Market Commentary

August 2026

Global Equities –

Equity markets generally moved higher in August with the MSCI World rising close to 2% in sterling terms. Technology shares led the advance, supported by continued investment in AI (artificial intelligence).

Beneath this resilience, however, government bond markets faced increasing scrutiny. Long-term yields rose across the UK, US, Ger­many and Japan as investors weighed elevated inflation risks against heavy public borrowing. The US Treasury responded by expanding planned buybacks of longer-dated debt, while Federal Reserve (Fed) Chair Kevin Warsh used Jackson Hole to emphasise the importance of returning inflation to target. Together, these developments pushed short-term US yields higher, while longer-term yields fell back below their August peaks. Renewed conflict between the US and Iran added an energy risk late in the month.

For investors, this created a more mixed backdrop. Strong corpo­rate earnings and continued technology investment remained supportive for equities, but higher long-term borrowing costs put pressure on bond prices and could weigh on equity valuations, particularly in more highly valued parts of the market.

The global rise in yields was greatest for the longer-term bonds. The UK 30-year gilt yield reached 5.86% on 18 August. In the US, the 30-year Treasury yield reached 5.31% on 17 August, its high­est level since 2007. Germany’s equivalent yield ended the month at 3.81%, its highest since 2011, while Japan’s reached 4.14% on 18 August, a record for that maturity.

Although the precise drivers differed by country, the common concern was the level of compensation investors required to hold long-dated government debt. Inflation remains above central-bank targets with rising energy costs added to investors’ concerns. Meanwhile, economic activity picked up while government borrowing and AI-related corporate debt issuance remained heavy. This combination added uncertainty around the future path of interest rates and placed upward pressure on long-term financing costs.

🟢 Investor note:

Equities remained resilient, supported by corporate earnings and continued AI investment. However, higher long-term yields and persistent inflation could increase volatility, reinforcing the value of diversification.

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United States –

The US Treasury intervened after longer-term yields had risen sharply. On 19 August, it announced that liquidity-support buy­backs in the 10-to-20-year and 20-to-30-year sectors would rise from USD 2 billion to at least USD 4 billion per operation from 9 September. Longer-dated yields subsequently moved back from their peaks.

Attention then shifted to Jackson Hole. Kevin Warsh described the Fed’s 2% inflation objective as “a firm, fixed target” and argued that better summer data had not yet produced a meaningful im­provement in underlying inflation. By month-end, the two-year Treasury yield had risen from around 4.22% before the speech to around 4.34% after. Market pricing for a September rate increase moved from roughly one chance in three to around two in three. With shorter-term yields rising as longer-term yields eased, the US yield curve flattened.

The July employment report offered a less reassuring view of the US economy. Payrolls fell by 23 000 rather than rising as ex­pected, and estimates for May and June were reduced by a com­bined 103 000 jobs. Annual wage growth eased to around 3.0%. Meanwhile, the unemployment rate lowered from 4.2% to 4.1%, but largely because the labour force became smaller, due to low­er immigration and an ageing population, rather than because employment strengthened.

Inflation offered little scope for complacency. The Fed’s preferred core measure rose 3.3% over the year to July, while headline in­flation was 3.7%. Policymakers therefore face an awkward com­bination: hiring has softened, but inflation remains too high. Giv­en Warsh’s recent comments, September’s decision will likely be more influenced by inflation data than the job market.

Technology remained the strongest part of the US equity mar­ket. The Nasdaq rose 4.0% in August, while the information tech­nology sector of the S&P 500 gained 6.2%. Interest in AI infra­structure continued to support the sector, despite concern that valuations and market leadership had become concentrated.

NVIDIA’s results provided a useful test of investor enthusiasm for AI-related investment. Both revenue and guidance exceeded ex­pectations, and the shares rose nearly 9% the following day, add­ing USD 442bn in market value. This was the second largest sin­gle-day market capitalisation increase in history. NVIDIA’s outlook for a slightly lower profit margin nevertheless suggested its costs were rising. For the wider market, the results supported confi­dence in AI-related investment while also showing how demand­ing expectations have become.

