Political events
In February, the geopolitical landscape saw heightened tensions with Syrian conflict spillovers involving Israeli and U.S. military actions, alongside operations against Houthi forces in Yemen amid Red Sea tensions. Concurrently, the European Union took a significant step by greenlighting a substantial €50 billion aid package for Ukraine, facilitated by Hungary retracting its previously imposed veto.
The situation on the markets
The US saw a softening in key economic indicators, with dips in retail sales and industrial production at the beginning of the year. Yet, early Q1 GDP estimates showed robust growth. Manufacturing activity cooled in February, while the labor market remained tight, maintaining a 3.7% unemployment rate. In contrast, the UK entered a technical recession at the end of last year but showed signs of recovery with a January surge in core retail sales. The Composite PMIs for the Eurozone moved higher with a decline of headline and core inflation to 2.6% and 3.1% respectively.
The impact on the asset classes equities and bonds
Despite concerns in specific sectors, the overall market mood remained positive, with global stock markets achieving their fourth consecutive monthly gain. Conversely, the bond market faced challenges as treasury yields rose, reflecting investor adjustments to Federal Reserve rate cut expectations. These dynamics underscore a period of optimism in equities fueled by strong earnings and economic data, alongside a recalibration in the bond market due to shifting monetary policy outlooks.
Equities
Global equity markets marked a fourth consecutive month of gains with the tech-heavy S&P 500 surpassing the 5000-mark with a 5.2% increase. This surge was led by significant growth in major tech companies, collectively referred to as the “Magnificent 7,” which saw their best performance in nine months with a 12.1% gain. Emerging market stocks also performed well, with a 4.6% increase, almost fully recovering from earlier losses, driven by a strong rebound in China.
Bonds
In contrast, the bond market faced declines due to rising treasury yields, influenced by strong US economic and inflation data and Federal Reserve officials emphasizing no rush for rate cuts. This led investors to adjust their expectations, anticipating the Fed’s first rate cut in June and forecasting fewer rate reductions in 2024 than initially expected. This shift resulted in a significant increase in bond yields, with the 10-year climbing 34 basis points to 4.25%, while the two-year treasury rose by 41 basis points to 4.62%.
What are the implications for the Everon portfolios?
The rising equity markets led to a positive performance throughout the Everon portfolios, with our flagship strategy – the Everon Multifactor 100 – standing out with a return of over 6%. We largely maintained our asset allocation in February, with an evenly high level of diversification among the individual instruments. The other strategy lines in the areas of sustainability and income as well as our passive approach (Smart Global Markets) also performed well with returns of 4 to 5% (with 100% equities) and outperformed the benchmarks.
