Market Outlook June 2025
Markets in a holding pattern: calm before the storm or a new normal?
Despite a flurry of often conflicting messages from the White House on trade, monetary policy, and geopolitics, global equity markets performed strongly in May – especially in the U.S., which outpaced European markets for the month and with the S&P 500 nearly erasing its losses for the year. However, on a year-to-date basis, Europe remains ahead with Italy, Germany, and Poland posting gains of 20% or more. This optimism may stem from the belief that Trump often reverses course on bold policy moves – dubbed the “TACO trade” (“Trump Always Chickens Out”). The standout development in May was the sharp rise in long-term interest rates, both in the U.S. and globally. Typically, it marks a headwind for risk assets, but markets have so far brushed it off. The U.S. 10-year yield climbed above 4.5%, and the 30-year surpassed 5.15% – levels not seen since late 2023. This surge came just before the House approved Trump’s “Big Beautiful Budget,” reigniting concerns about U.S. debt sustainability. For years, traders believed the 30-year yield couldn’t sustainably exceed 5%. That assumption is now being tested.
Surprisingly, the U.S. dollar has weakened despite rising yields, which is a potentially troubling signal. Despite some policy reversals, baseline tariffs – especially on China – remain high, with average rates far above expectations, around 30%. This raises the risk of stagflation: persistent inflation combined with slowing growth. Looking ahead, investors may want to be more selective – the idea that American markets are uniquely resilient is now being seriously questioned. Concerns about the rule of law in the U.S. are prompting some to reduce exposure and shift toward Europe and Asia. Over the longer term, U.S. companies face greater risks from trade policy and political uncertainty, while Europe, by contrast, offers more attractive valuations and stronger earnings momentum.
BENDURA Investment Policy
*inkl. UK und CH
The terms attractive / unattractive describe the return potential of the various asset classes. An asset class is considered attractive if its expected return is above the local cash rate. It is considered unattractive if the expected return is negative. Very attractive / very unattractive denote the highest conviction views of the BENDURA Investment Committee. The time horizon for these views is 3-6 months.
Global Economy
USA
The U.S. economy is showing signs of exhaustion, with a mix of slowing growth and rising inflation creating a challenging environment. In the first quarter of the year, the economy contracted by 0.3%, marking the first decline in three years. This downturn followed a relatively strong 2.4% growth in the final quarter of 2024. Analysts believe the contraction was partly driven by a surge in imports ahead of newly imposed tariffs, which distorted the GDP figures. At the same time, inflation has picked up noticeably. The Personal Consumption Expenditures (PCE) index, which the Federal Reserve closely monitors, rose to 3.6%, up from 2.4% in the previous quarter. This combination of economic slowdown and rising prices has sparked concerns about stagflation – a scenario where inflation remains high even as growth stalls. Policy decisions have added to the uncertainty. The federal government has enacted sweeping changes, including large-scale layoffs, mass deportations, and significant funding cuts to key institutions. These moves have alarmed credit rating agencies, leading to a downgrade of U.S. sovereign debt from Aaa to Aa1 from Moody’s. The downgrade reflects growing concerns about fiscal discipline and political stability. Internationally, the OECD has revised its outlook for the U.S., lowering its 2025 growth forecast from 2.2% to 1.6%. The organization cited trade tensions and weakening global demand as key reasons. The global economy is also expected to slow, with growth projected to fall from 3.4% in 2024 to 2.9% this year.
Europe
Europe’s macroeconomic outlook remains fragile, weighed down by subdued domestic demand and uncertainty stemming from U.S. tariffs. Although Eurozone GDP grew by 0.3% in Q1, suggesting some resilience, analysts believe this may have been inflated by a surge in imports ahead of the tariffs. More current data paints a weaker picture: the Eurozone composite PMI fell below the neutral 50 threshold to 49.5, reflecting a sharp decline in services activity and continued manufacturing weakness. In contrast, sentiment in Germany is improving, with confidence indicators like the ZEW and Ifo showing gains, likely driven by optimism around the new government’s fiscal plans—an uplift also reflected in the broader European Commission index. Similarly, the UK posted a stronger-than-expected 0.7% GDP growth in Q1, though this too may have been boosted by pre-tariff stockpiling. However, forward-looking indicators remain cautious, with the UK composite PMI still in contraction at 49.4.