Renewed exchanges of fire between the US and Iran brought energy security back into focus at the end of August. Brent crude finished at around USD 90 per barrel, close to where it started the month. But it had traded as low as USD 80 before climbing again as traffic through the Strait of Hormuz remained well below normal.

🟠 Investor note:

A softer labour market alongside persistent inflation creates uncertainty over the path of interest rates. Strong technology and AI performance remains supportive, although elevated valuations and market concentration warrant caution.

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United Kingdom –

UK consumer-price inflation rose from 2.6% to 2.9% in July, led by higher household energy costs. This leaves the Bank of England (BoE) balancing above-target inflation against signs of softer activity. So far it has held rates unchanged, but ongoing increases in energy costs could force its hand over coming quar­ters. Meanwhile, UK equities offered little direction as the MSCI UK index was broadly flat in August.

In addition, the first Autumn Budget under new Prime Minister Andy Burnham on 28 October will renew attention on government borrowing and the credibility of the fiscal plans.

In addition, the first Autumn Budget under new Prime Minister Andy Burnham on 28 October will renew attention on government borrowing and the credibility of the fiscal plans.

🔴 Investor note:

Above-target inflation and higher energy costs could keep pressure on interest rates, while the upcoming Budget may add further market uncertainty. Diversification remains important in this environment.

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ASIA –

Gold gained 9.7% in August to USD 4 437 per ounce, while silver rose 15.6%. The US Treasury’s expansion of bond buybacks coincided with lower long-term yields and a weaker dollar, all of which made gold attractive for potential investors, helping to lift its price. This followed coordinated US–Japan purchases of yen at the end of July, and brought official interventions in bond and currency markets into greater focus. Gold’s fluctuating perfor­mance underlined its potential role as a source of diversification when bond markets, currencies or inflation expectations are un­settled, although its price can also be volatile.

🟢Investor note:

Gold and silver benefited from investor demand for diversification amid currency, inflation and bond-market uncertainty. Precious metals can provide diversification but remain volatile.

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Europe –

European natural gas prices rose 18.2% in August to EUR 70 per megawatt hour. The increase primarily reflected continued disrup­tion to Gulf liquefied natural gas (LNG) exports through the Strait of Hormuz and unusually low European storage levels, with hot-weather demand and planned Norwegian maintenance add­ing pressure. Together, these factors compounded the risk that higher energy costs could slow further progress on inflation.

🟠 Investor note:

Higher European gas prices could add to inflationary pressures and weigh on economic growth. This highlights the importance of geographical and asset-class diversification.

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Summary for Investors –  

August combined steady gains in equities with a more unset­tled bond market. Technology leadership helped the Nasdaq out­perform, while the MSCI UK was flat. At the same time, rising long-term government bond yields reflected growing unease about inflation, energy costs and public borrowing. US Treasury buybacks brought some relief at longer maturities, but Warsh’s Jackson Hole message reinforced expectations that the Fed could raise rates in September. This left investors facing two competing signals, greater confidence in corporate earnings alongside the risk of tighter financial conditions lasting longer. The next US employ­ment report and Fed decision will be important tests of whether that balance can persist.

July 2026

Global Equities –

Geopolitical tensions increased during July following the re­ported breakdown of negotiations between Iran and the US. How­ever, investors remained more focused on developments in the technology sector. Semiconductor shares, particularly memory-chip manufacturers serving AI and data centres, reversed sharply after strong gains earlier in the year. The speed of the reversal highlighted the extent to which recent market performance had become dependent on a relatively narrow group of technology companies.

Despite renewed geopolitical tensions, corporate earnings and AI investment remained the main drivers of markets during July.

 The second-quarter earnings season began on an encouraging note, but there were notable changes beneath the surface of eq­uity markets. The S&P 500 ended the month broadly flat at -0.1%, while the equal-weighted S&P 500 rose 0.9%. Unlike the conven­tional index, which gives greater weight to the largest companies, the equal-weighted index assigns the same importance to every constituent. Several of the largest technology companies recov­ered strongly during the final trading sessions of the month, add­ing more than USD 1 trillion in combined market capitalisation across Microsoft, Amazon and Alphabet. Even so, the outper­formance of the equal-weighted index suggested that market participation was broadening, rather than being driven solely by AI infrastructure companies.

