Investment environment overview 2/2025

Global equity markets experienced noticeable volatility in February mainly due to a flurry of geopolitical events. European equities continued to outperform their U.S. and Chinese counterparts, driven primarily by gains in luxury and defense sector stocks, as well as optimism surrounding a potential peace agreement in Russo-Ukrainian war. Alas, hopes for speedy peace arrangements faded at the end of the month, following an explosive dispute between Trump and Zelenskyy in the Oval Office on February 28th. STOXX 600 rose by 4.2% in February, while German DAX posted a 5.2% gain. In contrast, the S&P 500 fell by 0.7%, the Nasdaq-100 declined by 1.9%, and the Dow Jones lost 1.3%, while the Russell 2000 recorded the sharpest drop among U.S. indexes for the month, falling 4.2%. Meanwhile, Chinese equity indexes registered solid gains, mainly due to a rally in tech stocks – the CSI 300 gained 2.5% while the Shanghai Composite gained 2.8% in February. Cryptos had a hard month, with most dropping by 20-30% to their lowest levels since mid-December. Bitcoin slid below BTC/USD 90,000, while Ethereum closed the month just above ETH/USD 2,100, down from the highs of ETH/USD 4,000 in December, marking a 35% MoM decrease.

Government bonds have once again proven to be great diversifiers amid escalating concerns over a global economic slowdown – the yield on the 10-year Treasuries declined from 4.6% to 4.2% during the month. Consequently, the Fed is now expected to wait until the next quarter for rate cuts due to softening economic growth projections and stubborn inflation. During its March meeting, the ECB once again lowered its main rates by 25 bps. It also updated its inflation forecasts, now projecting the core inflation rate of 2.2% and the headline inflation rate of 2.3% for 2025.

The end of European “peace dividend”

As mentioned earlier, European defense stocks rallied in February, as Europe begins to reassess its defense spending. This reassessment comes after Trump has repeatedly criticized European countries for not doing enough for their own security. His rhetoric could suggest a potential transatlantic rift in the future, which could signal the end of the long-standing “peace dividend” that Europe has economically benefitted from since the 90’s. Rheinmetall, the leading German military contractor, was up 31.7%, Rolls-Royce gained 25.0%, Leonardo gained 26.1% and BAE Systems rose 14.3%. Europe’s leading defense index, STOXX Europe Total Market Aerospace & Defense, jumped 12% for the month. European defense contractors are preparing for potential increase in demand, as analysts predict Europe will need an additional 300,000 troops and a 0.6% increase in GDP spending – about EUR 250 billion annually – if the U.S. ceases all European security guarantees. In response, the EU introduced the “ReArm Europe” Plan in early March, a defense fund aimed at raising nearly EUR 800 billion with EUR 650 billion coming from its own funds and EUR 150 billion through lending.

European and US equity markets

Source: Bloomberg and Signet Bank

A stellar earnings season

The Q4 2024 earnings season has showcased an outstanding performance for S&P 500 companies across various sectors, with most companies exceeding estimates despite a backdrop of economic uncertainty. As of the 28th of February, 63% of S&P 500 companies have reported actual revenues above estimates, while the YoY earnings growth rate for the S&P 500 in Q4 was 18.2%, marking the highest growth since Q4 2021 (34.1%). 75% of S&P 500 companies reported positive EPS surprises, which were driven by standout numbers from companies in the financial and IT sectors.

Most notably, NVIDIA led revenue growth among major S&P 500 companies in Q4 2024, reporting a record USD 39.3 billion in quarterly revenue — a 12% increase from the previous quarter and a 78% YoY surge. The growth was primarily driven by its Data Center segment, which saw revenues climb 93% YoY to USD 35.6 billion due to soaring demand for the company’s AI and semiconductor products. During February, the stock increased by 7.1%, however, on the first day of March, the stock lost 9% after Trump confirmed that tariffs against Canada and Mexico will go into effect.

Other tech giants also posted strong quarterly figures. Meta recorded a 21% revenue increase, benefiting from digital advertising strength, while Netflix revenue grew 16% due to subscriber gains and pricing power. Microsoft and Google both saw 12% revenue growth, while Amazon’s 10% increase was supported by e-commerce and cloud computing. In contrast, Apple’s 4% revenue growth aligned with the broader S&P 500 average, while Tesla lagged behind with a modest 2% increase.

Benchmark 10-year bond yields

Source: Bloomberg and Signet Bank

Uncertain economic trends

Eurozone’s manufacturing sector continued its struggles, and usually strong services sector also experienced a slight slowdown in growth, as the services PMI edged down to 50.6 from 51.3 in January. Meanwhile, in the U.S., both manufacturing and services sectors continued their expansion. Manufacturing PMI was 50.3, down from 50.9, which was partly attributed to the anticipation of new tariffs, causing rising material costs and supply chain disruptions. The services sector remained resilient, with the sector’s PMI unexpectedly increasing to 53.5 from 52.8 in January. Meanwhile, according to ADP, private businesses added 77K workers to their payrolls in February, the smallest increase in seven months. As a worrying signal for the U.S., in early March, the Atlanta Fed’s GDP estimate for Q1 2025 sharply dropped to -2.8%, signaling the risk of a “Trumpcession”.

High Yield bond Indexes

Source: Bloomberg and Signet Bank

Dollar and commodities stay calm despite the noise

Although the world is plunging deeper into a period of turbulence, FX and commodity markets remain in a low-volatility mode. The narrow trading range of EUR/USD last month reflects the pair’s indecisiveness and lack of clear direction. Overall price action still favors downside pressure toward the 1.0300 support level. If the market manages to break and settle above 1.0800, we may need to reconsider our long USD position.

Our outlook on commodities remains largely unchanged. Gold has reached our previous target of XAU/USD 2,900 and continues to post all-time highs, so we continue to tactically reduce our long positions. Silver is losing momentum and needs to break above XAG/USD 34 to regain strength. Meanwhile, platinum remains the weakest of the three and lacks a clear direction. Oil continues to trade sluggishly, staying above our long-term support trend line, with no major global events impacting its movement. However, low volatility often precedes sharp price swings, and we may be approaching such a moment.

Gold price, USD/oz

Source: Bloomberg and Signet Bank

Regional Highlights

In February, the OMX Baltic Benchmark Index gained 3.2%. Meanwhile, the European Bank for Reconstruction and Development (EBRD) has lowered its economic growth forecast for the region. The EBRD now expects the combined GDP growth for Central Europe and the Baltic states to reach 2.7% in 2025, slightly lower than previously expected; however, the growth is projected to increase slightly to 2.8% in 2026, supported by a strong labor market. The EBRD’s updated 2026 GDP growth forecasts for individual Baltic countries are as follows – Estonia at 2.6%, Latvia at 2.5%, and Lithuania at 2.7%. The lower forecast reflects slower growth in manufacturing, exports, and investment, mainly due to weaker demand from major European economies. Additionally, full-year 2024 GDP results for the Baltic states have been released – Lithuania’s GDP grew by 2.6%, while Latvia’s and Estonia’s GDP contracted by 0.4% and 0.3%, respectively.