Market Insights September 22, 2025

Oil – a pessimistic market with extreme positionning

Oil has fallen 45% since its 2022 highs, weighed down by a series of negative developments: economic slowdown, sluggish demand prospects linked to the energy transition, and rising production. OPEC continues to increase its volumes, anticipating a tight market. This view is very different from that of other international agencies (IEA, EIA), which forecast a significant surplus for 2026.

This pessimistic outlook is already well integrated by investors, whose positioning is close to the record levels of caution seen over the past decade. In this context, we believe it is too late to sell oil. In addition, sentiment seems to have reached an extreme: all it would take is some good news, geopolitical, economic or supply-related, to trigger a sharp rebound in prices.

 The Fed to the rescue of an economy that doesn’t really need it  

The moment investors had been waiting for has finally arrived. Last week, the Federal Reserve cut its key interest rates for the first time in 2025! Although widely anticipated, the 0.25% rate cut was welcomed by equity markets, allowing US stock indices to end the week at new all-time highs. At the same time, the central bank raised its US GDP growth targets for both the current and the following year. Growth of 1.6% is now expected in 2025, followed by an acceleration to 1.8% in 2026.

Why ease monetary policy when the economy has proven so resilient this year and is even expected to strengthen in the coming months? The risk of a US recession is currently minimal, and signs of economic weakness are essentially limited to the labour market, which continues to show a slow deterioration. This is the Fed’s main argument in favour of a rate cut: supporting employment takes precedence over controlling inflation, even though inflation remains slightly above the Fed’s price-stability target.

Regarding inflation, it now seems clear that the tariffs imposed by Donald Trump on US trading partners are having a far smaller impact on consumer prices than initially feared. Moreover, long-term inflation expectations remain firmly anchored at 2.5%, signalling that the effects of these tariffs will likely be only transitory.

Hence, why maintain a restrictive monetary policy and key interest rates at 4.5%?

The move initiated last week is extremely supportive for equity markets. Historically, monetary easing in a non-recessionary environment has consistently delivered the best returns for US stocks. In addition, slightly above-normal inflation tends to benefit Corporate America, as the growth in US corporate earnings is more closely correlated with nominal GDP than with real GDP. It is therefore highly likely that Jerome Powell’s upward revisions to economic growth targets will translate into positive earnings surprises in upcoming quarterly results, similar to the strong second-quarter releases.

The coming months are expected to be marked by further rate cuts, with two additional reductions anticipated by year-end. This should provide strong support for equity indices and for sectors most sensitive to interest rates, such as technology and financials. In this context, the historically high valuation of the S&P 500, at its highest level in five years, is likely to become a secondary concern. 

This week’s figure: 0.12%

The yield on the 10-year Confederation bond is approaching the symbolic level of 0%. This easing of Swiss rates is explained by the deterioration of the economic context in connection with the prohibitive tariffs that affect exports to the United States.