Memory-related shares experienced some of the largest reversals. Earlier gains in South Korean semiconductor companies began to unwind, contributing to a decline from all-time highs in the KOS­PI. A similar pattern was evident in the Philadelphia Semiconductor Index, although this broader benchmark was also influenced by companies outside the memory segment.

As enthusiasm for memory-chip producers moderated, investors rotated back towards some previously weaker software compa­nies. Their rebound was sharp in places, with the S&P 500 Soft­ware Index rising 14.7% in July, although it -5.6% year to date. Rather than signalling a retreat from AI investment, the move re­flected a reassessment of where investors believed future earnings growth was most likely to emerge.

UK equities were among July’s stronger performers. Their relative­ly low exposure to the largest AI-related companies may have provided some protection as technology shares weakened. How­ever, the UK market’s composition, including its exposure to finan­cial, energy and defensive companies, was also likely to have in­fluenced relative performance.

Oil prices swung sharply as the conflict broadened during July. Renewed hostilities between Iran and the US initially raised con­cerns about supplies passing through the Strait of Hormuz. Later in the month, attacks on shipping in the Red Sea created further concerns about energy supplies and global trade. Oil prices rose as concerns over supply disruption increased, before easing as fears of a prolonged interruption faded. These moves also unset­tled bond markets: higher oil prices revived concerns about infla­tion and pushed government bond yields higher at times, while subsequent declines partially reversed the effect.

🟢 Investor note:

Markets remained resilient despite geopolitical tensions, although volatility in technology and semiconductor shares highlighted the risks of concentrated exposure. Diversification remains important as investors assess the sustainability of AI-driven growth.

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United States –

The Federal Reserve (Fed) maintained its target interest-rate range at 3.5% to 3.75% following its July meeting.  However, the 9–3 vote revealed an unusually wide division among policymakers, with all three dissenters favouring a quarter-percentage-point in­crease.

The meeting was Kevin Warsh’s second meeting as Chair, having assumed the role in May. He offered limited indication of what might prompt the central bank’s next move, leaving investors to reassess the outlook for inflation and interest rates. Longer-dated US Treasury yields rose faster relative to shorter-dated yields, caus­ing the yield curve to steepen. In practical terms, the gap between short- and long-term borrowing costs widened as investors de­manded more compensation for lending over longer periods, re­flecting uncertainty over inflation, government borrowing and the future direction of monetary policy.

🟠 Investor note:

The divided Federal Reserve highlights uncertainty around the future path of interest rates. Investors are likely to remain focused on inflation and economic data, with bond-market volatility potentially continuing.

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United Kingdom –

The Bank of England maintained Bank Rate at 3.75%, with six members voting to hold and three preferring an increase to 4%.  Although UK inflation fell to 2.6% in June, the Bank expects it to rise to around 3.2% later this year. Policymakers are therefore watching for signs that higher prices are feeding into wages and domestic inflation, but the majority saw no immediate need to raise rates. Investors also turned their attention to the UK’s new government following Andy Burnham’s appointment as Prime Minister. The appointment of John Healey as Chancellor added to uncertainty over the direction of economic policy. Initial measures included a lower cap on participating bus fares in England outside London from 2027 and temporary support for household electric­ity bills.  However, markets are still awaiting a broader fiscal plan and greater clarity over its implications for government borrowing and inflation.

Markets are likely to remain driven by the balance between resilient corporate fundamentals and evolving macroeconomic and political developments. Strong US company profits have con­tinued to support equity markets, while central banks appear con­tent to keep interest rates unchanged unless inflation begins to rise again. At the same time, investors will be monitoring the fiscal direction of the new Burnham administration, with expectations of higher public spending potentially contributing to increased volatility in the gilt market. As always, we remain focused on main­taining diversified portfolios while navigating an environment that continues to present both opportunities and risks.

🔴 Investor note:

UK markets remain sensitive to inflation, interest-rate expectations and the government’s fiscal plans. Continued uncertainty around spending and borrowing could contribute to gilt and equity-market volatility.

