Swiss stock market: Optimism for 2026 after a turbulent 2025

In 2025, global equity markets experienced significant volatility, with a wide range of uncertainties keeping investors on their toes. The Swiss Performance Index (SPI) posted a double-digit gain from the start of the year through the end of November, with January and February standing out as by far the strongest months. The subsequent months were notably more volatile, challenging many investors. This was mainly driven by several specific themes and market developments, which, alongside difficulties, also created opportunities.

Review: Key events and their impact

2025 was shaped by numerous economic and geopolitical challenges that affected global markets, with the Swiss economy also feeling the impact. The year will likely go down in history for the ongoing trade conflict between the US and the rest of the world. The Swiss stock market, as measured by the SPI, had a spectacular start to 2025, recording a 10.8 percent gain by the end of February, driven by Trump euphoria. However, for the remainder of the year, the SPI largely stagnated, and from the end of February to the end of October 2025, it even slipped by almost -1.0 percent.

Surprising small-cap rally

From the second quarter of 2025 onward, Swiss mid- and small-cap companies (represented in the SPI Extra), known for their agility and innovation, delivered a surprisingly strong performance, bringing an unusual change of pace to the Swiss equity market. After a prolonged period of lagging behind, these stocks finally managed to outperform the broader Swiss Performance Index (SPI) as well as the largest mid caps (represented in the SMIM Index). Of particular note is the even stronger performance of small caps (represented in the SPI19).

The outperformance of small caps demonstrated that investors were once again focusing on the growth opportunities and resilience of these companies. While large corporations were more exposed to global uncertainties and macroeconomic fluctuations, smaller companies benefited from their flexibility and their ability to assert themselves in niche markets. In addition, many companies in this segment generate an above-average share of their revenue within Switzerland, making them less affected by US tariffs. This micro-segment is dominated by so-called value stocks, which fared better than a number of quality companies.

This extraordinary small-cap rally revitalized the Swiss equity market and put the often underestimated small caps center stage. Whether this trend would prove sustainable remained to be seen. However, the figures from the first months of the year spoke for themselves: Swiss small caps had demonstrated their strength impressively.

Valuation: Quality with unexpected potential

Furthermore, a look at this year’s valuation of Swiss equities reveals some interesting insights. Compared with their European counterparts, Swiss stocks have traditionally traded at a premium, supported by superior returns on equity (ROE), strong margins, and low levels of debt. This valuation premium is especially apparent among high-quality large caps. We believe that both the high quality and the growth potential of Swiss equities justify these higher valuations. The Swiss market is also heavily weighted toward defensive sectors such as pharmaceuticals and food. This, combined with Switzerland’s economic and political stability, helps explain the consistently wide valuation gap relative to European equities.

Surprisingly, however, in 2025 more than half of Swiss stocks traded below their 10-year average price-earnings ratio (P/E). This created selectively attractive entry opportunities, especially among mid caps.

A sentiment-driven market environment led to high performance dispersion

Given the significant macroeconomic and geopolitical uncertainties, sound stock selection combined with a medium- to long-term investment horizon proved challenging in 2025. Winners in one month often turned into losers just weeks later, and vice versa. Achieving the right positioning during reporting season was also demanding, as price swings of up to 10 percent in either direction following quarterly or half-year results were not uncommon. Even stocks with an overall positive performance repeatedly went through periods of pronounced short-term declines, as illustrated in the table below.

A year of challenges and opportunities – setting the course for the future

Despite the turbulent developments of 2025, our long-term approach remains unchanged. This market environment has once again demonstrated that it is crucial to focus on companies with robust fundamentals and a clear competitive-advantage strategy. In particular, companies that are well positioned to manage the challenges posed by a strong Swiss franc and global uncertainties are likely to continue performing well in years ahead. The corrections seen in quality stocks in 2025 currently offer an attractive opportunity to invest in undervalued companies with the potential for above-average long-term growth.

Looking ahead to 2026, we are confident that the geopolitical situation will stabilize. Easing tensions in Europe, especially concerning the conflict in Ukraine, could further improve the business climate. Infrastructure programs and closer economic cooperation between Switzerland and the EU could initiate reconstruction efforts and boost economic growth. This would particularly benefit Swiss industrial companies, which have traditionally benefited from a stable European market. Early signs of this have already emerged with the recovery of the Eurozone Purchasing Managers Indices (PMI), which have surpassed the critical threshold of 50.

Moreover, we expect the US Federal Reserve (Fed) to further ease its monetary policy in the coming year, which should provide relief to markets and lead to more moderate interest rates. At the same time, US President Donald Trump is under pressure to pursue pro-growth policies – not only with an eye on the upcoming midterm elections, but also in response to the continued decline in US non-farm payrolls. An overly restrictive monetary stance could have severe consequences and potentially trigger a recession in the US, an outcome Trump is determined to avoid. We therefore believe that further agreements are likely to be reached regarding US tariff measures.

In addition, the US administration is planning comprehensive tax incentives and relief measures under the “One Big Beautiful Bill” to stimulate economic growth. Households could benefit from additional tax refunds, while companies are likely to gain from lower tax rates and investment incentives. The ongoing boom in artificial intelligence (AI) is also expected to further support the global investment climate in 2026. Growing demand for AI technologies in areas such as automation, data analytics, and machine learning is driving innovation and investment. Supported by government funding programs and the integration of AI across a variety of industries, these developments could generate positive economic momentum worldwide.

Optimism for 2026

All these factors – from further monetary easing and growth-oriented measures by the US government to the ongoing AI boom – make us optimistic about the year ahead. We remain optimistic that the Swiss economy will continue to seize opportunities, even as uncertainties persist. In our view, Swiss companies should prove resilient amid the current market turbulence. Looking ahead to 2026, new opportunities are emerging that could support both their stability and growth – an exciting time for investors who are ready to capitalize on opportunities in a dynamic environment.