10.03.25 - Recession fears

The market sell-off is intensifying, driven by deteriorating investor sentiment. Fears of a recession have resurfaced following recent political turmoil, though in the US, current economic data do not yet indicate such a downturn.

Markets: Global stock markets are firmly in the red, extending losses from Asia through Europe to the US, where the Nasdaq is currently down 3.3%. Interest rates remain broadly stable, gold prices show little movement, and commodities are mostly lower. Cryptocurrencies experience significant losses, with Bitcoin falling below USD 80’000. Meanwhile, the Swiss franc has lost some ground against major currencies.

My view: The sentiment index continues to indicate an "extreme fear" level; however, I do not see markets yet in panic mode. Correlations among equities and across various asset classes have not yet converged towards 1, a scenario typically observed during periods of intense market stress when investors indiscriminately sell risk assets and rush into cash, causing all asset classes to move in the same direction. However, volatility continues to rise as expected.

With recession fears coming back, sector rotation can be observed, from the cyclical to more defensive sectors such as energy, consumer staples and utilities. With the exception of utilities, my portfolio has a larger allocation to energy and consumer staples, selectively built up over an extended period.

Momentum strategies are currently out of favor. My contrarian investment philosophy is exceptionally well-positioned to capitalize on these market conditions.
As highlighted during recent weeks already, I have recently initiated short positions in overhyped stocks, continued taking profits on equities with strong recent performance, and selectively bought stocks that have been heavily beaten down or neglected.
Today, I continued to reduce exposure by taking profits in select European equities and financials as well as some Chinese stocks which have delivered strong gains since the beginning of the year.

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