1. United States: The End of a Cycle?
Over the past several decades, the U.S. has remained the cornerstone of global economic stability, capital allocation, and financial innovation. But in May 2025, signs are emerging that this cycle of dominance might be weakening. The first red flag? Poor consumer sentiment, heightened geopolitical risks, and a politically driven reindustrialisation agenda erode investor confidence. The University of Michigan’s Consumer Sentiment Index for March reached levels unseen since the 2008 financial crisis and the early stages of the Ukraine war in 2022. While consumer surveys are often volatile, the persistence of such pessimism, especially in an economy where 70% of GDP is consumption-driven, warrants attention.
A new wave of tariffs magnifies this caution. On April 2, 2025, the Trump administration announced sweeping import duties targeting strategic sectors such as semiconductors, automobiles, and base commodities. According to the Yale Budget Lab, these tariffs could raise the average U.S. import tax rate to 18%—a level not seen since the Smoot-Hawley era of 1934. While the administration implemented a 90-day pause to ease market reactions, early damage is already apparent: the MOVE index, which tracks bond market volatility, jumped from 106 to 140 in just six days, and the 10-year Treasury yield soared from 4.0% to 4.5%.
What’s more, the market reaction has not been confined to bonds. U.S. equities, particularly large-cap tech names, are under pressure. Despite substantial retail investor flows into growth ETFS in March and April, the S&P 500 is down over 5% YTD and more than 7% from its peak. Hedge funds have trimmed exposure aggressively, and the rally’s breadth has thinned considerably. The smart money appears to be exiting quietly while retail investors continue to “buy the dip.”
The elephant in the room remains the risk of stagflation—a dangerous combination of slowing growth and persistently high inflation. If tariffs significantly raise consumer prices while denting export demand, the Fed could be stuck in a no-man’s land: unable to cut rates without stoking inflation or to hold steady without deepening the slowdown. From a Neumarz perspective, the key takeaway is this: the U.S. no longer enjoys the benefit of the doubt. The tailwinds of global capital inflows, geopolitical dominance, and consumer resilience are weakening.
2. Monetary Policy: Global Easing Accelerates
In the post-COVID era, central banks worldwide pivoted from ultra-loose monetary policy to aggressive tightening to fight inflation. With growth decelerating and geopolitical uncertainties reasserting themselves, the pendulum is swinging back toward global monetary easing. The European Central Bank (ECB), Swiss National Bank (SNB), and—eventually—the U.S. Federal Reserve are preparing the next chapter in the liquidity cycle.
Europe: Leading the Charge
The ECB has made its intentions crystal clear. Following a 25 bps rate cut in April that brought the deposit facility to 2.25%, the central bank is expected to deliver two more cuts by July, targeting a terminal rate of 1.75% by Q3. The rationale is both technical and political. Technically, core inflation has softened markedly: energy prices are deflated (-1% YoY), goods inflation is 1.1%, and even the stubborn services sector is finally seeing wage growth cool. Politically, the ECB must counterbalance U.S. trade aggression, which is expected to hit European exports through second-order effects.
Market expectations are even more dovish than official guidance. Futures are pricing in a deposit rate as low as 1.6% by year-end, suggesting further room for policy easing, especially if economic data deteriorates. Credit spreads in the euro area remain contained, but the softening of long-term bond yields and steepening yield curves indicate growing conviction that the ECB will err on the support side.
U.S.: Trapped in Policy Ambiguity
The Fed, by contrast, finds itself in a trap of its own making. The U.S. faces the unique scenario of high inflation potential, due to tariffs, and weak growth. Core inflation expectations are still anchored, but 12-month breakevens have risen to 3.3%, while 5-year expectations sit closer to 2.3%. Meanwhile, leading economic indicators (LEIS) have turned negative, and regional Fed surveys such as the Philadelphia Manufacturing Index have dropped to their lowest levels since mid-2020.
