September 1st, 2025 - Fighting the Fall blues is never easy.

Fall is perhaps the worst of the seasons, except for the colors of nature. At this stage I should note that this weekly review is being written by someone who resides in Switzerland and hence winter is probably the best season, for those who rushed to disagree and propose other candidates as the worst. Not only Fall coincides with the return of routine and obligations, such as the return to work or school, but also the weather becomes volatile, daylight become officially shorter and there is no "big, beautiful" holiday in this season to look forward to. For the Americans it is even worse as September is traditionally the hurricane season which brings havoc and unfortunately deaths, not to forget the 11th day of the month, which has become an anniversary that everyone is trying to forget. Those who know the music band "Green Day" will know their top-hit song "Wake me up when September ends" . They wrote it for a reason.

The season that is just starting has also been associated with melancholy or even despair in financial markets, which confirms my opening statement again. Not only is September the worst month for equities, with a negative average return for the last thirty years, but October has been home for most of the brutal market crashes on record (1907, 1929, 1987, 2008). No, we are not forecasting a crash, but the market is always a bit skittish when September comes. And we do not really use seasonal patterns to make any decisions, as all this is primarily food for media outlets to write eye-catching scary articles, especially in mid-October, when all the horrible anniversaries exist.

Global equities had a rather mixed week. The US markets managed to stay around the flatline with marginal losses for its main indices, whereas the small caps started outperforming, with minor gains for the week. Europe was under pressure with its main indices down more than 2%, and Switzerland lived up to itself for providing some cushion during volatile times, with a marginal fall of just 0.3%. China's local market (A-shares) was the big winner with an almost 3% rise, as the CSI300 index touched the September 2024 high, which was the result of the relentless rally around the same time last year. We have been positive for Chinese equities all along this year but with Hang Seng up 27% and now the local market rallying to 12% return on a year-to-date basis, we would not initiate new positions but rather wait for a cool down. Local retail has joined the party, which is always good as flows can be explosive but also bad as the late comers are easily disappointed.

Sector rotations continued to dominate the news and confuse market participants. What started as a short-squeeze and a bear-market rally for European consumer goods a couple of months ago, it is now morphing into a theme of unpredictable duration. The data to support this case have emerged, primarily from Asia's small rebound in demand for luxury goods in July and early August, as well as some green shoots in the US beverage/spirits market, because the comparison base is so low now, that growth is not difficult to show. At the same time the never-ending drama in French politics with a confidence vote called by the PM for next week, gave the opportunity to traders to sell French and other European banks, which have been the best performing sector for the last three years. The problem is that international hedge funds had flocked into this sector, as well as defense and industrials who have also lost momentum, and they are now scratching their heads to find what to do. A similar situation might develop in the US, with the market potentially rotating out of mega-caps and Nasdaq and into laggard sectors and primarily the small and mid caps. To support this the market knows that the latter should be the biggest beneficiaries of the coming interest rate cuts.

The US July inflation numbers were in-line with expectations. The PCE Deflator, which is the FED's targeted metric for inflation remained unchanged at 2.6%, while the core figure rose to 2.9% from 2.8%. As there was no surprise in these numbers, the interest rate cut at the September meeting in two weeks must now be considered a done deal, especially after Chairman Powell almost preannounced it last week at the Jackson Hole conference.

Eurozone's August CPI numbers are due tomorrow. Consensus expectations are for both the headline number and core to remain unchanged compared to July, at 2.0% and 2.3% respectively. The preliminary country data that were published on Friday show that there is a risk of slightly higher-than-expected headline inflation, as Germany's August CPI jumped to 2.1% vs expectations for 2.0%, and the French, Italian and Spanish numbers did not provide any negative or positive surprises.

President Trump continued his efforts to become a "dictator".

• First, he tried to fire one of the FED's governors, Mrs. Lisa Cook, alleging that she falsified documents to receive two mortgages. Without having this right but only if a court rules there is cause for dismission, Mr. Trump is clearly bullying her to make her resign, in order to replace her with his own puppet. He already "controls" three of the seven board members, two of whom he appointed during his first term and the third as the replacement of Mrs. Kugler who quit earlier than her expected retirement in January. The FED's loss of credibility could have huge implications on US assets in the longer-run, even if markets chose to ignore it for now.

• Secondly, he fired the Director of the CDC (Center for Disease Control and Prevention), Dr. Monarez , whom he himself appointed about a month ago. The reason is that she kept pushing against his desire to fire many senior scientists from the agency and to abolish the Covid vaccinations, which usually take place in September for the elderly and high risk citizens.

• Lest we forget, he has already fired the head of the Statistics department after the bad July jobs data, and he has deployed armed National Guard troops in major cities, in plain sight to oversee police work.

  Then again when asked by journalists about the possibility of people thinking he is a dictator, he replied "Well, there are people who would like a dictator"...

In the meantime he continued playing his favorite game, "applying tariffs to the world". It was India last week, the country that crossed his fire, and a 50% tax was imposed on its exports to the US. What President Trump fails to realize is that his actions have been uniting the world against him , with the latest example being the meeting this weekend between China's Xi Jiping and India's Modi, for the first time in seven years. The common statement from the two men on Sunday was "We are partners not rivals" and "Our cooperation is linked to the interest of 2.8bn people of our two countries" . We look forward to see if this clear message was read and not just delivered to the POTUS.

Bonds had a mildly positive week after a while. The prospects for rate cuts by the FED has caused the short end of the USD yield curve to drop significantly, with the 2-5yr maturities now trading around 3.50%. The long-end of the curve still shows anxiety about inflation with the 30yr refusing to step away from the 5% yield, but the 10yr managed to drop to 4.22% from 4.30%. On the contrary, EUR yields have remained near their recent highs, as the market is now convinced that the ECB is done with cutting rates in this cycle, and the fiscal situations of France, Italy and now Germany with its huge spending bill financed by more borrowing warrant higher yields. We had stopped purchasing new bonds a few months ago, as we were forecasting a potential rise in yields, but now we have reached levels, especially in the 3-5 years that we would be looking into building positions again.

Chart of the Week : Entering a seasonally friendly period for Gold

The price of Gold traditionally follows closely a seasonal pattern, based primarily on physical demand of the metal by Asian countries, due to its extensive usage in weddings. It is for these reasons that after the wedding period ends in late February in India and May in China, physical demand from India and China drops off. Demand for weddings is always picking up again in September, ahead of the next wedding season. As we can see in the above chart last year Gold prices had stalled for about three months, after the initial rally and then broke out of their box formation (red rectangle) and rallied in September of 2024. This year a very similar pattern is developing since about the same period (April) and it is now attempting to break again out of this formation which has provided resistance. Of course, the prices of Gold are influenced also by other factors such interest rates, the dollar, volatility in other markets etc. Interesting to monitor it.

Disclaimer

• The content of this document has been produced from publicly available information as well as from internal research and rigorous efforts have been made to verify the accuracy and reasonableness of the hypotheses used. Although unlikely, omissions or errors might however happen.

• The data included in this document are based on past performances and do not constitute an indicator or a guarantee of future performances. Performances are not constant over time and can be positive or negative.

• This document is intended for informational purposes only and should not be construed as an offer or solicitation for the purchase or sale of any financial instrument and it should not be considered as investment advice. The market valuations, views, and calculations contained herein are estimates only and are subject to change without notice. Any investment decision needs to be discussed with your advisor and cannot be based only on this document.

• This document is strictly confidential and should not be distributed further without the explicit consent of Kendra Securities House SA.

• Sources: Chart of the Week : KSH/FactSet, Photo Copyright: William Barton