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ASIA –

The Bank of Japan maintained its policy rate at around 1% in July.  However, attention quickly shifted to currency markets as the yen rose sharply against the US dollar following reports that Japanese authorities had intervened to support it. Japanese au­thorities and US Treasury Secretary Scott Bessent, have confirmed that the intervention was coordinated with the US as a response to ‘disorderly yen movement’. Bessent also signalled that further joint intervention remains possible if required.  The episode illus­trated policymakers’ concern that continued yen weakness could increase import costs and add to inflation.

🟢Investor note:

The yen’s sharp recovery highlights the authorities’ concerns over currency weakness and imported inflation. Investors will continue to monitor Japanese monetary policy and currency movements.

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Europe –

The European Central Bank (ECB) also left interest rates un­changed in July, maintaining its deposit rate at 2.25%.8 As the decision was widely expected, investors focused instead on how the ECB would balance inflation risks against uneven economic growth. Overall, the meeting had a more limited effect on markets than the policy developments in the US, UK and Japan.

🟠 Investor note:

With rates unchanged, attention remains on Europe’s uneven economic growth and inflation outlook. Markets are likely to be driven by expectations for future ECB policy and corporate earnings.

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Summary for Investors –  

• Technology share come under pressure as investors sold memory-chip companies following strong gains earlier in the year.
• US equity performance broadened beyond the largest technology companies, with a wider range of sectors contributing the market returns.
• Central bank activity continued to drive moves in government bond markets and currencies, particularly in the US and Japan.

April 2026

Global Equities –

The ongoing war in Iran drove heightened market volatility at the start of the month, with the closure of the Strait of Hormuz pushing Brent oil prices above USD 100 a barrel in early April. However, a temporary ceasefire on 7 April prompted a swift mar­ket recovery, with major equity indices rebounding sharply by month-end. The cessation of hostilities remains fragile given the unresolved disagreements between the US and Iran.

US technology and AI-related stocks led the equity gains, with the S&P 500 reaching record highs and rising 10.5% in April, while the Nasdaq gained 15.3%. Semiconductor stocks, buoyed by re­newed AI optimism, were a key driver, as these companies saw their capitalisation increase by more than a third. The Philadelphia Semiconductor Index soared a staggering 38.4% in April.

Gains were more muted in Europe and Asia, as these regions face increased energy-related cost pressures linked to the Strait of Hor­muz disruption. The STOXX 600 rose 5.6% while the MSCI UK returned 2.2%, as earlier energy-led outperformance faded. In Asia, Hong Kong’s Hang Seng rose 4.1%, the Shanghai Compos­ite returned 5.7%, and Japan’s Topix Index gained 6.6%.

🟢 Investor note:

The sharp rebound in global equities highlights how quickly investor sentiment can recover when geopolitical risks temporarily ease. However, markets remain highly dependent on developments in the Middle East, particularly energy supply routes and oil price stability. The continued strength in AI and semiconductor sectors suggests investors are still prioritising long-term structural growth themes despite short-term macro uncertainty. Diversification across regions and sectors remains important as volatility is likely to persist.

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United States –

Oil prices stayed elevated in early April amid Strait of Hormuz disruptions, while equities came under pressure. This reversed sharply following the ceasefire and Iran’s pledge to restore safe passage through the waterway, leading to a sharp relief rally across global markets. Equities, bonds and gold moved higher while oil and the dollar fell. It was a volatile month for oil, with Brent end­ing April at $114 per barrel, as reports emerged that the US may resume strikes on Iran. The US continues to enforce a blockade of the Strait of Hormuz to maintain economic pressure on the regime.

In other oil-related developments, the United Arab Emirates (UAE) said on 28 April it was leaving OPEC (the Organization of the Pe­troleum Exporting Countries) and OPEC+ groups¹ after nearly 60 years of membership. This move is expected to allow the UAE greater flexibility to increase production outside quota constraints.

Inflation in the US increased by 0.9% in March to 3.3%, reflecting higher energy costs, while core price pressures remained much more subdued.3 The US also saw an unexpected rise in consumer confidence data, underscoring how the country has remained rea­sonably resilient from the impacts of the war in the Middle East so far, despite the sharp rise in petrol prices.