Crucially, labour market slack is just beginning to show. According to Indeed.com, U.S. job postings in April were 10% lower than last year. If this trend continues, the Fed will likely seize the opportunity to ease policy without risking credibility. BNP Paribas expects two rate cuts in 2025, bringing the federal funds rate to 4.00% by year-end—a shift that would align the U.S. with Europe and Japan regarding monetary accommodation.
Switzerland: Silent but Strategic
The SNB often operates in the background of global central bank policy, but its actions are no less impactful. In March, the SNB pre-emptively cut its policy rate by 25 bps to 0.25%, citing persistent disinflation and external risks. A further cut to 0.00% is expected in June. Unlike in past cycles, however, the SNB is unlikely to return to negative rates. Instead, it will rely more on FX interventions to manage the strength of the Swiss franc, which continues attracting capital during global uncertainty episodes.
Switzerland’s financial conditions remain relatively loose, and its sovereign yields reflect that. The 2-year government bond has dipped into negative territory again, and the 10-year yield is expected to hover around 0.50% for the next 12 months. This makes CHF-denominated assets attractive for conservative investors seeking currency stability and real (if modest) returns.
3. Currency War Reloaded: Dollar Under Pressure
The U.S. dollar has been the linchpin of the global financial system for decades, dominant in trade, sovereign reserves, and investor sentiment. But in 2025, that dominance is no longer taken for granted. A series of structural and cyclical shifts puts the greenback under pressure, triggering a new phase in the ongoing currency war. Unlike past rounds dominated by interest rate differentials, this one is driven by geopolitics, capital repatriation, and strategic de-dollarisation.
A Dollar No Longer Backed by Relative Strength
Historically, the dollar has benefited from rising U.S. bond yields and robust growth. But since April, that correlation has broken. While the 10-year Treasury yield jumped from 3.9% to 4.3% due to inflation concerns, the dollar weakened against the euro and yen. EUR/USD climbed to 1.13, and the 12-month target has been revised to 1.15, suggesting that the market sees U.S. growth headwinds as more significant than higher nominal yields.
This decoupling is alarming. It indicates a breakdown in faith that U.S. assets are a haven, at least in relative terms. The change isn’t only technical; it’s also political. Many global investors see the Trump administration’s decision to impose sweeping tariffs, pressure the Fed, and propose a strategic Bitcoin reserve as destabilising moves. Ironically, these very policies are accelerating the dollar’s erosion.
Capital Flows Are Reversing
Foreign investors have long been net buyers of U.S. assets, holding 18% of U.S. equities and over 30% of Treasuries. But that is changing. Recent IMF data shows net outflows from U.S. mutual funds and ETFS for three consecutive months, while eurozone funds and Japanese equities have seen inflows. According to EPFR, Europe-domiciled equity funds posted $13.2 billion in net inflows in April alone—the highest since 2021.
This shift is structural. As the U.S. becomes more inward-looking, foreign investors turn to Europe and Asia, where valuations are lower, growth stabilises, and monetary conditions are more predictable. China’s stimulus efforts and Europe’s easing bias offer tactical and strategic alternatives to dollar-based assets. At the same time, geopolitical hedging strategies—favouring gold, CHF, and high-grade European bonds—are gaining traction among institutional allocators.
De-dollarisation Goes Strategic
While the U.S. dollar still accounts for 58% of global FX reserves and is involved in over 90% of global FX transactions, its share is shrinking. Central banks in emerging markets increasingly diversify into gold, yuan, and digital assets. President Trump’s proposal to create a strategic Bitcoin reserve has triggered fierce debate, not just about crypto, but about the credibility of U.S. monetary policy itself.
Even if this policy doesn’t materialise, the signal is clear: the U.S. no longer positions itself as a steward of monetary orthodoxy. That creates an opening for alternative reserve currencies, especially in a multipolar world where trade alliances are shifting and capital controls are rising.
The bottom line? The dollar is entering a structurally weaker phase. While short-term volatility will persist, the direction of travel is unmistakable—and for global investors, this means diversification is no longer optional. The dollar’s hegemonic premium is eroding, and portfolios must evolve accordingly.
