Rising interest rates on one hand, rising corporate earnings on the other – in the equity market, opportunity and risk currently lie close together. However, because market breadth is declining, investors should now exercise caution.

The decision is sensible, yet it came as a surprise: the US Federal Reserve has raised key interest rates. In mid-September, rates rose by 0.25 percentage points to a range of now 3.75 to 4 percent. The hike is justified because inflation in the US has risen significantly for some time. In August, it stood at 3.6 percent, matching the previous month. Critics warn of inflation becoming entrenched, which could have significant negative impacts on consumption in the medium term. Nevertheless, the hike is highly controversial, especially in politics. Leading the charge, US President Donald Trump reacted aggressively and suspects a conspiracy – understandable, as his popularity among Americans is clearly waning. This presents a major problem, as the midterm elections are approaching in November. Although voting is not directly for the office of the US President, but rather for the composition of the Senate and the House of Representatives, the midterms are regarded as an important litmus test for Trump's policies. Rising interest rates, however sensible they may be, do not fare well in such an environment.

That is one side of the story. On the other hand, despite growing uncertainties for the equity market, many companies in the US are currently convincing with strong numbers and outlooks. The second-quarter earnings season in the US was one of the best in recent decades. Earnings in the S&P 500 are around 50 percent above the level of the second quarter of 2025. Although this strong increase is partly distorted by booking effects in the quarterly earnings of Alphabet and Amazon, even after adjusting for this influence, the earnings growth in the second quarter still stands at approximately 30 percent.

The "defenders" are becoming fewer

It is therefore obvious that US companies are doing well, which is also reflected in share prices. Benchmark indices such as the Dow Jones and the S&P 500 have reached record levels during the year, which they have been bravely defending for several months now. However, a development has recently emerged that should make investors more cautious: the market breadth of the "defenders" of these record levels is declining. The number of S&P stocks trading above their 200-day moving average has been declining significantly for some time. By mid-September, only about half of the S&P securities were trading above this level (see graph). By comparison, in July and August, over 70 percent of stocks were trading above their 200-day moving average.

The proportion of stocks participating in this "battle to defend records" is dwindling. For investors engaged in technical market analysis, this at least sets off alarm bells. A declining market breadth may signal the beginning of a correction in the overall market, which in this case would be the S&P 500.

Stock picking and portfolio hedging

For investors, it may therefore make sense now to focus more on stock picking rather than on the broad market. This also applies to the Swiss equity market, which in mid-September also showed declining market breadth, for instance in the Swiss Market Index (SMI). This weakness may not be permanent and could reverse, yet investors should react to it. In addition to stock picking, hedging existing portfolio positions is also conceivable.

To hedge your portfolio, we offer Mini-Shorts and Knock-Out Warrant Puts on the S&P 500 and the SMI, among other products.

For any questions regarding our products, please contact us via phone at +41 58 212 68 50 or via email at markets.ch@bnpparibas.com. Further information can be found on our website at www.bnpparibasmarkets.ch/en. Please be advised that calls will be recorded for quality assurance purposes.

This article constitutes marketing material pursuant to Article 68 of the Swiss Federal Act on Financial Services (FinSA) and is intended for informational purposes only. The information does not constitute an investment recommendation or advice and does not contain an offer, nor an invitation to submit an offer. Reproducing any part of this article in any form without our prior written permission is prohibited, except for the creation of a single copy or excerpt solely for personal, non‑commercial use.

Rates up, rates down or will they remain unchanged – could investors enhance income without having to make a single big call on what the Federal Reserve does next? A new investment idea from Julius Baer offers income potential across different rate scenarios.

A new Fed, but which direction for rates?

The US economy continues to demonstrate resilience, while signs of a softer labour market suggest that wage-driven inflationary pressures have peaked. Although the Federal Reserve is not expected to embark on a rate-hike cycle, visibility remains low. With the new Fed chair displaying a hawkish bias towards inflation while largely refraining from forward guidance, changing expectations could keep interest-rate markets moving. For income-seeking investors, committing to a single interest-rate scenario may therefore be increasingly challenging.

Why choose just one rate scenario?

A floored floating-rate approach offers an interesting alternative. If short-term rates rise, investors can participate in the higher-rate environment up to a predefined cap, reducing interest-rate sensitivity compared with conventional fixed-income securities. Should economic conditions deteriorate and prompt the Fed to cut rates, an embedded coupon floor provides protection by preserving a minimum level of income. This creates the potential for enhanced income across different rate scenarios – without requiring investors to make a single big call on where rates are heading.

