Covering February Market
February was a mixed month for stocks in which some markets produced gains and others posted losses.
While US equities lost some ground amid disappointing macro data, tariff uncertainties, and a cautious Federal Reserve, European, UK, and Chinese stocks all performed well. The best performing sectors for the month were Consumer Staples and Real Estate. The biggest underperformers were Consumer Discretionary and Communication Services.
One of the main themes throughout February was a shift in capital away from the US market and its Technology sector into other geographic regions and sectors.
This was illustrated by the performance of the Euro Stoxx 50 Index, which posted a gain of about 3.3% for the month versus a return of -1.4% for the S&P 500 Index. Individual markets within Europe also did well, with Germany’s DAX and Italy’s FTSE MIB hitting new all-time highs during the period. The strength in European equities was the result of talk of an end to the Russia/Ukraine War as well as strong corporate earnings for the fourth quarter of 2024. For Q4, 74% of companies exceeded revenue expectations — well above the historical average (58%).
China also delivered a strong performance in February
With the Hang Seng Index (which includes many Chinese companies) rising over 13%. It was boosted by a rebound in Chinese tech stocks, many of which soared on the back of optimism in relation to China’s expertise in artificial intelligence (AI) and hopes of more supportive government policy. One stock that is worth highlighting here is e-commerce giant Alibaba, which jumped 14.6% in one day after it reported better-than-expected revenue and said it plans to invest more in AI. During the month, it came to light that hedge fund manager David Tepper had hiked his bet on Chinese stocks and boosted his positions in Alibaba, JD.com, and Chinese ETFs.
A second major theme throughout the markets in February was the “momentum” factor.
In the first half of the month, a risk-on wave swept through the market, causing momentum growth stocks such as Palantir, AppLovin, and CrowdStrike to rise sharply. However, in the second half of the month, the momentum trade came to an abrupt end as investors appetite for risk cooled. This led to double-digit pullbacks for many popular growth stocks.
Late in the month, there was a lot of focus on Nvidia’s Q4 earnings.
Going into the earnings, many investors were looking at the event as a make-or-break moment for the markets. In the end, the AI chip company’s results were very strong, with the company generating record quarterly revenue of $39.3 billion — up 78% year-on-year and ahead of estimates — and providing strong Q1 guidance thanks to robust data centre demand. However, the stock still fell after the results as investors were looking for even stronger guidance.
Elsewhere within the “Magnificent 7”, Meta Platforms had a remarkable 20-day winning streak during the month in which it rose approximately 20%.
This streak — one of the longest in market history — was driven by optimism over its growth potential from AI.
It is worth mentioning that the combined market cap of this group of stocks recently surpassed the entire stock markets of Japan, Germany and India combined.
Going in the opposite direction, however, was Tesla, which fell around 28% over the course of the month.
It was weighed down by several factors, including disappointing Q4 earnings, concerns over its future product roadmap, and dislike for Elon Musk (who is now actively engaged in politics and cutting costs and jobs throughout the US Government). It’s worth noting that in January, Tesla sold less than 10,000 vehicles across Europe, marking a fall of a massive 45% year-on-year. One factor behind this sales slump was competition from Chinese EV makers such as BYD, which have released some amazing EVs lately.
During the month, stock market legend Warren Buffett released his annual letter to investors.
This revealed that Buffett is holding a record $334 billion in cash today. However, Buffett said that he still prefers stocks over cash, despite Berkshire Hathaway’s massive cash hoard. “Despite what some commentators currently view as an extraordinary cash position at Berkshire, the great majority of your money remains in equities,” Buffett wrote to his investors.
On the economic front, US tariffs were in focus.
Early in the month, the Trump administration said that it would apply tariffs to Mexico, Canada, and China (the Mexico and Canada tariffs were postponed by one month), sending markets down. Then, in late February, Trump discussed 25% tariffs for Europe. All of these tariffs create uncertainty for investors as they make the forecasting of earnings more difficult. In terms of inflation (which tariffs could fuel), US inflation rose to 3% in January, its highest rate for six months, and above the 2.9% expected by economists. This led many market participants to take the view that interest rates could stay higher for longer. Some market participants, such as Torsten Slok, Apollo Global Management’s Chief Economist, even believe that the Federal Reserve should hike rates from here. Last year, the Fed cut rates three times, however, this year it has kept them steady due to slow inflation progress and a stabilising labour market.
Turning to commodities
Gold continued to rise, hitting new all-time highs and reaching close to the $3,000 per ounce level (it ended the month around $2,850). The recent strength in gold has been driven by several factors, including rate cuts, geopolitical uncertainty, central bank buying, and a pilot program in China that allows insurers to buy gold for the first time. As for oil, that commodity lost ground over the month, falling about 4%. The weakness here was the result of an increase in US fuel inventories. Natural gas prices jumped over 25%, fuelled by colder winters in North America and Europe, which have erased all of the surplus inventories stockpiled after the previous two milder winters.
Finally, it was a rough month for crypto
with asset prices falling sharply in the second half of February. General risk-off sentiment was one driver of the weakness here. Another was news that Bybit, the world's second-largest exchange after Binance, had digital tokens worth around $1.5 billion stolen by hackers (the biggest hack in history). Bitcoin ended the month at $84,000, down 17%, while Ethereum ended the period at around $2,220, down 33%.
