In the first quarter of the year, market dynamics were largely driven by central bank actions. The US economy showed signs of weakening, while inflation eased only moderately, leaving the Federal Reserve little room to lower interest rates. Political uncertainties – particularly around introducing trade tariffs – further dampened sentiment. As a result, US markets responded cautiously, with investors anticipating slower growth.
In Europe, the ECB cut interest rates twice, trying to stabilise the economy. Planned public investments in defence, infrastructure and climate projects are expected to provide an additional economic boost. Especially in Germany, prospects improved as the new government signalled its intent to pursue this agenda more actively. Supported by fiscal policies and expectations of renewed growth, European markets performed solidly.
Switzerland’s central bank also acted in a market-supportive manner. Falling inflation allowed for another interest rate cut. The Swiss stock market reacted positively and was further supported by a resilient domestic economy.
Outlook for the second quarter
The Fed may face increasing pressure to lower rates, as initial signs of a recession emerge. The ECB is expected to continue its moderate easing path, while the SNB is likely to adopt a wait-and-see stance after its recent actions.
Historically, equity markets tend to show weaker performance in Q2. While in the US many negative developments may already be priced in, European markets appear more vulnerable to corrections. That said, upcoming government investments could provide stabilisation and support the overall economic environment.
