February continued where January left off. Investors sharpened their focus on the growth risks in the US and continued to question whether high earnings expectations and rich valuations are justified.
The strong performance from European equities highlighted the importance of regional diversification, while the positive returns in fixed income show that bonds can once again diversify against equity losses.
UK
- The FTSE 100 Index rose +2% in February as investors rotated into value stocks.
- A better-than-expected inflation reading in December proved short-lived, as CPI inflation in January rose to 3%, its highest rate in 10 months.
- The Bank of England cut rates by 25bps to 4.5% in its February 2025 decision, as expected. It was the third rate cut since August of last year.
- The UK was spared US tariffs. This helped sterling strengthen over the period (following a very poor January due to fears about the country’s fiscal outlook).
Global
- US shares (S&P 500 Index in GBP) fell -0.3% amid softer economic data, worries over the sustainability of tech earnings, and the potential impact of trade tariffs.
- Although Nvidia announced that revenue doubled from the year before, the stock declined -8% and now sits more than 20% below its all-time high.
- European stocks continue to lead developed markets this year, with a gain of 11% for the Euro Stoxx 50 Index year-to-date.
- Emerging markets (MSCI EM index in GBP) rose +1% as Chinese stocks continued to benefit from optimism about the country’s AI capabilities.
- Despite normally being supported by falling yields, global small cap stocks underperformed as growth concerns outweighed falling discount rates.
Fixed interest
- Investors allocating to less risky assets caused yields to drop (yields move inversely to prices). At month-end, US 10-year Treasuries yielded 4.2%.
- In corporate bonds, investors began pricing in more risk, causing corporate bond spreads (the difference in yields between corporate and government bonds) to widen.
- Despite the potential for tariffs to reignite inflation, global bond markets focused on weaker US sentiment data and the risks to growth.
Other
- Within energy, the price of natural gas was sharply higher, as oil continues its slump following fears of slow demand.
- In precious metals, the price of silver fell, while gold achieved a modest price gain.
- Cryptocurrencies have broken lower as Trump’s announcement of a US crypto reserve did not meet investors’ expectations. Bitcoin has declined to $83,000 at the time of writing.
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This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
