Market Update with Aled Phillips

February was another strong month for global stocks - which gained 5% - and a continuation of the positive movement that we saw in December and January. The month ended with the Nasdaq closing at record highs, due to the Artificial Intelligence (AI) euphoria, whilst the Nikkei 225 moved past levels last seen in 1989. Much of the market returns have been dominated by the stocks that are beneficiaries of AI, such as the US chip maker NVIDIA, which has had an incredible run over the last year.

The US outperformed expectations, gaining 6%, while Emerging Markets also produced a strong return, rising 5%. This was supported by a 9% rally in China. The laggard was UK equities, which gained just 0.2%. In style terms, growth outperformed value across all regions, whilst the mid cap outperformed large and small cap in the UK and US. The move to the mid cap sector over large cap is a potential signal that investors believe growth is here or is coming in the case of the UK.

Bonds on the other hand lost ground during February, falling 0.7%. Within Fixed Income, high yield and emerging market debt produced a minor positive return whilst corporate bonds underperformed.  

Overall inflation data stayed stable, which has not broken the general direction of weaker inflationary pressures seen over the last year, and stable inflation above the central banks’ targets of 2% could delay interest rate cuts. This view was further emphasised by US Federal Reserve Chairman, Jerome Powell, highlighting a cautious stance on rate cuts and favouring data validation to confirm inflation moving towards the 2% target.

China continued its efforts to stabilise their markets, and this produced marked returns in February - witnessing a 9% gain for Chinese stocks. It remains doubtful how long this positive sentiment can continue with consumer demand remaining weak and disinflation pressures continuing to build. As the year progresses, it’s possible the US experiences further volatility, particularly with regards to negative rhetoric on trade from front running Republican Presidential candidate, Donald Trump.

February 2024 though is likely to be remembered for AI and in particularly the NVIDIA earnings. It is not an exaggeration to say their earnings were stunning and they beat expectations across the board, reporting revenue up 265% and profits up over 750% from a year ago. The subsequent rise in the share price made the company the third most valuable company in the US. In February 2024, AI took another step forward in its revolution. Many people have been comparing these moves to the tech bubble in the early 2000’s but analysts and bank CEO’s have been quick to confirm that these moves are not based on hype, but rather real earnings, and that the AI theme and use is most definitely here to stay.

As ever, these updates are intended to keep you informed about factors affecting investment portfolios and these short-term market movements will not affect your long-term planning, which we have based around conservative assumptions. If you have any queries about your planning or portfolio, please don’t hesitate to  contact your adviser.