🟢Investor note:

The resilience of the US economy and equity market continues to support investor confidence, particularly in growth-oriented sectors such as technology and AI. However, elevated oil prices and persistent geopolitical tensions may continue to place upward pressure on inflation, which could delay expectations for future interest rate cuts. Investors should remain mindful that energy-driven inflation shocks can quickly alter market expectations and bond yield movements.

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United Kingdom –

Both the Bank of England (BoE) and the European Central Bank (ECB) left rates unchanged despite rising inflationary pressures – European economies are more affected by the closure of the Strait of Hormuz given the continent’s reliance on imported energy. BoE Governor Andrew Bailey said future policy decisions will “depend on the size and duration of the energy price shock”, while the ECB stressed “the longer the war continues and the longer energy prices remain high, the stronger the likely impact on broader in­flation and the economy.”

UK gilt markets underperformed their US peers as political risk took centre stage. Unease at Westminster over Labour’s vetting of former US ambassador Peter Mandelson has contributed to broader questions about judgement and the party’s future lead­ership, adding to uncertainty ahead of May’s local elections, where around 30 million voters will head to the polls.

Polling suggests that, for the second year in a row, Labour and the Conservatives may struggle to dominate vote share and seats won, potentially increasing representation for smaller parties including Reform, the Green Party and the Liberal Democrats. This points to a more fragmented political landscape, which may increase the calls for a leadership change.

Gilt yields rose on the back of this uncertainty. Ten-year gilt yields closed the month above 5% for the first time since 2008, rising over 0.5% so far this year. Ten-year Treasury yields ended April at 4.37%, reflecting a 0.2% increase in 2026.

The month ended with a historic state visit by King Charles to the United States. After strains following US military action in Iran raised questions about cohesion within NATO (North Atlantic Treaty Organization) and wider transatlantic coordination, British diplomats had hoped to reset relations and warm the relationship between London and Washington. The state visit, while largely symbolic, was intended to reaffirm shared commitments and in this sense, King Charles’s trip was a diplomatic success as President Donald Trump waived tariffs on Scottish whisky.

🟠 Investor note:

The UK faces a combination of elevated political uncertainty, persistent inflation risks and rising borrowing costs, all of which may continue to pressure domestic assets in the near term. Higher gilt yields could create opportunities for income-focused investors, but increased volatility in UK markets is likely as investors assess fiscal credibility and the evolving political landscape ahead of elections. Sterling and UK equities may remain sensitive to both domestic policy developments and wider global energy trends.

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Europe –

Hungary experienced a decisive election result where nearly 80% of the population turned out to vote on 12 April that ended 16 years of Viktor Orbán’s leadership. Orbán had been a close partner of Vladimir Putin and Trump while frequently at odds with the European Union and Ukraine. From a market perspective, the result is likely to be viewed as moderately supportive for EU cohe­sion and sentiment.

🟢Investor note:

Political developments across Europe continue to influence investor confidence, particularly where they affect EU unity, fiscal cooperation and energy policy. While the change in Hungary may modestly improve broader European sentiment, investors are likely to remain focused on inflation, economic growth and the region’s exposure to higher energy prices. European markets may continue to lag the US unless energy pressures ease materially.

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Summary for Investors –

Market leadership remains concentrated in sectors tied to structural growth themes such as AI and technology, while geopolitical and energy-related risks continue to dominate the macro backdrop. Investors may benefit from maintaining diversified portfolios with exposure to quality growth assets, while also balancing portfolios with defensive and income-generating investments to help manage ongoing volatility and uncertainty.

March 2026

Global Equities –

The joint US/Israeli strikes on Iran triggered waves of volatility across global markets in March. These strikes – and subsequent retaliation from Iran, including the provisional closure of the Strait of Hormuz – have sent oil and natural gas prices sharply higher and resulted in rising price pressures, which may persist if the conflict continues. Yet while the shock has unsettled markets, history suggests that periods of disruption can also reset valua­tions and create opportunities for longer-term investors.

