Monthly Report June 2025

Beauty is in the Eye of the Beholder

On 22 May, the US House of Representatives passed the “One Big Beautiful Bill Act” (OBBBA) – a sweeping tax package which, in the eyes of its proponents, brings fiscal prudence and market-oriented clarity. Not everyone shares that view. The bill proposes deep cuts to social programmes and permanently lower tax rates for corporations and high earners. One potential time bomb is “Section 899”, which explicitly discriminates against investors from certain countries – raising legal concerns and the risk of retaliatory measures. The bill has yet to pass the Senate, where the debate has so far followed clear partisan lines.

In anticipation of these developments, on 16 May after market close, Moody’s stripped the United States of its Triple-A rating, downgrading its creditworthiness to Aa1. Moody’s thus followed moves already made by Fitch in 2023 and S&P Global Ratings back in 2011. The agency expects US government debt to reach around 134% of GDP by 2035, up from 98% last year.

Financial markets have reacted with surprising composure. The yield on 10-year US Treasuries rose in May from below 4.20% to 4.60%, before ending the month at 4.40%. One source of unease was a poorly received auction of 20-year Treasuries: yields on that maturity temporarily climbed from 4.70% to nearly 5.20%, ending May at 4.93%. Yields also rose in Germany and Japan, albeit to a lesser degree. Market participants speculated about an informal understanding reached during trade talks, under which the Bank of Japan may scale back its bond purchases in an effort to avoid artificially boosting competitiveness through low interest rates and a weak yen.

The S&P 500 gained an impressive 19% between 8 April and the end of May. A temporary suspension of global tariffs on 9 April triggered a full-blown market rally. With a monthly increase of 6.15%, May was the strongest month since November 2023. Yet year-to-date, the index was only marginally up at 0.5%.
European stock markets fared better: Spain’s IBEX 35 and Germany’s DAX both rose by over 20% year-to-date, making them global outperformers. The broader STOXX 600 gained 8.1%, while the more defensive Swiss Leader Index (SLI) posted a more modest 3.9% gain. In contrast, Asian equity markets were subdued: the Shanghai Composite was flat (-0.1%) and the Nikkei 225 fell 4.8% so far in 2025.

In the commodity space, gold has proven one of the best-performing asset classes so far this year, with the metal up 26%. Gold mining stocks, as measured by the VanEck Gold Miners ETF (GDX), rose by an even steeper 49%. Oil prices, however, dropped 15% since January, while copper gained nearly 17%. Bitcoin appreciated 12% against the US dollar.

The dollar index (DXY), which measures the greenback against six major trading currencies, felt more than 8% so far this year. Against the Swiss franc, the decline was even steeper, at over 9%. The Swiss franc gained slightly versus the euro, up 0.6%.

The TACO Trade

Another possible driver of the recent equity rally is the so-called “TACO trade” – a tongue-in-cheek acronym for “Trump Always Chickens Out”. It refers to the expectation that the US President may issue tough tariff threats but ultimately shy away from implementing them – not least because he places particular importance on a buoyant stock market.
Trump has shown flexibility in policymaking but is known for his sensitivity to personal slights. The comparison to a “chicken” seems to strike a nerve. When a reporter recently alluded to the TACO trade at a press conference, Trump, visibly irritated, snapped: “Don’t ever say what you just said again. That’s a nasty question.” It is therefore not unthinkable that he might one day push through punitive tariffs purely out of principle – just to be cock of the walk again.

Macroeconomic Assessment and Outlook

In light of recent market signals, we remain cautiously optimistic on equities. Futures positioning on the S&P 500 remains skewed to the bearish side – historically, often a reliable contrarian indicator. In any case, there is little sign of euphoria.
Admittedly, large fiscal deficits and rising debt levels carry the potential for upward pressure on long-term interest rates. But higher yields can also be read as a sign of solid growth and inflation expectations. During the long bull market of the 1980s and 1990s, for example, the average yield on 10-year US Treasuries remained well above 5%.
The probability of a US recession in 2025 has fallen to 32% (kalshi.com, 31 May 2025), down from nearly 70% a month ago. First-quarter GDP shrank modestly by 0.2%, while second-quarter growth is projected at a robust 3.8% (Atlanta Fed GDPNow, 30 May 2025). US inflation in May is expected to come in at 2.40% (Cleveland Fed Inflation Nowcasting, 30 May 2025), still above the 2.0% target – making a rate cut by the Federal Reserve unlikely for now. Credit spreads on US high-yield bonds narrowed significantly from April’s peak of 4.6% to 3.2%.

For June, we expect a reflationary scenario, with accelerating economic momentum and moderate price pressures. Cyclical stocks – particularly in technology, industrials, and financials – stand to benefit. Industrial metals such as copper and silver could also deliver upside surprises. By contrast, gold, long-dated government bonds, and the US dollar may come under pressure.