4. Asset Allocation: Time for Smart Rebalancing
In May 2025, global asset allocators face a shifting landscape marked by elevated volatility, geopolitical reconfigurations, and diverging monetary paths. With the U.S. economy at a potential inflexion point and European markets regaining appeal, the era of passive U.S.-centric allocation is under strain. Investors are being called to action: not just to defend capital, but to pivot smartly into relative value.
U.S. Equities: Sell Strength, Don’t Buy Weakness
For over a decade, “buy the dip” was a rational strategy for U.S. equities, especially large-cap tech. Today, it’s a trap. Retail investors are still pumping money into growth ETFS like SPY and QQQ, but professional flows tell a different story. Hedge funds have reduced net exposure, and institutional rebalancing is moving away from overvalued U.S. names. The S&P 500 is down 5.3% YTD, while the Nasdaq has corrected nearly 10%. Market internals are deteriorating: fewer stocks drive the index, breadth collapses, and momentum strategies are underperforming.
Adding to this fragility is the political premium now embedded in U.S. equities. Multinational margins are at risk with the 2024 tariffs still casting a shadow and the spectre of retaliatory measures looming. The case for continued overweight in U.S. large caps is no longer tenable.
Tactically, BNP Paribas and other major institutions recommend using any market rebound, particularly if triggered by temporary trade optimism, as an opportunity to trim exposure. Sectors like U.S. technology and discretionary consumption are especially vulnerable. The recommendation is clear: sell strength, don’t buy weakness.
Europe, UK, and Japan: Rotation Worth Executing
Relative valuation gaps are too wide to ignore. The forward P/E for European stocks (STOXX 600) stands at 13.9x, compared to 17.2x the S&P 500. UK equities remain cheaper, hovering around 10.5x, with attractive dividend yields. Japanese stocks, supported by improving corporate governance and yen tailwinds, offer a unique inflation hedge.
Monetary policy is a tailwind in addition to valuations. The ECB, SNB, and Boe are now in easing mode, which should support domestic equity multiples. Meanwhile, geopolitical momentum favours these regions. Europe is increasingly insulated from U.S.-China frictions, and Japan is a beneficiary of global supply chain realignments.
Sector-wise, the tilt is also compelling. European banks and insurers benefit from higher rates and steep yield curves, and industrial and healthcare names offer earnings stability. BNP flags European financials, Japanese exporters, and UK energy stocks as high-conviction ideas for Q2 and Q3 rotation.
Bonds Are Back
For the first time in years, government bonds are not just a hedge—they’re an opportunity. Eurozone sovereign debt, especially German Bunds and French OATS, now offers both price appreciation potential and relative safety. BNP has moved its call on U.S. Treasuries to Positive, targeting a 3-month yield on the 10-year at 4.00%.
On the corporate side, investment-grade (IG) EUR bonds remain favoured: strong technicals, low volatility, and positive real yields make them attractive, especially in maturities up to 10 years. In USD, the tone is more cautious; BNP downgraded IG corporate credit in dollars to Neutral due to wider spreads and lingering inflation concerns.
High yield (HY) is more nuanced. While spreads have widened moderately (to ~3.5%), they are still below historical crisis levels. Fundamentals remain solid, default rates are low, and investor demand for yield is robust. Selectivity is key—favour BB-rated names over CCCS, and avoid highly cyclical sectors.
5. Gold & Silver: Parabolic or Just Starting?
Few assets have performed as spectacularly in early 2025 as gold. Surging over 25% year-to-date and up 44% over the past 10 months, gold has once again asserted its dominance as the go-to haven in times of monetary instability and geopolitical stress. But the narrative has evolved. This isn’t merely about hedging inflation—it’s about hedging against sovereign credibility and systemic uncertainty.
Gold: Momentum Meets Macro
The gold price touched $3,300/oz in early May, smashing previous resistance levels. Central bank buying, retail ETF inflows, and growing concern over fiat depreciation have fueled this surge. According to the World Gold Council, March alone saw $8.6 billion in inflows into gold-backed ETFS—the highest since the COVID shock of 2020. For the first quarter of 2025, gold outperformed global equities and bonds by a wide margin, delivering its best quarterly return since 1986.
