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- Stock markets (MSCI World Index) declined 1.0% in February, but remain up 1.5% year-to-date
- Bond markets (Bloomberg Global Aggregate Index) are up 2.2% this year
- Value stocks have outperformed growth stocks in recent weeks
Key Themes
2025 has been a mixed year, so far. The winners of 2023 and 2024 are not currently faring so well, with US stocks lagging behind Europe and the UK as the “Magnificent 7” technology companies decline in value.1 Inflation may be increasing again and the path for interest rate cuts remains uncertain. Tariffs and geopolitical developments are causing concern. Amidst such a backdrop, the market is favouring more conservative stocks with high dividend yields, attractive share buybacks and low price-to-earnings ratios, where they can be found.
UK
The FTSE 100 has continued its good run and has now gained 8% year-to-date. With a high proportion of its companies residing in the financial, energy and industrial sectors, the index has benefitted from investors rotating into value stocks from more expensive growth stocks.
It hasn’t all been plain sailing, however. Travel companies had been doing well since last summer due to strong demand for overseas holidays – with British Airways stock more than doubling in that time. But a poor trading update from Jet2 on 19 February appears to have put a dent in the post-pandemic recovery. The company cited pressure on customers’ discretionary income, an increase in late bookings and higher hotel prices as factors that could impact profit margins in the year ahead.2 Jet2 stock fell 10% on the day, with others such as On the Beach (-6%) and EasyJet (-4%) declining in sympathy.
United States
February was another busy month in the US stock market, headlined by the latest results from the world’s most valuable computer chip maker, NVIDIA. Its stock has risen more than 1,000% since late-2022 to reach a similar valuation to Apple, due to a leading position in the artificial intelligence industry. On 26 February NVIDIA announced revenue had more than doubled from the year before, with a strong forward outlook.3 The stock nevertheless declined 8% and now sits more than 20% below its all-time high.
It is not difficult to find data comparing current US valuations to the dot-com boom of the late 1990s,4,5 and in that context it may not be surprising that some high-flying stocks are having their wings clipped. Tesla declined 27% in February, Google was down 16% and Amazon dropped 10%. All told, the Nasdaq technology index has underperformed most others recently and is down 5% so far this year.
Europe
European stocks continue to lead developed markets this year, with a gain of almost 12% for the EuroStoxx 50 index so far. Spain and Germany have been standout performers, with the IBEX and DAX up 15% each. Meanwhile, March began with a sharp rally for defence stocks, following pan-European talks on Ukraine.6 German armoured vehicle maker Rheinmetall gained 14% in one day, with UK firms such as BAE Systems (+13%) and Rolls Royce (+5%) also benefitting from a potential ramp-up in defence spending.
The biggest winner from the latest developments has been the Russian stock market, however. The RTS index jumped 20% in February, with the rouble also advancing 10% for a total gain of more than 30% in dollar terms.
Asia & Emerging Markets
The Chinese stock market continues its recovery, and in this case it is the technology companies that are leading. The e-commerce giant Alibaba has gained 60% this year, with Temu’s owner PDD Holdings up 18% and other tech firms achieving double digit gains. Japan has been broadly flat, while there has been a recent bout of profit-taking in Indian stocks.
Points of Interest
Cryptocurrencies seem to have broken lower, from their recent range. After spending 14 weeks between $92,000 – $107,000 per coin, Bitcoin has declined to $83,000 at the time of writing. Even Trump’s announcement of a US strategic crypto reserve8 could do nothing to stem the losses.
Value stocks have comfortably outperformed growth stocks this year. The MSCI World Value Index has gained 5.5%, compared to a 2.3% decline for the growth index. The selloff in US tech stocks and cryptocurrencies could suggest investors are finally taking stock of high valuations and speculative frenzy, after a two-year “risk-on” period where growth beat value by the widest margin in 25 years.
Summary
Stocks continue to climb their proverbial wall of worry, with the new US administration providing no shortage of headlines to react to. As we begin March, stock markets are taking fright at US tariffs being enforced on Canada and Mexico, while developments in Ukraine remain highly uncertain. No wonder government bonds are attracting a bid. Meanwhile, perhaps surprisingly, the FTSE 100 quietly makes all-time highs, perhaps showing that diversification – and traditional valuation metrics – remain key to long-term success.
Note: Past Performance Is Not A Reliable Indicator Of Future Performance Sources may be found online here