Asia
Overall, export growth in April slowed, though not as sharply as previously feared. Chinese exports to the U.S. dropped by more than 20% year-over-year due to steep tariffs. However, exports to ASEAN countries and other regions rose significantly, suggesting that rerouted trade through third countries has quickly gained momentum. To cushion potential growth losses, Beijing has recently increased funding for various support programs and eased monetary policy. Although a recent agreement with the U.S. includes a temporary reduction in additional tariffs, American trade barriers remain higher than at the beginning of the year. As a result, slightly lower growth is expected for the current year, despite the temporary reduction in tariffs. Rerouted trade through third countries and targeted stimulus measures by the Chinese government are anticipated to continue supporting economic activity. However, by mid-year, growth momentum is likely to slow, primarily due to a decline in public investment – consistent with patterns observed in previous years. The recent tariff reduction agreement between China and the United States does little to address the core U.S. concerns, such as the persistent trade imbalance with China and the undervaluation of the Chinese currency. Additionally, the U.S. is reportedly attempting to persuade other countries, through bilateral talks, to impose export controls on specific goods destined for China. However, the effectiveness of this strategy is likely to be limited, given China’s deep integration into key Asian supply chains and its role as a major trading partner for many nations in the region. Moreover, both sides are expected to continue pursuing strategic decoupling in certain sectors. As a result, trade tensions are likely to persist and may resurface later in the year.
Equities
Despite persistent uncertainty, equity markets managed to post solid gains in May. U.S. stocks had their strongest month since late 2023, with the S&P 500 and Nasdaq both rebounding sharply – largely due to a temporary easing in U.S.-China trade tensions. The S&P 500 rose over 6%, narrowing the gap to its February peak, while the Nasdaq jumped 9.6%. The rallies mean that the S&P 500 indices is in positive territory this year after plunging in early April on tariff fears. A strong tech sector, slightly improved inflation data last month, and skepticism that the Trump administration will follow through on its most aggressive tariff threats contributed to the rally. Large-cap tech stocks led the market with standout performances from Tesla, which gained 22.8%, and Nvidia, up 24.1%. Overall, the “Magnificent Seven” index rose more than 13% for the month. The Dow Jones also gained, though more modestly, at 3.9%.
European equity markets posted their strongest monthly performance since 1990, supported by easing trade tensions and solid corporate earnings. Although uncertainty around U.S. trade policy remains high, a temporary de-escalation in U.S.-China relations and a delay in reciprocal tariffs until July were welcomed by investors. Major European indices saw broad-based gains in May. Germany’s DAX, Italy’s FTSE MIB, and Spain’s IBEX each rose more than 6%. The Swiss SMI, however, lagged behind with a modest 0.9% increase. Five months into the year, European markets dominate global performance rankings – eight of the top ten stock markets are in Europe. Germany’s DAX has surged over 30% in dollar terms, while smaller markets like Slovenia, Poland, Greece, and Hungary have also delivered strong returns. The pan-European Stoxx 600 Index is outperforming the S&P 500 by a record 18 percentage points in dollar terms, driven in part by Germany’s expansive fiscal plans and a strengthening euro. Germany’s stock market has been one of the standout performers globally in 2025, recently reaching a record high. This strong performance is increasingly supported by improving corporate earnings forecasts, which could help German equities continue to outperform their European peers in the months ahead. Large-cap German companies, particularly those listed on the DAX index, are expected to lead earnings-per-share (EPS) growth across Europe in the second half of 2025 and into 2026. Earlier in the year, profit expectations had been downgraded due to concerns over the economic fallout from U.S. trade policies. However, those fears have eased somewhat, and earnings projections have been revised upward over the past month.