Emerging market central banks, especially those in Asia and the Middle East, continue accumulating gold to diversify away from the dollar. At the same time, Western investors are returning to the metal amid declining real yields and rising fiscal instability. With the U.S. election cycle introducing more volatility and the Trump administration openly floating a strategic reserve in Bitcoin, gold’s role as a neutral store of value has only strengthened.
Technically, gold is entering overbought territory, and some profit-taking is expected. But from a structural standpoint, the rally appears supported. BNP Paribas maintains a 12-month target of $3,300/oz, but upside revisions are increasingly likely if dollar weakness and geopolitical fragmentation accelerate.
Silver: The Forgotten Trade Awakens
While gold has stolen headlines, silver is quietly entering a bull market. Historically, silver lags gold during the early phases of a rally but outperforms once industrial demand kicks in. That inflexion point may now be here.
As of May 2025, silver is trading near $33/oz, with a 12-month target of $38/oz, implying a 17% upside from current levels. The gold/silver ratio, a key mean-reversion metric, remains above 100x, far above its 25-year average of 68.5. A reversion even to 90x would imply silver catching up aggressively if gold holds its current level.
Fundamentals back the case. According to the Silver Institute, silver demand set a fourth consecutive record in 2024, driven by photovoltaic (solar panel) production, electric vehicles, and consumer electronics. Supply, however, remains structurally constrained. Around 77% of mined silver is a byproduct of base metal production (copper, lead, zinc), and with those sectors slowing, silver output is unlikely to ramp up materially.
In short, silver is both a precious metal play and a green industrial trade, giving it asymmetric appeal in a world increasingly split between risk aversion and growth stimulus.
Miners: Undervalued and Ignored
Despite the rally in spot metals, precious metal miners have underperformed. Gold miners, as measured by the NYSE Arca Gold Miners Index (GDX), remain 20% below their late-2020 highs. Silver miners lag even more. This disconnect is driven by lingering cost concerns, ESG scrutiny, and capital discipline in the industry. But this may present an opportunity.
The average all-in sustaining cost (AISC) for leading gold miners is around $1,500/oz, meaning they’re now enjoying record margins—over 50% free cash flow yield on current pricing. A strong Q1 earnings season could be a catalyst, drawing investors’ attention to the space.
Neumarz view: This is the time to reallocate tactically into miners, especially those with disciplined capex profiles and strong balance sheets. The gold trade may be mature in this leg, but silver and mining equities still offer underappreciated convexity.
6. Switzerland: Still a Safe Haven — With Caveats
Switzerland has long enjoyed a reputation as a geopolitical and financial haven. Its stable institutions, strong currency, and high-quality equity markets make it a recurring destination for global capital during crises. In 2025, that reputation holds—but cracks are beginning to show. While Swiss assets remain resilient, international trade tensions and monetary shifts are starting to impact Switzerland’s economy in more tangible ways.
GDP Downgrade and Tariff Exposure
BNP Paribas revised its 2025 Swiss GDP growth forecast downward from 1.3% to 1.1%, citing emerging external headwinds. Chief among them is Switzerland’s exposure to U.S. protectionism. Though initially spared, Swiss exports—especially in pharmaceuticals, which account for over 30% of exports to the U.S.—are now at risk of being targeted by the latest Trump administration tariffs.
According to internal models, the effective tariff rate on Swiss imports to the U.S. could rise significantly if pharma goods are included, with potential GDP drag as high as 0.5%. While demand for critical medicines is price inelastic, long-term supply chain uncertainty could affect investment planning and margins for flagship Swiss firms.
This makes Switzerland’s continued outperformance increasingly reliant on its domestic demand, diversified trade relationships, and position as a financial safe haven rather than on export-led growth alone.
Monetary Easing Returns, But with Discipline
In March, the Swiss National Bank (SNB) cut its policy rate by 25 bps to 0.25%, responding to persistent disinflation and deteriorating global conditions. A further cut to 0.00% is expected in June. While Switzerland pioneered negative rates in the 2010s, the SNB is unlikely to revisit them unless deflation risks escalate significantly.
