Tareno View October 2026

The Hidden Bear Market

The major stock indices are near their record highs. But beneath the surface, rising interest rates world­wide have left a clear mark. Large segments of the stock market have corrected, while a few large-cap tech stocks are propping up the indices. This suggests that the recali­bra­tion of interest rate expec­ta­tions has now been largely priced in. At the same time, the economy and corpo­rate earnings remain robust. These are not bad condi­tions for rising stock prices. In our view, however, the challen­ging environ­ment calls for greater selec­ti­vity in stock picking and a broader asset alloca­tion.

Macroe­co­nomic environ­ment

Infla­tion and Debt Drive Up Interest Rates

The yield on 10-year U.S. Treasury bonds rose from 4.4% to 5.3% in the third quarter, reaching its highest level in many years. A signi­fi­cant portion of this rise in interest rates is homegrown: The U.S. budget deficit is projected to reach just under 6% of GDP in 2026, which is an excep­tio­nally high figure for an economy that conti­nues to grow. At the same time, energy prices—which have risen sharply as a result of the Iran conflict—have reignited infla­tion.

The U.S. is not alone in facing this problem. European gas prices have more than doubled since the begin­ning of the year. The longer energy markets remain tight, the greater the risk that the initi­ally energy-driven price surge will spread to broader goods and services prices and cause infla­tion expec­ta­tions to rise.

To prevent such second-round effects, central banks are once again adopting a more restric­tive stance. In September, the Federal Reserve raised its bench­mark interest rate for the first time since 2023. The European Central Bank raised its bench­mark interest rates for the second conse­cu­tive time.

Economy Remains on Track

Despite high interest rates and energy prices, the real economy is holding up remar­kably well. The majority of leading economic indica­tors continue to signal expan­sion. In the eurozone, industrial produc­tion grew in September for the third conse­cu­tive month, and the Purcha­sing Managers’ Index reached 52.9—its highest level in more than four years. In the U.S., consumer spending—which is parti­cu­larly important there—is also proving surpri­singly resilient. Car sales are a prime example of this: Despite higher vehicle prices, finan­cing costs, and gas prices, sales figures remain robust.

The expan­sion of AI infras­truc­ture conti­nues to be a key driver of growth. At the same time, growth is becoming more widespread. By mid-year, positive revenue and profit trends were evident across numerous regions and sectors. The upcoming earnings season will show whether this trend conti­nues and whether compa­nies can maintain their margins despite higher energy and finan­cing costs.

Market commen­tary

The Bear Market Lurking Beneath the Surface

At first glance, the stock markets seem to be taking the rise in interest rates in stride. At the end of September, the global stock market remained near its all-time high. One might conclude from this that investors are largely ignoring the higher interest rates.

However, a closer look reveals a diffe­rent picture. This is parti­cu­larly evident in the U.S.: While the market-capita­lization-weighted S&P 500 declined only slightly in September, its equally weighted counter­part lost 4.4%. 78% of the index compon­ents posted price losses over the course of the month, and 42% were trading more than 20% below their respec­tive 52-week highs at the end of September.

The “bear market” is there­fore not taking place at the index level, but rather “hidden” across large parts of the stock market. The strength of the major indices is concen­trated in a few heavy­weight techno­logy compa­nies. Their struc­tural growth, high margins, and strong balance sheets make them less vulnerable to rising finan­cing costs. Smaller compa­nies, highly indebted firms, and interest-rate-sensi­tive business models, on the other hand, are feeling the impact of higher cost of capital much more acutely.

Much of the headwind has already been priced in

The weakness of the broader stock market shows that investors are by no means ignoring the changed economic condi­tions. The interest rate market is also already pricing in several rate hikes.

At the same time, earnings estimates have continued to rise. The combi­na­tion of broad-based price declines and higher earnings expec­ta­tions has there­fore led to a noticeable valua­tion correc­tion. In the S&P 500, the expected price-to-earnings ratio has fallen from just over 22 to around 19 since the begin­ning of the year.

This has streng­thened the founda­tion for the coming months. If energy prices and interest rates stabi­lize and the earnings season confirms the positive profit trend, there is poten­tial for a rebound, parti­cu­larly in the market segments that have recently lagged behind.

A Weak Franc as an Oppor­tu­nity

The parti­cu­larly sharp rise in U.S. yields has widened the Swiss franc’s interest rate disad­van­tage. This increases the attrac­ti­ve­ness of the U.S. dollar in the short term and has recently weakened the franc.

This does little to change our cautious long-term outlook on the U.S. dollar. In our view, high budget deficits, higher infla­tion than in Switz­er­land, and the currency’s continued ambitious valua­tion point to long-term upward pressure on the Swiss franc. We there­fore view the dollar’s current strength as an oppor­tu­nity to parti­ally hedge USD risks and increase the CHF alloca­tion in the portfolio. Especi­ally during periods of heigh­tened market uncer­tainty, the Swiss franc is likely to prove once again to be a valuable stabi­lizer.

Positio­ning

Confi­dent, but Selec­tive

In summary, we continue to view the risk-reward ratio in the stock markets positively. A signi­fi­cant portion of the rise in interest rates has now been priced in, while corpo­rate earnings continue to grow and are becoming more widespread. We are also encou­raged by the fact that we continue to find numerous high-quality compa­nies in attrac­tive business sectors at reasonable valua­tions.

However, the market environ­ment has become less forgi­ving. Rather than counting on the broad market to continue its upward trend, stock selec­tion, valua­tion, and diver­si­fi­ca­tion are becoming incre­a­singly important to us.

Quality Over Beta

Higher interest rates are creating a sharper distinc­tion between robust and vulnerable business models. High-quality compa­nies have solid balance sheets, strong free cash flows, and pricing power. They are less reliant on cheap refinan­cing and are better able to absorb rising costs.

After years in which growth and size were the primary factors rewarded, we there­fore see favorable condi­tions for greater diffe­ren­tia­tion based on quality and valua­tion. That is precisely where the focus of our stock selec­tion lies.

Take Advan­tage of the Concen­tra­tion

The prono­unced diver­gence between a few index heavy­weights and the broader market presents oppor­tu­ni­ties. We recom­mend taking advan­tage of this to reduce depen­dence on indivi­dual techno­logy stocks and sectors and to make targeted invest­ments in attrac­tive compa­nies outside the current group of winners.

For us, diver­si­fi­ca­tion does not mean owning as many securi­ties as possible, but rather incor­po­ra­ting diffe­rent sources of return into the portfolio.

Bonds Are Back

Follo­wing the sharp rise in yields, bonds are once again an attrac­tive addition to balanced portfo­lios, parti­cu­larly for investors with EUR and USD as their reference curren­cies. In our view, medium-term corpo­rate bonds with high credit quality combine an attrac­tive current yield with limited interest rate risk.

Alter­na­tive Invest­ments as a Safety Net

Our base case remains a robust global economy with rising corpo­rate earnings. However, a resilient portfolio must also be able to withstand scena­rios in which high energy prices persist for longer, infla­tion regains a foothold, or growth slows more sharply.

Here, we see added value in carefully selected alter­na­tive invest­ments. Infras­truc­ture benefits from infla­tion-linked returns, gold offers stabi­lity during confi­dence, infla­tion, and currency shocks, and a small alloca­tion to crypto­as­sets promises asymme­tric poten­tial.

Conclu­sion

The recent market shifts present an oppor­tu­nity to reduce concen­tra­tion risks in techno­logy and the U.S. dollar and to tap into additional sources of return outside the stock market.