EQUITY RECORDS: WHAT NEXT?

EMR August 2025

Dear Reader

What can be deduced from the performance of selected share indices for the recent past and the foreseeable future is, at this crossing, the real question, isn’t it?

In order to answer the above quoted question, let us first summarize which key events we define as having been deterministic. The list may not be ex-haustive, nevertheless we still consider it meaningful.

1. For the first time, on January 20, 2025, Mr. Trump was installed in the White House.
2. On April 2, 2025, Mr. Trump announces duties to the world
3. On April 9, 2025, he announces the suspension for the duration of 90 days of duties, excluding China.
4. On April 17, 2025, he attacks the chairman of the FED, Mr. Powell, with the statement “When he leaves it will be too late”.
5. On May 8, 2025, he signed a trade accord between the USA and the UK.
6. On May 11, 2025, China and the USA signed a 90-day suspension.
7. On May 16, 2025, Moody’s downgraded the rating of the U.S. from “AAA” to “Aa1”.
8. On May 23, 2025, Trump announced 50% duties to Europe.
9. On June 21, 2025, the U.S. bombed sites of Iran for uranium enrichment.
10. On July 8, 2025, Trump extended the deadline for new agreements to Au-gust 1, 2025, (e.g. tariffs on copper of 50%, and also 200% tariffs on pharmaceuticals).

In addition, let us ask ourselves: What can be deduced from the chart of Eq-uity Indexes, expressed in local currencies? Is it primarily the unexpected “superb performance” of the German DAX index, while keeping in mind its currency developments? So far, the weakest indexes have been the NIKKEI, followed rather closely by the DJIA, and the NASDAQ, as well as the SPI. While most commentators are focused on the astonishing – to say the least – policy of the US president, one might face a dilemma analyzing the economic environment.

A further surprising result is shown by the poor performance of the so-called economic fundamentals, which, to us, appear to be misplaced by the so-called instantaneous arbitrage. If share indices represent the “new” funda-mentals, then one could conclude that real economic facts, such as economic activity, are currently being “played off” by the short-term or instantaneous return of capital.

Another contextual puzzle, as implicitly shown in the above shown chart of the USD/CHF developments, refers to the deterministic repercussions of currencies. While the chart on equity indexes describes the growth trend of each index, the currency chart speaks of sizeable volatility on a month’s end basis. The real question at this crossing is: Why is there such a disparity in the specific trends of equities and currencies?

Contextually, we argue that the fundamentals, at least for the short-term outlook, matter less and less. In other words, they represent specific difficulties in defining a rewarding investment outlook.

OUTLOOK DETERMINANTS

Should our assessment assume that the fundamentals (Consumption, Business Fixed investments, Government outlays and international trade) are no longer in the driver’s seat of the developments of coming months and quarters, then we must reckon with increasing difficulties for Central Banks.

The main difficulty to be assessed relates to the outcome of the Trump administration’s ambiguous policy of erratic and at times absurd taxation versus the needs and requirements of the Federal Reserve in managing interest rates. The relevant question relates to the likelihood of a recession not only in the US.

Contextually, we can also ask ourselves the following: What is the risk for investors, given that the stock market, at least in the short – to medium term, may become more of a race against the “signal” than a reflection of the real value of a specific stock and/or index. In this context, the price of a stock looks more like an algorithm than of a human valuation. Therefore, investors need to understand whether it is more important to them how much they gain, or lose, than the ultrafast robots. In this context, we face a difficult question: “Do we understand what it means to play in a field where it is not the invisible hand of the economy that controls the situation, but the ultra-fast hand of a software program?”

PERSONAL ASSESSMENT

As long as Mr. Trump is “free to act and react to his own opinion and stance” the outlook remains hardly quantifiable. Coherently, we persist in setting the investment focus on our domestic equity market, Switzerland, particularly taking into account the traditional revaluation of the home-currency and the dramatic, expected further devaluation of the USD.

INVESTMENT CONCLUSIONS

International diversification will need to be discussed and implemented in accordance with each client’s expectations, tailored to their risk aversion.

Suggestions are welcome.