Asian markets also moved higher, though gains were uneven and often driven by sector-specific or political developments. The MSCI Asia Pacific ex-Japan index rose 4.9%, and Japan’s Nikkei 225 gained 5.33%. Taiwan’s Taiex saw the biggest jump, thanks to strong performance in tech stocks like Hon Hai. South Korea’s Kospi rose amid corporate restructuring and easing political tensions. Hong Kong’s Hang Seng was volatile, reacting to mixed trade and economic signals. India’s markets remained largely flat, with the Nifty and Sensex trading in a narrow range. While the global equity rally is notable, it comes against a backdrop of unresolved economic risks, policy uncertainty, and fragile investor sentiment. Therefore, we remain underweight in US equities and US dollar.
Source: ECR Research, ecrresearch.com
Bonds
Among the many developments last month, the most notable was the surge in long-term bond yields. U.S. debt markets reacted sharply to the House’s approval of President Trump’s “big, beautiful” tax bill, which is expected to significantly increase public debt. Even before the bill’s impact on tax revenues, the U.S. had already borrowed $2 trillion over the past year – about 6.9% of GDP. Combined with erratic policymaking and threats to key institutions, this has cast doubt on the once rock-solid reputation of U.S. Treasuries as a safe haven. This uncertainty may prompt global investors to diversify away from U.S. bonds. But the rise in yields isn’t limited to the U.S. In the UK, 30-year bond yields have climbed to 5.5%, the highest since 1998 (excluding a brief spike in April). Germany’s long-term rates are nearing levels last seen during the eurozone debt crisis, and Japan’s 30-year yield has hit a record 3.2%.
While U.S. yields are rising due to deficit concerns, other countries face different drivers. Germany’s increase followed a major government spending plan focused on infrastructure and defense. In contrast, the UK and Japan are seeing yields rise due to renewed inflation pressures—both countries reported 3.5% annual inflation in April, the highest since the inflation spikes of 2022–2023. Another factor pushing yields higher is a decline in demand for long-term government bonds. With current rates, asset managers can lock in returns for years, reducing the need to buy more bonds in the near term. It’s important to monitor these developments closely. Historically, yields at these levels have triggered sharp equity sell-offs. So far, markets have remained calm—but that may not last.
After declining in April, yields on long-term Swiss government bonds rose slightly in May. However, the increase was much more modest compared to other regions. The short end of the yield curve remained mostly in negative territory, and 10-year Swiss government bonds continue to offer the lowest yields globally by a significant margin. This reflects ongoing strong demand for safe-haven assets denominated in Swiss francs. The downside, however, is the limited return potential of CHF-denominated bonds.
Commodities & Currencies
Over the past month, oil prices have remained steady at slightly above $60 per barrel, previously falling to lows of $55. OPEC’s supply increases are keeping pace with rising demand. Despite this balance, current oil prices already reflect a significant amount of pessimism, which suggests that any further decline may be limited. We hold a more positive outlook on gold, as central banks continue to purchase it at an unprecedented rate – accumulating approximately 80 metric tons each month, which equates to around $8.5 billion at current market prices. The U.S. dollar continued to show signs of weakness in May, with the Dollar Index slipping another 0.1%. Since peaking in February, the index has fallen nearly 10%, as investor sentiment toward U.S. assets has been dampened by President Trump’s unpredictable trade policies. This has prompted broader questions about the dollar’s role as the world’s reserve currency. Despite the decline, positioning data from the Commodity Futures Trading Commission suggests that bearish sentiment toward the dollar is not yet extreme – leaving room for further downside if confidence continues to erode. The administration’s shifting stance on EU tariffs has only added to the uncertainty. In contrast, the Japanese yen weakened over the month, as doubts emerged about the Bank of Japan’s willingness to continue raising rates, and volatility in Japanese government bonds surged. Meanwhile, the Chinese yuan appreciated steadily, prompting the People’s Bank of China to intervene by setting weaker-than-expected daily reference rates to slow the pace of gains.
We continue to believe that the current Bitcoin cycle has still room to run. The consistent inflows from exchange-traded funds (ETFs) have helped stabilize Bitcoin’s price. Initially, Bitcoin’s volatility was six times higher than that of gold when ETFs were first launched, but that ratio has now declined to just over twice as much. This reduction in volatility is likely to attract more traditional asset managers, potentially supporting further price appreciation.
