at historic lows. Together with persistently high inflation and the cooling labour market, this is likely to slow consumption in the medium term. Revisions to labour market statistics also show that the number of new jobs created in recent months has been significantly overestimated. The "Big Beautiful Bill" can only partially offset these negative effects. And further fiscal policy stimulus is not to be expected given the already high deficit.  

Although US tariffs are a burden on American households and businesses, they generate important revenue for the US government. In the first eight months of the year, they generated USD 144 billion – around 0.5 per cent of gross domestic product.

However, this source of revenue is at risk: if the Supreme Court declares Trump's reciprocal tariffs invalid, a large part of this revenue will be lost. This would further exacerbate the US's already high debt problem.

While European central banks have lowered their key interest rates in first half of the year, the US Federal Reserve waited a long time. It was not until September that it also eased its interest rate policy. The decisive factor was the increasingly weaker momentum in the labour market. Two further interest rate cuts totalling 0.5 percentage points are expected by the end of the year. 

However, inflation in the US remains too high and is likely to rise further in the coming months. Trump's policies on tariffs, immigration restrictions and expansionary fiscal policy are fuelling inflation. In addition, the weak dollar is making imported goods even more expensive. 

The outlook for US interest rate policy in 2026 is therefore unclear. Even within the Fed committee, opinions vary widely: nine out of 19 members do not expect any further cuts, but two believe that up to four cuts are necessary.

In Europe, US tariffs are having a different effect. They are likely to reduce inflation. As European countermeasures are unlikely, central banks expect the economic slowdown caused by declining exports to also lead to lower inflation.

In Switzerland, monetary policy has been expansionary for some time. While analysts increasingly speculated about negative interest rates in the summer, most now expect the Swiss National Bank (SNB) to leave interest rates at zero per cent until the end of the year. SNB President Martin Schlegel has repeatedly emphasised that the hurdle for negative interest rates is significantly higher than for cuts in positive territory. The SNB is only likely to resort to negative interest rates if the Swiss economic environment deteriorates significantly. 

Digression: Why independent central banks are important 

In recent months, Donald Trump has repeatedly attempted to influence the US Federal Reserve, for example by publicly calling for interest rate cuts to support the economy. Such interventions undermine the Fed's credibility, increase uncertainty on the financial markets and could lead to higher inflation expectations in the long term.

The independence of central banks is crucial for credible monetary policy. Without this independence, governments might be tempted to stimulate short-term growth and employment before elections, at the expense of higher inflation and financial instability.

Independent central banks offer three key benefits: they anchor inflation expectations, lower financing costs, promote sustainable growth and build investor confidence, making financial systems more resilient.

Review: Interest rate policy had little impact on credit markets in the past quarter. Even the protectionist US trade policy has not caused any lasting uncertainty reflected in credit markets. Investment grade and high yield credit spreads therefore remained tight this quarter.

If we assess the attractiveness of USD-denominated investment-grade corporate bonds on the basis of their spreads relative to US government bonds, they are trading extremely tight. Given US debt levels and ongoing political uncertainties, these minimal credit premia may reflect not an overly optimistic credit outlook, but rather a decline in the creditworthiness of the USA. This is because credit spreads are much wider when the swap curve serves as the reference point. 

Outlook: 

We do not expect credit spreads to widen significantly in the fourth quarter. However, given the ongoing global uncertainties and challenging economic conditions, we do not believe the current levels are sustainable in the medium term.

In the US, it remains to be seen how much the new tariff policy will weigh on household incomes. In our opinion, the US can no longer afford to provide significant fiscal stimulus without major collateral damage, given its high level of debt.

Against the backdrop of a weakening global economy, caution is advised with regard to manufacturers of cyclical goods, such as basic chemicals and capital goods, as well as discretionary goods such as entertainment, leisure, consumer electronics and the automotive industry. A particularly selective approach to credit selection is advisable in these segments.

Review: Emerging market equities were the clear winners in the third quarter, gaining 10 per cent in Swiss francs. Four factors drove this performance: the weak US dollar, solid economic data, progress in trade talks between China and the US, and new trade agreements with Asian countries, which provided additional relief.

US equities also performed well. Strong corporate earnings and continued enthusiasm for artificial intelligence caused the S&P 500 to rise by almost 8 per cent. Europe, on the other hand, lagged behind: the Euro Stoxx 50 rose by just under 3.6 per cent, while the Swiss stock market gained a mere 0.6 per cent.

However, the picture is different for the year as a whole. The Euro Stoxx 50 leads with just under 12 per cent. This is because the weak US dollar significantly reduces the profits from US dollar-denominated shares for Swiss investors: the global stock index rose by almost 16 per cent in dollars, but only 1.6 per cent when calculated in Swiss francs. The Swiss stock market performed better, rising 7.5 per cent despite a weak third quarter.

