GoalsGetter Monthly Commentary February 2025

February was a ‘month of two halves’, with the strong returns seen in January continuing into the first two weeks of the month, before investor sentiment turned and global equity markets moved lower. Ongoing rhetoric from global political leaders on a range of new tariffs in response to the US administrations on-again/off-again tariffs led to uncertainty over the impact such tariffs could have on inflation and economic growth.

On the positive side of the ledger, company earnings season was generally positive. In the US earnings per share growth for S&P500 companies was 12% for 4Q2025, ahead of expectations for 8% growth. The MSCI ACWI (NZD Hedged) was down -0.8%, but is still up over 16% on a rolling 1-year basis. The NZ Dollar remained well below U$0.60 and moved slightly lower meaning the MSCI ACWI Index (NZD unhedged) was up 0.2% (+25.1% rolling 1-yr). Global Interest rates moved in a similar trend to equity markets, initially moving higher to peak mid-month, before falling as risk appetite waned. This meant global bonds posted a solid gain in February, the Bloomberg Global Agg Index (NZD Hedged) advanced 1.2% for the month, while the NZ Composite Bond Index was up 0.6%. Europe and UK equity markets, as well as Hong Kong and China, continued their strong start to 2025, while the US was once again a laggard versus the broader market. New Zealand and Australian equities were also weak, falling 3% and 4% respectively.

Lagging economic data out of the US remained solid, but some leading indicators suggested an increased chance of a slowdown ahead. The Atlanta Federal Reserve branch produces a ‘GDP Nowcast’ forward-looking estimate for economic growth, this is now predicting a contraction in GDP for the first quarter of 2025.  The Federal Reserve have suggested they will be patient before cutting rates further, and currently two rate cuts are expected in the second half of the year. The Bank of England cut rates in February, and most other central banks retained a dovish stance, with the exception of Japan where economic data remains strong and more hikes are expected.

On a sector basis some of the leaders from most of the last few years underperformed. Information technology, consumer discretionary, and communications services were all weak, while defensive sectors such as real estate and consumer staples posted solid gains. The much watched ‘Magnificent 7’ combination of mega-cap companies was down over 8% for the month, with Tesla, Alphabet and Amazon particularly weak.