February has 28 days, and today marks the final day of the month. Last year was a leap year, so we won’t see another 29 days in February until 2028. The short month has been a challenging one for risk assets, particularly US equities. This was highlighted with what appeared to be strong results from Nvidia yesterday, however the share price dropped over 8%, highlighting investor caution.
Nvidia reported $39.3billion in revenue and $0.89 earnings per share, both above market forecasts and showing significant year-on-year revenue and earnings growth. Nvidia has routinely outperformed market forecasts, but the magnitude of outperformance has narrowed as it becomes tougher to exceed such strong growth each quarter. Despite the exceptional figures and CEO Jensen Huang’s promise that demand for their Blackwell GP’s is “amazing”, the share price is down -10% year to date. This has partly been driven by concerns around the threat of competition following the emergence of Chinese firm DeepSeek.
After a month-long delay, US President Donald Trump announced that US tariffs on imports from Canada and Mexico would shortly go ahead. It’s almost becoming a case of the boy who cried wolf as Trump leverages the threat of tariffs to negotiate deals. Trump also threatened that 25% tariffs could “very soon” be coming to the European Union (EU), with Trump claiming the EU was formed to “screw with the United States”. The EU announced they would respond firmly against any unjust tariffs. The announcement of tariffs has caused concern for markets, although it is the US that has felt the most pain, falling circa 4% this week, underperforming Europe on the back of the tariff news.
Moving onto Germany politics, Friedrich Merz, leader of the conservative union was elected last Sunday. There are several pressing issues to contend with, including tricky coalition talks with Olaf Scholz’s social democrats who came in third. Other challenges include weak economic growth, a crackdown on immigration and addressing high labour and energy costs for businesses.
UK Prime Minister Kier Starmer met with President Trump this week, with Trump offered a historic second state visit to the UK by King Charles. The trip was not just about festivities, as both leaders discussed the possibility of a Ukraine- Russia peace deal and a possible US-UK trade deal that would exempt the UK from any tariffs. UK equity performance has been mixed; the large cap index is up over 1% for the week while the more domestically focused mid-cap index is down -1.3%.
In a data light week, US unemployment claims came in higher than expected, which could be a signal of a weaker labour market ahead. The sell off in risk assets seems more sentiment than data driven, with the uncertainty around Trump’s policies causing headaches for investors. When valuations are stretched and investors are paying high premiums to own US equities, anything other than great news can lead to de-ratings and falling share prices.
The US Personal Consumption Expenditures (PCE) price index is the Federal Reserve’s preferred measure of inflation. This afternoon, PCE figures for January showed signs of easing, with the headline rate dropping to 2.5% and Core PCE falling from 2.9% to 2.6%. The Fed will be keen to see inflation fall back towards target, as policymakers have made it clear they need to keep interest rates at current levels until further evidence of inflation cooling.
In a classic risk-off environment government bonds rallied throughout the week, with the yield on the US 10-year government bond falling below 4.25%, highlighting the importance of diversification. Areas such as infrastructure also performed strongly during the week.
Defence stocks have seen their share prices rocket over recent years, driven by geopolitical instability and this week it was confirmed that Chemring had received at least one takeover approach from Bain Capital in recent weeks. There were also rumours circulating that Pets at Home was a takeover target, highlighting that private equity and corporates continue to see tremendous value in listed UK equities and takeover activity remains buoyant.
This week, and indeed this month, it has helped having diversified portfolios, with unloved areas such as infrastructure, Europe and Japanese equities leading the charge, while US equities have lagged in February. Whether or not this is start of a more sustained rotation in market leadership is yet unclear, however, with rising uncertainty on a global scale we believe a valuation sensitive approach with genuine diversification is more warranted than ever.
Nathan Amaning, Investment Analyst
Risk warning: With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors