Political disagreements lead to speculation regarding Herbstrallye or the October Crash happening in the political landscape
The Swiss stock market, specifically the SMI, is currently trending sideways at a high level and showing significant growth compared to previous years. However, the performance of the Swiss stock market remains uncertain due to the weakened economic outlook in Switzerland.
Despite an escalating dispute between Switzerland and the US over trade tariffs, there's not much evidence of it on the local exchanges. Switzerland is particularly affected by US tariffs, with tariffs currently at 39%. The decision on the legality of these tariffs will be finalized on October 14. If the US appeals court's decision that Donald Trump exceeded his authority in imposing tariffs, making them illegal, stands, a reduction in US trade tariffs on Swiss products could be a potential driver of domestic stock prices.
Negotiations between Switzerland and the US are ongoing, even if not in the public eye, and a reduction in tariffs is not ruled out. Investors are advised to overweight Swiss and European stocks and protect US stocks from currency losses using certificates. An example of hedging US dollar currency risk using USD/CHF mini short certificates can be found in the Mini-Future Certificates Brochure on page 21.
The SNB has signaled that they are unlikely to implement negative interest rates soon. This could be a positive sign for the Swiss economy and the stock market.
October is known to be a month full of surprises, both positive and negative, for the stock market. In the past, there have been significant price declines in the SMI during October, such as in 2008, 1997, 1998, and 1989. However, on average, the SMI has gained 1.2% in October since 1988, as much as in December. The SMI's development on a monthly basis suggests that investors should look ahead with confidence and put the October crash aside.
Despite the potential for a fall rally, the poor prospects in Switzerland may offer surprise potential and enough material for a fall rally, but the possibility of a major correction, or an October crash, is not ruled out. The performance of the Swiss stock market, whether a fall rally or an October crash, remains uncertain. However, an index investment in the SMI could be sensible.
In conclusion, while the Swiss stock market shows promising growth, the ongoing trade tariff dispute between Switzerland and the US creates uncertainty. Investors are advised to keep a close eye on developments and consider hedging strategies to protect their investments.
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