Central banks face a difficult balancing act. The Federal Reserve (Fed) and the Bank of England (BoE) – which had previously been on a rate-cutting cycle – opted to hold rates steady at their March meetings. Looking ahead, the path may be more complex as high­er energy prices are likely to push up inflation.

In March, equities pulled back, as investors started pricing in rising input costs and the potential hit to growth, with higher utility bills likely to lead to household consumption tapering off. The S&P 500 fell 5% last month while the Nasdaq declined 4.7%. In Europe, the STOXX 600 Index fell 7.5% while the MSCI UK dropped 6%. Hong Kong’s Hang Seng Index fell 6.6% and China’s Shanghai Composite declined 6.5% in March.

🟢 Investor note:

Short-term volatility is being driven by energy price shocks and geopolitical risk, but broad-based equity pullbacks may create selective entry points, particularly in high-quality companies with strong pricing power and resilient margins.

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United States –

The US/Israeli joint strikes on Iran were initially expected to last a few weeks, but Iran’s subsequent targeting of countries across the Gulf has widened the conflict. Even if a resolution is found in the coming weeks, markets will continue to feel the short-term impact on critical energy assets and infrastructure, such as Qatar’s Ras Laffan facility, which produces about 20% of the world’s liq­uefied natural gas (LNG).

The consequences for supply chains and growth continue to be significant. Oil prices jumped, with Brent crude prices surging 63% in March to close the month at USD 118 a barrel. European gas prices pushed higher, with natural gas prices rising almost 60% in March. Furthermore, disruptions to petrochemicals, aluminium and fertiliser flows will have implications for food production and food prices.

Even traditional safe-haven assets such as gold have not been immune. After a record start to the year, gold fell 11.6% in March. Gold typically performs well in periods of uncertainty, as investors seek assets that preserve value. However, in extreme risk-off en­vironments, investors often sell their best-performing and most liquid holdings to raise cash and reposition portfolios.

🟢Investor note:

Energy and commodity-linked sectors may benefit from sustained supply disruptions, while broader markets could remain under pressure from rising input costs. Liquidity-driven sell-offs across asset classes may offer tactical re-entry opportunities.

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United Kingdom –

At the start of the year, most market participants expected central banks to continue gradually reducing interest rates after rates peaked three years ago. However, the conflict has disrupted this outlook.

Higher energy costs will lift inflation while weighing on growth, forcing businesses and consumers to adapt to higher costs – pres­sures that will likely intensify should the war persist. Policymakers must now decide whether to pause the cycle or potentially raise rates.

All three major central banks opted to keep rates steady in March, citing geopolitical uncertainty, but forecasts differ. The Fed is ex­pected to hold rates steady. Fed Chair Jerome Powell reaffirmed this on 30 March at an event at Harvard University, saying he believes rates are in “a good place” for the Fed to observe devel­opments in Iran and tariff impacts before acting.

“By the time the effects of a tightening in monetary policy take effect, the oil price shock is probably long gone, and you’re weighing on the economy at a time when it’s not appropriate,” Powell said. “So the tendency is to look through any kind of supply shock.”

However, the market expects both the BoE and the European Central Bank (ECB) to raise rates this year as inflation predictions rise – the BoE is forecasting inflation could hit 3.5% by July, while the ECB expects inflation to average 2.6% in 2026, up from 1.9%. The prospect of higher inflation and central bank hikes led to losses among sovereign bonds, with 10-year Treasury yields rising by 0.38% in March to end the quarter at 4.32%. Ten-year bund yields hit 3%, and 10-year gilts reached 4.92%.

🟠 Investor note:

Sticky inflation and a potential shift back toward rate hikes could pressure both equities and bonds. Investors may need to position for a higher-for-longer rate environment, with a focus on income generation and inflation resilience.

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Asia –

Following a strong start to the year after the snap election, Japanese equities retreated in March, with the Topix (Tokyo Stock Price Index) down 10%, but still ending the quarter up nearly 4%. Japanese government bond yields rose, with 30-year yields finish­ing the month at 3.7%.

🟢Investor note:

Despite short-term weakness, underlying momentum in Japan remains intact. Rising yields may signal improving economic conditions, and equity pullbacks could present opportunities in export-driven and reform-focused sectors.

