February 2025 Review

Let’s Work As a Team & Do It My Way.

After last November’s US Presidential Election, most expected the following: the US Dollar to appreciate, US equities to lead global equity returns and US bond yields to rise in fear of a US Treasury bond issuance binge to fund tax cuts. That started to be the case post-election, but almost four months on, the reverse is true with financial markets delivering a weaker US currency and lower bond yields alongside Trump’s desire for a lower oil price, as the chart below from Bloomberg illustrates.

Equities had a good month although not without most indices undergoing some volatility; mostly Trump inspired. The cheapness of some non-US markets enabled US equity markets to be outshone by European equities with the Euro Stoxx 50 index up over 8% in January. Within the US equity market, the equal-weighted US S&P 500 equity index was up 3.5% ahead of the unweighted version (where the Mag 7 dominates) which was up 2.8%.

Fears of excessive borrowing to fund government spending caused UK and US government bond yields to rise (prices fell) in the first half of January before the opposite happened in the second half of the month, as relative calm returned to government bond markets.

Loss of Confidence

The US Conference Board’s Consumer Confidence Index fell by 7 points to 98.3, the third decline in a row. Tariff threats have lifted inflation expectations, as consumers have worked out they’re the ones that effectively pay the tariffs.

‘Ndifference’

On February 26th, Nvidia released its latest quarterly earnings report. As is usual, Nvidia’s earnings are delivered sometime after the rest of the US technology sector. Nvidia delivered some excellent numbers, beating forecasts, but markets focused on a reduced profit margin. The problem for a company when it has a high valuation* is that financial market reaction is one of indifference to good news but with a focus on any negatives, so the share price often suffers a decline after good numbers. Nvidia’s share price ended the week down 6.4% from its preearnings report high on Wednesday and 11.5% from the month’s high on February 18th.

*price to earnings (p/e ratio)

Phew

Despite the distractions elsewhere in Washington on the last day of February, the US central bank (Fed) received some good news when the US Personal Consumption Expenditure (PCE) price index (the Fed’s preferred inflation measure) posted its smallest increase since early 2021. As the chart below sourced from the US Bureau of Economic Analysis illustrates, these inflation measures are running comfortably below 3% but ahead of the Fed’s target of 2% inflation – overall, an encouraging direction of travel.

America Second

Despite the initial post-election rally in the US currency and relative outperformance of US equities, February witnessed a reversal of that move. The US Dollar has weakened with Sterling rising from a low of 1.2160 mid-January to 1.2650 at the end of February.

The following chart from Bloomberg shows US equities also faded from their leadership stance versus the rest of the world’s equity markets from mid-January. Consequently, the rest of the world’s equity markets, led by Europe, have eroded the relative gains made by the US equity market (as referenced by the S&P 500) since the election.

Your Money

Despite the decline in valuations in February, all portfolios are positive year to date. While lower bond yields helped those portfolios with bond exposures (being all except the ‘Fours’, Prosper Four, Plus Four and Purpose Four) increase in value, a weaker US Dollar meant equivalent asset values in Sterling fell for all portfolios in February. Unnerved by tariff talk oscillations, equities were the main catalyst for negative outcomes in February having been the positive influence in January.

There were no portfolio changes in February.

Pier Portfolio Performance for February and 2025 Year to Date

Plus Income leads the way for both periods