A Tale of Two halves…
February has been a tale of two halves in terms of market returns – the first half continued where January left off as the ‘Trump Bump’ thrust both the FTSE 100 and S&P 500 to all-time highs.
There has been a reversal in trend over recent weeks, particularly the Mag-7 (magnificent Seven ‘tech’ stocks), now more recently coined the Lag-7 as their shares have stalled in favour of more defensive assets. With treasury yields also falling it seems markets are potentially waking up to the possibility of slowing growth. This is likely some healthy profit taking; however, we are vigilant in our monitoring in case this a sign of something more incipient to come in the markets? Will US policies come up ‘Trumps’ or is there something else that can flip the markets back to green?
The initial catalyst came from the artificial intelligence Leader Nvidia, which reported its quarterly earnings last week, and despite murmurs of weakening demand further down the chain, they reported another revenue increase of 80%. This will potentially provide an important direction of travel as the tech sector has disappointed in recent weeks due to the unknown impending impact of tariffs This positive result for Nvidia could eventually spark another leg back up due to the sectors significant weight in the index.
Trump weighs in on Ukraine…
It’s been an interesting month in Europe as Trump weighs in on the Russia/Ukraine conflict in his own unique style, calling Zelensky a ‘Dictator’ whilst simultaneously staking a claim for minerals in Ukraine. Any move towards a peaceful end to the conflict could spell further positive news for the European markets, which are looking to continue the recovery we’ve seen in recent weeks. This could bring relief for rising energy costs which has been a leading-contributor to inflation around Europe – perhaps too optimistic for our domestic bills at home, though. However, the Oval Office scenes from last week and the recent news of Trump withdrawing military aid from Ukraine altogether, presents an increasingly volatile situation that we will be monitoring closely and how it pertains to markets.
The ’DOGE’ gets to work…
On US soil, the Department of Government Efficiency, jovially coined ‘DOGE’ in the media, have begun getting to work to reduce the expenditure of the federal government. They have a target of $500bn of expenditure to cut and one of their first actions was to email every federal employee asking what they achieved over the past week, or face termination. Some government employees did not reply – perhaps to not dignify the question with a response, or more worryingly, providing insight into why DOGE might be necessary after all. Why is this important? In essence, any reduction in government spending to reduce the significant deficit will go some way to relieve US Treasury investors that the government is committed to balancing the books. In addition, any significant rise in unemployment could challenge the narrative that inflation will continue to rise. This will be an interesting discourse throughout the next few months of Trump’s administration alongside the ever-evolving tariff story.
The scores on the doors…
The scores on the doors at the time of writing this month have the FTSE 100 returning a measly 0.25%, the S&P 500 falling -1.31% and gold continuing to perform well, returning 2.96%. The USD has also weakened against the Pound 1.64% this month – largely on news of interest rate cuts to come.
What have we been doing on our DPS portfolios
To match our thoughts above we have recently completed a round of gardening portfolios to bring them more in line with our core investment view. We have been continuing to favour US equities over UK, but we did take some profits on US tech winners to lock in profits – the proceeds of which have gone into a global index-linked bond fund to provide some inflation protection to portfolios in the face of the recent hotter than expected CPI figures. Our direction of travel will be to favour the US over the UK and Europe, whilst the latter continue to struggle for growth, and we fear stagflation may start to take hold.
We continue to actively monitor key areas for an entry point, as we mentioned last month; healthcare, materials and adding India specifically as part of our Emerging Market exposure – all remain key themes to our core investment view.
Important Information
This article is for information only and does not constitute advice or recommendation and you should not make any investment decisions based on it. The views and opinions of this article are those of Casterbridge at the time of writing and may change without notice. Any opinions should not be viewed as indicating any guarantee of return from investments managed by Casterbridge nor as advice of any nature. It is important to remember that past performance and the value of an investment, and any income from it, may go down as well as up and the investor may not get back the original amount invested.