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Summary for Investors –

Markets remain highly sensitive to developments in the Middle East and global energy supply. As central banks weigh inflation against growth, periods of volatility can create opportunities and attractive entry points. I believe maintaining a disciplined, long-term approach can allow investors to capture gains as mar­kets recover.

February 2026

Global Equities –

The trend of non-US equity markets outperforming the US con­tinued in February, as investors questioned the business models of software-as-a-service (SaaS) companies in the face of continued AI disruption.

However, by the end of the month, a US- and Israeli-led strike on Iran, and its retaliation, took centre stage, with the wider region affected by this conflict. These strikes across the Gulf have forced airport closures, closed the Strait of Hormuz and driven gyrations through financial markets in the first days of March. The market’s immediate, knee-jerk reaction was a flight to safe-haven and en­ergy assets. Looking ahead, market sentiment will depend on whether this is a contained disruption or the start of a more pro­longed conflict.

However, markets were mostly closed on 28 February when ten­sions flared, so the market reaction will be mostly felt in March. Nevertheless, speculation about action in Iran was mounting throughout the month, and despite this heightened risk, Europe­an and Japanese equities posted strong gains in February – the STOXX 600 rose 3.9% and Japan’s Topix gained 10.5%.

🟢 Investor note:

Despite rising geopolitical tensions, global markets remained resilient through February. The outperformance of European and Japanese equities suggests investors are increasingly diversifying away from US concentration risk. However, the escalation in the Middle East could drive near-term volatility in energy prices and global markets, making diversification and risk management increasingly important.

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Europe –

US equity returns were mixed last month. The market capital­isation S&P 500 Index – where larger companies have a bigger influence on returns– fell 0.8%. The Equal Weighted S&P 500 Index – where each company counts the same regardless of size – rose 3.5% in February. The Magnificent Seven dragged the index down, as these behemoths fell 7.3% in February. The Nasdaq dropped 3.3% in February amid ongoing volatility due to concerns about the impact of AI on specific industries.

By contrast, performance outside the US was notably stronger. Europe’s STOXX 600 posted its eighth consecutive monthly gain for the first time since 2013, rising nearly 4% to bring its year-to-date returns to 7.3%. Japan’s Topix meanwhile surged over 10% after Prime Minister Sanae Takaichi secured a landslide victory in her snap election in early February. In the UK, the MSCI UK rose 7.3% in February, buoyed by its international exposure.

Earnings season was broadly strong, though software compa­nies saw renewed volatility after investors questioned whether AI could disrupt traditional SaaS models. The S&P 500 Software In­dustry Index fell a further 9% in February after dropping 13% in January.

The market environment has now shifted from favouring AI lead­ers towards identifying companies whose business models are most likely to be threatened by the fast-developing technology. While underlying earnings for these businesses continue to be solid, investors are less confident about these companies’ future prospects.

🔴 Investor note:

Market leadership is broadening beyond large US technology companies. Investors are reassessing which sectors benefit from AI and which may face disruption, leading to increased volatility in software and growth sectors. This environment may favour more diversified portfolios and opportunities in regions and sectors that have been underrepresented in recent years.

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United States –

 On 20 February, the Supreme Court of the United States ruled that sweeping tariffs imposed by President Donald Trump on key trading partners did not comply with federal law. The 6–3 decision dealt a significant setback to the administration’s economic strat­egy and introduced new uncertainty around existing trade ar­rangements. It also raised the possibility that the United States government could ultimately be required to reimburse businesses for billions of dollars in tariff payments, despite many firms having already passed those costs on to consumers.

Markets have welcomed the ruling so far, viewing it as a constraint on the administration’s ability to use tariffs as a negotiating lever. While a replacement tariff framework, beginning at 10% and po­tentially rising to 15%, was enacted under a little-tested provision allowing the president to impose broad tariffs for up to 150 days without congressional approval, the days of ratcheting tariffs ap­pear to be over.