Balancing flexibility and risks

The combination of participation in higher short-term rates and protection through a coupon floor can offer a differentiated risk/return profile and a potentially smoother approach to income over time. Such flexibility does not remove risk entirely: participation in rising rates is limited by the cap, while investors remain exposed to issuer credit risk. However, for investors seeking an alternative to traditional money market investments, this balance of income potential and resilience may be worth exploring. With the Fed entering a new chapter, could flexibility help keep your income strategy fit for what comes next?

Find out more about this investment idea.

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For further details about risks and suitability, as well as important legal information, please consult the following link: IMPORTANT LEGAL INFORMATION

The European equity market offers attractive opportunities. Investors can recognize these if they broaden their perspective and look at the smaller economies in addition to the dominant ones.

"Europe is rich in assets and poor in investment" – with this conclusion, the consulting firm McKinsey Global Institute (MGI) published a study a few weeks ago. While large sums of money are being invested in the development of future-oriented technologies in the USA and China, even at the expense of new debt, Europe is holding back. This leads to a situation where, although Europe is in a better position from a balance sheet perspective, the USA and China are ahead in terms of technology.

New initiatives in key technologies

However, one thing should not preclude the other. Precisely because Europe is in a better position balance-sheet-wise, it should invest more, according to the conclusion of the study authors. Said and done. In recent months, the authorities of the European Union have passed numerous initiatives to originate new investments. These initiatives are primarily influenced by the global political situation. Both China and, increasingly, the USA are opting for confrontation instead of cooperation. This necessitates Europe to become more independent of both countries. Therefore, new funding programs have been launched, especially in key technologies such as Artificial Intelligence, microelectronics, quantum technology, and biotechnology. Even if the focus is more on catching up with the USA and China rather than setting one's own accents, the problems have at least been recognized and are now to be eliminated step by step.

Europe has many facets

This gives hope that Europe can convert its balance sheet advantage into a technological catch-up race. If this happens, it is likely to boost the European economy. In any case, the latter is worth a closer look. After all, Europe is not just "Europe". All too often, growth in Europe is seen as synonymous with developments in the dominant economies of Germany, France, and Italy. But this falls short.

This has much to do with the construction of "Europe". Many states, many cultures, many economies, which are not infrequently in completely different stages of economic and cyclical development. Among the countries with the strongest dynamics this year are Malta and Poland, with GDP growth of significantly over three percent compared to the previous year, respectively. Spain and Lithuania also stand out with growth of over two percent each. In this way, these nations can impress not only at the European level but also score points in a global comparison. For the USA, for example, experts see growth of "only" around two percent this year, meaning they may have less to offer than Spain and Lithuania.

And even countries that do not belong to the EU, such as Switzerland, are quite interesting. For instance, the Swiss economy grew surprisingly strongly in the second quarter of 2026, by 1.5 percent compared to the previous quarter. This gives hope for the full year.

European equities as an alternative

Despite clouded growth prospects in the heavyweights Germany, France, and Italy, a look at the European equity market could certainly be worthwhile. This can be shown exemplarily by the Euro Stoxx 50, a broadly diversified index for EU countries. For about three months, the index has been able to outperform its US competitor, the Dow Jones Industrial Average (short: Dow Jones). The Euro Stoxx 50 has seen a gain of nearly eleven percent, while the Dow Jones has seen an increase of just under nine percent (as of: 19.08.2026). This shows that European equities are currently being preferred by investors.

Furthermore, the Euro Stoxx 50 is valued significantly more attractively compared to the Dow Jones; it currently has a forward P/E ratio for the coming twelve months of 18, whereas the Dow Jones has a P/E of over 22—and potentially higher depending on earnings estimates. The higher valuation is, of course, not entirely unfounded, as the USA is leading in many technology sectors, but the gap between "top" and "bottom" could, at least to some extent, close in favor of the European equity market.

Growing political uncertainties also support this – in November, the midterm elections are approaching in the USA, which could lead to a shift in the balance of power to the disadvantage of Donald Trump.

Discover our investment and leveraged products on the Euro Stoxx 50.

For any questions regarding our products, please contact us via phone at +41 58 212 68 50 or via email at markets.ch@bnpparibas.com. Further information can be found on our website at www.bnpparibasmarkets.ch/en. Please be advised that calls will be recorded for quality assurance purposes.

This article constitutes marketing material pursuant to Article 68 of the Swiss Federal Act on Financial Services (FinSA) and is intended for informational purposes only. The information does not constitute an investment recommendation or advice and does not contain an offer, nor an invitation to submit an offer. Reproducing any part of this article in any form without our prior written permission is prohibited, except for the creation of a single copy or excerpt solely for personal, non‑commercial use.