Market Insights – Week 31 (Jul 28–Aug 1, 2025)

Fed Resilience, Corporate Earnings Strength, and Tariff Volatility Shape Risk Landscape

Macro & Policy Overview

The Federal Reserve left its policy rate unchanged at 4.25–4.50% for a fifth consecutive meeting, resisting mounting political pressure—including direct calls from President Trump for an immediate cut. Notably, dissent from Governors Bowman and Waller, both advocating a 25bps reduction, highlighted emerging policy divisions within the FOMC. Chair Powell reiterated a resolutely data-driven approach, explicitly warning of upside inflation risks—especially in light of newly escalated US trade barriers—and reasserted Fed independence amidst intensifying White House scrutiny.

US GDP growth in Q2 printed a robust 3%, modestly beating consensus but masking softer trends in underlying consumption and manufacturing. The labor market remains a bulwark, with job creation steady, although July payrolls signalled a possible inflection. This keeps the September FOMC meeting “live”, with current futures implying a 60–80% probability of an initial rate cut should macro momentum falter.

Trade Tensions Rattle Sentiment

President Trump’s broad-spectrum tariff escalation—levies between 10% and 41% on key US trading partners including Switzerland (39%), Canada, India, and Brazil—injects fresh volatility into the global outlook. Export-heavy European markets recoiled, with the STOXX 600 suffering its sharpest weekly decline (–1.9%) since spring. Swiss exporters, in particular, are confronting acute margin squeeze risks, exacerbating policy and earnings uncertainty across the continent.

Corporate Earnings: Resilience with Caveats

At the half-way point in Q2 earnings season, approximately 80% of S&P 500 companies are beating forecasts, a high water mark not seen since 2023. Tech, industrials, and select consumer names continue to deliver, cushioning headline indices and supporting US large cap outperformance. However, management teams are generally sounding a cautious note on forward guidance—highlighting FX volatility, input cost pressure, and macro uncertainty driven by trade hostilities.

Global Equity Performance

US: Markets started the week rattled by tariff headlines and sub-par jobs numbers, but strong showings from Microsoft and Meta helped lift tech, with the S&P 500 ultimately closing marginally lower (–0.1% to –0.4%).
Europe: Benchmarks such as STOXX 600 and DAX posted declines of roughly –0.8% to –1.0%, led by cyclicals and exporters.
Switzerland: The SMI was not immune, down ~0.8%, though defensive stalwarts Nestlé and Roche provided relative shelter. The CHF remained firm amid heightened risk aversion.
Volatility (VIX) edged higher, but broader risk appetite remains largely contained.

Outlook & Strategic Implications

US Equities: Stay overweight quality and defensives—the earnings pulse endures, but tariff “second-round effects” warrant capital preservation bias.
Swiss Large Caps: Maintain an overweight to export-light, defensive sectors (Healthcare, Staples). Corporate hedging should be intensified to mitigate FX and tariff risk.
Europe: Neutral to underweight—valuation is supportive, but the growth and policy mix is adverse for beta.
EM/Asia: Underweight—direct tariff exposure likely to feed through to regional volatility and earnings pressure.
Rates/FX: 10-year Treasury yields drifted lower; CHF buyers remain active; euro faces asymmetric downside given central bank divergence and trade shocks.

Swiss Investor Playbook

For Swiss institutional investors, the optimal stance is to prioritize high-quality defensive equities and maintain prudent FX overlays. Margin pressure on exporters argues for renewed hedging discipline and a greater focus on revenue diversification outside US-dependent channels. While financials have faced policy headwinds, the sector shows selective promise—especially among listed private equity and European banks. EU banks are benefiting from strong capital positions, resilient earnings, and increased market activity driven by tariff-related volatility and rising hedging demand. Listed private equity firms, meanwhile, are seeing a revival in deal flow and capital distributions amid improved risk premia. As a result, certain financials—particularly quality, fee-driven platforms—could outperform, leveraging market dislocations and increased activity stemming from the ongoing trade tensions. Tactical caution toward EM and high-beta cyclical exposure is warranted until greater visibility emerges.

Conclusion

The macro regime remains one of tentative growth, improbable policy support, and external shocks. For now, a defensive posture with selective risk-taking—tilted toward resilient Swiss blue-chips—offers the best risk-adjusted path amid an environment marked by political unpredictability and late-cycle signals.