February market performance: It’s not always a one-way street

US -2.6%.
The US stock market declined almost the same as the global index. The negative performance was caused by a wide variety of things, where two dominate: 1) a surprisingly high PCE inflation for January, which spooked the markets and 2) the continued focus on structural (long-term) inflation and with the long-term increases in US bond yields, which together could be feared as signs of moving into potential recession territory.

Europe 1.6%.
Europe registers as the only region with positive performance this month. The green figures (or blue in this article) is mainly driven by strong consumer consumption figures and easing inflation figures which in total can be interpreted as lesser risk for a recession on the European continent.

Asia –5.9%, Emerging Markets –6.4%.
Both the Asian and Emerging Markets fell more than five percent during February. While several components in both were in red this month, especially Hong Kong had a tough time. The negative performance was based on economic, policy and geopolitical uncertainties.

All sectors ended in minus in February. The best-performing was the popular information technology sector, which basically hit status quo. Energy, materials and real estate all fell more than five percent due to increasing interest rates, recession fears, and inflation and geopolitical uncertainties. The overall sour picture shows the volatile nature of the financial markets these days.

Global bonds fell 1.6 percent on an aggregate level, with corporate bonds falling more than sovereigns. The move should mainly be seen as a countermove to January’s robust performance for the asset class. This was based on investors moving into bonds with an expectation that the fiscal tightening regime that the central banks have imposed in recent times would soon end. But with some economic data like e.g., the aforementioned PCE inflation and a strong US job report suggesting that further tightening is needed to quench inflation, investors likely have moved towards expecting more tightening than they originally hoped, which in turn sends bonds south.