The year 2025 proved to be exceptionally politically driven for investors. To a much greater extent than in previous years, financial markets were influenced by political decisions and geopolitical events. This is the view of Claudio Wewel, currency strategist at private bank J. Safra Sarasin. He also believes that uncertainty will remain an important factor in 2026.

Claudio Wewel

Risk assets started 2025 on a positive note, building on the extension of the so-called ‘Trump trade’ at the end of 2024. This optimism was dented, however, when President Trump announced his ‘reciprocal tariffs’ on Liberation Day. The ensuing sharp sell-off in early April continued until the introduction of a 90-day pause. For several weeks, the ‘Sell America’ narrative dominated markets. European equities outperformed their US counterparts, long-term US interest rates rose sharply, and the US dollar weakened significantly.

Later in the year, concerns about the sustainability of US public finances increased after President Trump pushed the One Big Beautiful Bill Act through Congress. Similar concerns emerged in France, where budget deficits are expected to remain around 6% of GDP. At the same time, markets remained relatively resilient in the face of geopolitical tensions, such as Israeli strikes on Iran’s nuclear program and the reimposition of high US import tariffs following the end of the exemption period.

Record-long government shutdown

Despite political pressure on its independence — including President Trump’s attempt to dismiss Fed Governor Lisa Cook — the Federal Reserve kept its policy rate unchanged during the first half of 2025 and delivered its first rate cut only in September. The record-long government shutdown of 44 days added to uncertainty and complicated monetary policymaking due to the absence of crucial labour market data. Although the Fed implemented two additional rate cuts later in the year, markets expect a faster pace of easing in 2026 than the Fed itself has communicated.

A key structural development in 2025 was the emergence of artificial intelligence (AI) as a major growth engine. What began as a thematic investment evolved into a structural trend. Large-scale investments in AI infrastructure boosted US economic growth and fueled a broad equity rally, with sectors beyond technology also benefiting. In the fourth quarter, however, markets became more cautious due to concerns about high valuations and the concentration of investment among a small group of hyperscalers.

Strong performance of precious metals

Across asset classes, precious metals delivered the strongest performance. Gold surged by an impressive 65%. Within equities, emerging markets led the way with gains of 34%, supported by a weak US dollar and lower US interest rates. The UK followed with a return of 26%, while US and European equities rose by nearly 20% in local currency terms. The Swiss market lagged somewhat at 18%, reflecting its defensive characteristics. Within commodities, falling oil prices weighed on performance, while in fixed income, emerging market local-currency bonds were among the top performers.

Looking ahead to 2026, equity valuations are at historic highs, limiting the scope for further gains. Nevertheless, the AI infrastructure boom is expected to continue contributing to US growth, albeit requiring a more selective investment approach. Policy support remains in place: the US is likely to benefit from additional fiscal stimulus ahead of the midterm elections, while Europe is supported by German fiscal spending and relatively low interest rates. At the same time, stricter immigration policies and unsustainable public debt levels pose important structural challenges.

Preference for euro area and Swiss equities

Overall, we maintain our preference for equities over bonds and reiterate our regional preference for Europe and Switzerland. Euro area equities should benefit from improved macroeconomic momentum, while we expect only limited further appreciation of the euro. Swiss equities remain attractively valued, with prospects for the pharmaceutical sector in particular having improved as political risks appear to have receded. In our view, China and other emerging markets will remain resilient despite ongoing trade and technology conflicts. China has successfully diversified its export markets, and Latin America has become a favoured region for investment. Finally, we expect gold to hold up well, supported by the prospect of further US rate cuts and sustained demand amid an uncertain geopolitical environment.

Slight overweight in risk assets

The uncertainty experienced in markets last year is likely to remain a key factor this year. Our constructive market view is reflected in our portfolios, which are overweight equities and underweight bonds. However, given the prevailing uncertainty, these positions are not particularly large. To offset increased volatility, we remain slightly overweight in alternative investments, with a particular focus on gold and catastrophe bonds.