Outlook: At the end of September, Donald Trump announced new tariffs for the fourth quarter. These will affect kitchen furniture, bathroom fittings, upholstered furniture and heavy-duty trucks, with tariffs of up to 50 per cent. Particularly drastic: tariffs of 100 per cent are to be levied on patented medicines.

This is important news for the Swiss stock market. Healthcare accounts for 34 per cent of the Swiss stock market. Roche and Novartis alone account for around 23 per cent of the SPI. Nevertheless, both companies appear relaxed. The reason: the US government is planning exemptions for pharmaceutical companies that expand their production in the US. Both Swiss heavyweights already announced investment projects worth billions in the US in the spring. Their goal is to manufacture medicines for the American market directly on site. We assume that the new tariffs will mainly affect smaller and, in some cases, unlisted companies, similar to the existing US import tariffs. Major market reactions in the overall index are therefore not to be expected. However, details on the effective implementation of these new tariffs are still lacking.

Despite these uncertainties, we expect global stock markets to remain stable or slightly positive until the end of the year. However, the focus will vary from region to region.

While the development of US tariffs remains the central issue in Switzerland, the focus in the US is on the economy and the Fed's interest rate policy. Further interest rate cuts would support the US stock market. However, investor expectations are already high, which also harbours potential for disappointment, especially given the high valuation of the US stock market.

Review: The US dollar slumped in April following the tariff announcements and has not recovered since. Although the greenback stabilised slightly in the third quarter, additional pressures arose: Donald Trump's repeated attempts to influence the US Federal Reserve's interest rate policy and rising government debt continued to weigh on the US currency.

The result: 2025 will be one of the weakest years for the dollar in the last 30 years. Only in 2002 and 2009 was performance in the first nine months even worse. Trade-weighted, the US dollar has lost almost 10 per cent since the beginning of the year. Against the Swiss franc, the devaluation is even more than 12 per cent, and against the euro 13 per cent.

The development between the euro and the Swiss franc was much more stable. In the third quarter, the EUR/CHF exchange rate hardly changed. Over the year as a whole, the euro weakened by only 0.5 per cent against the Swiss franc.

Outlook: We do not expect the US dollar to recover to its level at the beginning of the year by the end of the year. On the contrary, the dollar is likely to remain weak, particularly against the Swiss franc. We see three drivers for this: the economic slowdown in the US, Trump's erratic economic policy and high government debt. 

By contrast, we expect the euro-franc exchange rate to remain stable until the end of the year. 

Selective market calm – focus shifts to quality, financing and regulation 

After a generally stable summer, the Swiss real estate market is entering the final quarter of the year with cautious optimism. Interest rate expectations have stabilised since the spring. Further monetary easing by the SNB is considered unlikely and has therefore hardly sparked any new market momentum. Investors are increasingly focusing on fundamentals, portfolio quality and the question of how sustainable current valuations actually are in the medium term. 

Residential segment remains stable 

In the residential segment, the trend of rising prices is likely to continue in both the owner-occupied and rental markets, supported by stable interest rates, structural excess demand in key locations and continued low supply. 

The environment remains fundamentally stable for investors. Regions that were previously considered "peripheral" are now gaining in importance. There are signs of a shift in residential demand towards the suburbs. While central urban locations remain highly sought-after, limited availability and stagnating construction activity mean that peripheral communities with good transport links are seeing growing migration gains and are continuing to converge with the price and supply structure of established A locations. Given the trend of growing population figures, this development could become even more pronounced in the coming years, leading to previously peripheral locations becoming core locations in the medium term. 

Retail and office properties remain under pressure 

The market situation in the commercial segment remains heterogeneous. While modern, ESG-compliant office space in prime urban locations remains stable, older properties with rigid use and high energy consumption are under considerable pressure. Demand is focused on properties with a resilient mix of uses, high third-party usability and location advantages. Logistics, data centres and infrastructure remain attractive niches with demand potential, especially as defensive diversification.

Outlook: In the last quarter of 2025, the focus will be less on expansive growth signals and more on risk differentiation, adaptability and realistic valuation expectations. The slowdown in market momentum is not a sign of crisis, but rather of normalisation. From today's perspective, there are no signs of exogenous shocks, but the market is increasingly observing microeconomic signals.

The extent to which regulatory interventions, both in tenancy law and in the tax environment, take concrete form will remain crucial for the rest of the year. It will also be interesting to see how severely financing conditions will be restricted, particularly for yield-oriented residential projects.

Real estate investments remain attractive. Those with solid financing conditions, flexible usage concepts and strong locations will remain successfully positioned in the winter months.