Instead, the SNB is likely to rely more heavily on foreign exchange interventions to manage the strength of the Swiss franc. With global capital flooding into CHF assets amid rising geopolitical risk, the franc has appreciated, particularly against the euro (EUR/CHF at 0.94) and the yen. This creates headwinds for exporters, but reinforces the franc’s position as a global reserve alternative.
Swiss bond markets reflect these dynamics. The 2-year yield has dipped below zero; the 10-year is expected to settle around 0.50% over the next 12 months. These levels offer stable, albeit modest, returns for capital seeking refuge from volatility elsewhere.
Swiss Equities: High Quality at a Premium
The Swiss Market Index (SMI) continues to trade at a 22% premium to broader European benchmarks, with a forward P/E of 17.1x versus 14.0x for the STOXX Europe 600. This valuation reflects investor appetite for quality, defensiveness, and global brand exposure.
Multinationals such as Nestlé, Novartis, and Richemont dominate the Swiss equity landscape—firms that have learned to thrive in a strong-currency environment. These companies benefit from diversified global revenues, strong free cash flows, and relatively low operational leverage, making them ideal holdings during turbulent market phases.
The SMI’s performance remains highly correlated to the MSCI Europe Quality Factor Index, consistently outperforming cyclical benchmarks since 2009. While valuation is no longer cheap, the premium appears structurally justified given the macro environment.
For asset allocators, Swiss equities continue to offer a compelling mix of capital preservation, modest growth, and defensive earnings, but upside may be capped if global trade risks escalate.
7. Risk Radar: Volatility Up, But No Panic
As of May 2025, financial markets are operating in a liminal zone: volatility is up, sentiment is fragile, but there’s no apparent trigger yet to justify a full flight to safety. Risk signals accumulate across credit markets, equities, and investor sentiment data, but none are flashing red. Instead, we are entering a phase best described as precarious equilibrium—ripe for tactical repositioning, not full retreat.
Credit Spreads: Elevated, Not Extreme
One of the most reliable early-warning indicators for systemic stress is the U.S. High Yield (HY) credit spread. Since early May, the HY spread has widened to 3.5%, up nearly 90 basis points since mid-February. While that figure is above average for calm markets, it remains well below crisis thresholds (typically 5 %+), such as those observed in mid-2022 or during COVID’s peak volatility in 2020.
This elevation reflects legitimate concerns: a softer U.S. economic outlook, higher borrowing costs, and growing sectoral fragilities (especially in consumer discretionary and tech). But it’s also consistent with markets re-pricing risk, not panicking. Other technicals, like primary market issuance and default rates, remain stable. BNP Paribas’ view: spreads are warning signs, not exit signals.
Sentiment and Macro Stress Indices Rising
The Citi Macro Risk Index, a composite of financial market volatility, spreads, and macro shocks, has risen since February but remains far below red-alert territory. Similar trends are seen in other barometers like the Economic Policy Uncertainty (EPU) Index, which is at its highest since 2020, primarily due to trade tensions and Fed policy ambiguity.
On the softer data front, U.S. consumer sentiment is deteriorating. The University of Michigan’s index has dropped to crisis-era levels, matching those in 2008 and early 2022. This is concerning, as sentiment drives household consumption and risk-taking. However, soft data is notoriously volatile and may not always correlate with economic outcomes.
The divergence between “soft” sentiment data and “hard” economic data—like retail sales, payrolls, and PMI—is growing. However, hard data remains resilient in this cycle.
No Recession in the Hard Data—Yet
Despite the psychological stress visible in surveys, actual economic output tells a more benign story. The U.S. Composite PMI (S&P Global) came in at 53.5, well above the neutral 50 mark, signalling service and manufacturing expansion. Meanwhile, retail sales excluding fuel grew +3.1% year-over-year in March, hardly indicative of a consumer recession.
