LGT Private Banking House View

October 2025 - in a nutshell

As we enter the last quarter of 2025, investors face an economy shaped by subtle resilience and divergence rather than dramatic shifts. Headlines around trade tensions and changing global dynamics persist, but the risks of a sharp economic correction look contained, with growth adjustments unfolding gradually in both the US and eurozone.

  • Date
  • Author Gérald Moser, Head Investment Solutions Europe, LGT Private Banking
  • Reading time 7 minutes

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Central banks on either side of the Atlantic are taking different paths, with the Federal Reserve set to loosen its monetary policy more decisively in the coming months. This divergence, along with fiscal pressures, calls for a calibrated risk approach. Seasonal volatility in autumn reinforces our conviction to retain strategic asset allocations in both equities and fixed income, while tactically hedging currency exposures - particularly for euro and Swiss franc-based investors - to shield portfolios from unnecessary shocks.

In equities, selectivity pays as technological innovation and capital investment continue to drive earnings, even amid pockets of slower growth. Our positioning remains flexible, seeking regions and sectors benefiting from policy tailwinds and transformative trends, while staying alert to cyclical risks. In fixed income, the seductive prospect of a "Goldilocks" scenario warrants caution, given high fiscal demands and the potential for shifting yields. This environment underscores the importance of maturity management and adequate risk premia.

Currency management is key, with persistent US dollar headwinds and euro strength making robust FX risk strategies and tactical hedging essential. Finally, precious metals have demonstrated their important diversification benefits in 2025, reinforcing their role as strategic hedges in volatile markets.

Rather than one defining event, this cycle is shaped by a blend of policy, technological advances, and ongoing uncertainties. Through it all, our core principles - diversification, discipline, and nimble risk management - endure, empowering our clients to navigate change with confidence and conviction.

Macroeconomic environment

The US economy shows moderate consumption momentum despite the trade war and a weakening labour market, while the eurozone suffers mainly from weak external trade. A sharp economic downturn is unlikely, with growth losses expected to spread over several quarters. The Federal Reserve (Fed) is set to cut rates to 4% in 2025 still, while the European Central Bank (ECB) remains near neutral, so that the monetary policy backdrops both sides of the Atlantic will deviate strongly and for most of 2026.

Investment strategy

As September and October tend to be high-volatility months, we have decided to maintain our balanced risk appetite stance by keeping our overall equity and fixed income portfolio allocations at their strategic weight. Moreover, we have decided to further reduce US dollar exposure in euro and Swiss franc portfolios by partially hedging the currency effect of our US equity exposure. Finally, we are maintaining our tactical "Overweight" position in gold, which leads to an overall "Overweight" position in alternative investments, above the strategic weight, and an "Underweight" position in cash. 

Equity strategy

Global equity markets have continued their upward trend, despite September traditionally being the weakest month of the year. Following a solid reporting season, earnings momentum remains strong, although it has moderated somewhat recently. Despite softening economic activity, the outlook for this and next year’s earnings remains robust, primarily driven by increasing investments in AI. Additionally, the resumption of interest rate cuts by the Fed has provided further support to equity markets. Our preferences remain unchanged: We are positive on emerging markets, as they have historically outperformed in periods of lower US interest rates and a weakening US dollar. In contrast, we remain cautious on Japan, where we expect strong earnings momentum to fade. Financials and real estate continue to be our preferred sectors, with the former benefiting from reduced regulation and the latter from lower interest rates. Consumer sectors, meanwhile, continue to face headwinds from tariffs.

Fixed-income strategy

In the long term, fiscal pressure is likely to lead to higher risk premiums, putting greater pressure on yields at the long end of the curve. Although markets are currently pricing in a positive “Goldilocks scenario”, which assumes rapid interest rate cuts by the Fed without noticeable labour market strain or persistent inflation concerns, this hardly seems sustainable. Against this backdrop, our position is cautious: in the US, we favour short maturities as we expect the term premium to rise due to higher long-term interest rates. In the eurozone, however, we still see potential for long-term yields to fall.

Currency strategy

Our view on the US dollar in late 2025 points to continued weakness, especially relative to the euro, as ongoing inflation pressures in the US, stemming from trade tariffs, and the Fed cuts keep the pressure on. The euro is expected to grow stronger, with our forecasts for EUR/USD at 1.185 in six months and reaching 1.20 in 12 months. The Swiss franc should remain stable due to its safe-haven appeal, despite domestic economic challenges. Amid FX volatility and market turbulence, robust FX risk management and tactical hedging of US dollar exposures are recommended for euro- and franc-based investors to protect portfolios from adverse currency moves.

Precious metals

Gold has affirmed its importance as a portfolio diversifier in 2025, reaching record highs above USD 3600 per ounce. The precious metal is projected to climb to USD 3900 within 12 months, driven by heightened macroeconomic and geopolitical risks, renewed safe-haven demand, and central bank accumulation. The US dollar’s historic weakness and expectations for Fed policy rate cuts have further boosted gold’s appeal, while moderate positioning suggests more upside potential. Silver is benefiting from similar tailwinds, with prices expected to reach USD 45 as it gains recognition as both a precious and industrial metal, though its higher volatility means investors should stay alert to economic shifts. 

LGT Private Banking House View September 2025 - in a nutshell All articles LGT Private Banking House View November 2025 - in a nutshell
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