🟢Investor note:

The ruling reduces the likelihood of an aggressive escalation in US trade tariffs, which markets generally view as positive for global trade and corporate earnings. However, policy uncertainty remains, and investors should expect continued political influence on markets as the administration explores alternative trade measures.

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United Kingdom –

The Bank of England (BoE) voted to keep rates steady at its 4 February meeting in a close 5–4 vote, with the four dissenting Monetary Policy Committee members voting to reduce rates by 0.25%. The central bank forecasts CPI inflation will fall to 2% later this spring, while lowering its economic growth forecasts and increasing its unemployment predictions. This will likely lead to the central bank lowering interest rates further later this spring.4

The European Central Bank (ECB) kept interest rates unchanged and maintained its assessment that inflation should hover around 2%. The bloc’s economy remains resilient, as low unemployment, solid private sector balance sheets, and the gradual rollout of pub­lic spending on defence and infrastructure are supporting growth. However, the bank warned that the outlook remains uncertain, owing to ongoing global trade policy uncertainty and geopolitical tensions.

February underscored a market environment of positive re­turns, amid a rotation and repricing. Leadership continued to shift away from US technology companies towards non-US markets, as AI disruption and policy uncertainty created volatility beneath the surface. At the same time, political developments – from US trade rulings to Japan’s electoral outcome – reinforced that domestic policy dynamics remain an important driver of regional perfor­mance differentials.

While geopolitical tensions in the Middle East have introduced a new layer of uncertainty heading into March, markets enter this period from a position of relative strength. Corporate earnings have been solid, and central banks are eyeing modest policy eas­ing, with growth and inflation dynamics warranting close atten­tion.

Looking ahead, volatility may remain elevated as investors assess the durability of the Iran conflict and the evolving political land­scape. Market leadership is broadening, and policy risks are being recalibrated rather than escalating. While geopolitical events can be unsettling, periods of uncertainty are likely to generate selective opportunities.

🟠 Investor note:

With inflation expected to fall and central banks potentially beginning rate cuts later this year, the macroeconomic backdrop could become more supportive for risk assets. However, slowing growth forecasts and geopolitical risks suggest investors should remain selective and focused on quality companies with resilient earnings.

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Asia –

On 8 February, Japanese voters handed Prime Minister Takaichi and the long-ruling Liberal Democratic Party a supermajority of two-thirds of the seats in the 465-member lower house of Parlia­ment – the first political party to achieve this in a post-war era. It was a historic moment in a country where prime ministers typical­ly govern with narrow margins and make compromises to their agenda to appease coalition factions.

The victory will give Takaichi room to push forward with her agen­da, which includes a tougher stance on immigration, a review of rules around foreign ownership of Japanese land, and spending more while cutting taxes to revive the economy. She may also now have the political leverage to revise Japan’s Constitution to loosen constraints on its military, clearing the way for higher spending and expanded operations beyond Japan’s shores. She will have to tread carefully, in case her expansionist policies prove inflationary. Equities soared on the news, with Japan’s Topix rising 10.5% in February, bringing its returns to 14.4% so far this year. The yen rallied on the back of her victory before ending the month at close to unchanged levels. Japanese government bonds rallied sharply, with 30-year yields declining to 3.3%, the lowest for the year.

🟢Investor note:

Japan’s strong equity performance reflects renewed investor confidence in political stability and potential pro-growth reforms. Structural changes, fiscal stimulus and improved corporate governance continue to support the long-term investment case for Japanese equities.

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Summary for Investors –

February highlighted a shifting market landscape. Leadership is broadening beyond US mega-cap technology companies, with European and Japanese equities delivering strong returns. At the same time, investors are reassessing which industries are most likely to benefit from – or be disrupted by – rapid advances in artificial intelligence.

Geopolitical tensions in the Middle East have introduced new uncertainty heading into March, particularly given the potential impact on energy markets and global trade routes. However, markets entered this period from a position of relative strength, supported by resilient corporate earnings and the prospect of gradual monetary easing from major central banks later in the year.

For investors, the environment reinforces the importance of diversification across regions, sectors and asset classes. While volatility may remain elevated in the near term, shifting market leadership and evolving policy dynamics could create selective opportunities for long-term investors who remain disciplined and globally diversified.