This divergence highlights the need for cautious interpretation. Markets are forward-looking, but acting prematurely on soft data can lead to missed opportunities. For now, the fundamental picture remains slow growth, not collapse.
The bottom line: markets are shifting into a more fragile regime, where risk must be managed more actively. But the data does not yet justify wholesale de-risking. Neumarz recommends reducing beta, increasing diversification, and sharpening hedging strategies—not hitting the panic button.
8. Tactical Calls – What To Do Now
With the global economy entering a turbulent but not yet recessionary phase, investors face a classic late-cycle setup: declining momentum, diverging policy paths, and widening dispersion across asset classes. The smart money is not fleeing the market—it’s repositioning. And for May 2025, the message is clear: capital preservation and asymmetric upside are now the core strategy themes.
1. Trim U.S. Large-Cap Exposure — Sell Strength, Not Weakness
The S&P 500 and Nasdaq have corrected meaningfully, but not enough to restore value. Earnings downgrades are just beginning, and political instability adds a risk premium. The recommendation is not to dump positions in panic, but to use any short-term rebound driven by trade headlines or dovish Fed talk to lighten up on U.S. large caps, especially in tech and discretionary sectors.
The FAANG era is officially over as a one-size-fits-all strategy. Concentration risk is now a liability, and breadth continues to deteriorate. Rebalancing into smaller, more geographically diversified plays—or quality international equities—offers better reward-to-risk.
2. Go to Overweight Europe, the UK, and Japan
Valuation, monetary policy, and macro stability all point to better forward returns outside the U.S. European equities, particularly in healthcare, industrials, and financials, are trading at substantial discounts. UK stocks combine attractive dividend yields with cheap multiples, and Japan is experiencing an institutional renaissance in governance and shareholder returns.
The return of central bank easing in the eurozone and Japan makes their equity markets structurally more attractive over the next 12 months. For relative outperformance, focus on MSCI Europe ex-UK, TOPIX Core30, and FTSE 250.
3. Get Long Sovereign Bonds—Again
Bonds are back in a world of decelerating growth and fading inflation pressures. Eurozone government bonds (Bunds, OATS) offer real yield and potential for price appreciation. BNP’s 3-month yield target for U.S. 10-year Treasuries is 4.00%, meaning current levels offer a modest but attractive entry point.
Focus on duration-matched sovereigns in EUR and GBP. For U.S. exposure, lean into shorter-duration IG corporates for yield without excessive interest rate risk.
4. Reallocate to Precious Metals and Miners
Gold may look expensive, but its role as a strategic volatility hedge is increasingly justified. Maintain or increase allocations on dips. Silver offers a more compelling risk/reward ratio and remains historically and fundamentally undervalued. Enter now before the mean reversion kicks in.
In mining equities, focus on low-AISC, high-margin producers with disciplined capital deployment. Mid-cap miners could offer the best upside in a renewed retail rotation back into commodities.
5. Avoid Oil, U.S. Tech, and Crowded High-Beta Trades
Oil faces a triple threat: weaker global demand, rising non-OPEC supply, and potentially fractured production quotas. Brent may hover between $55–$65/barrel, but volatility will likely be high and skewed downward.
Avoid overexposed U.S. tech stocks, crowded momentum plays, and hyper-growth narratives that depend on zero-cost capital. This is a stock picker’s environment, not a beta play.
6. Build Dry Powder — Optionality Matters
Perhaps the most underappreciated asset class in 2025 is cash or optionality. With volatility rising, tactical dislocations are likely. Having dry powder allows investors to strike when fear overshoots fundamentals.
Maintain 10–15% of portfolio allocation in highly liquid, near-zero duration instruments that can be deployed quickly. Liquidity is alpha in a regime shift.
May 2025 doesn’t mark a collapse in global markets. Instead, it marks the end of passive capital flows and the beginning of a new phase that rewards selectivity, discipline, and active portfolio construction. The shift from U.S. dominance toward a multipolar investment landscape is not temporary—it’s the next era.
At Neumarz, we believe the future belongs to those who don’t just survive volatility, but use it to reposition for what’s next.
