February 2025 Market Recap: Markets Catch Their Breath as Policy Shifts Loom
- Thomas Sleep
- Mar 3
- 5 min read
After a strong start to the year in January, global markets shifted down a gear in February. Investor sentiment remained broadly positive, but growing caution was visible across sectors and regions. The expectation of interest rate cuts is still supporting risk assets, but signs of an economic slowdown and concerns over how central banks will respond created a more balanced mood.
The big story this month was volatility in technology stocks, especially those exposed to artificial intelligence, alongside a growing shift toward defensive positioning. Inflation is falling, but the path forward will require careful navigation.
Global Stock Market Performance Recap: From Acceleration to Consolidation
Global equities paused for breath in February. The MSCI All Country World Index (which tracks developed and emerging market equities) fell by 1.7% during the month. That pulled the year-to-date return down to +2.2%, following a strong performance in January.
Breaking it down by region:
United States: The S&P 500 and Nasdaq Composite remained relatively strong, supported by robust fourth-quarter earnings and continued optimism about AI. However, leadership narrowed, with fewer companies driving overall gains. Volatility crept into the tech-heavy Nasdaq in the second half of the month.
United Kingdom: The FTSE All-Share Index was essentially flat. Disappointing economic data, including a fall in retail sales and weak GDP growth, weighed on investor confidence. The strength in energy, mining, and financial sectors helped balance declines in more cyclical areas.
Europe: European equities dipped, with investors balancing falling inflation against concerns that the European Central Bank may delay rate cuts due to sticky wage growth and services inflation.
Japan: Japanese equities continued their impressive run in 2025, buoyed by strong corporate earnings, attractive valuations, and ongoing foreign investment. The Bank of Japan remains accommodative, which is helping sentiment.
In short, February was less about retreat and more about consolidation. Investors are still optimistic but increasingly aware that policy normalisation and shifting leadership in sectors will drive market behaviour.
Technology and AI: From Hype to Hard Reality
Artificial intelligence remains a dominant investment theme, but February exposed how fragile sentiment can be around sky-high valuations.
A significant development came from Deepseek, a Chinese AI developer, which launched the R1 model, a new generative AI tool that rivals OpenAI’s ChatGPT in capability but at a much lower operating cost. This raised questions about the future pricing power of existing AI infrastructure players.
The most dramatic impact was seen in Nvidia, the US chipmaker that has been central to the AI investment story. Despite solid earnings, its stock fell 17% in a single day, the largest one-day market cap loss in US history, more than $600 billion wiped off its valuation.
This wasn’t about the company’s fundamentals changing overnight. Instead, it was a reminder that when valuations are stretched, markets can respond sharply to any perceived shift in the growth outlook.
Other semiconductor and AI-linked stocks also pulled back, though many remain up strongly for the year.
For investors, the message is that while AI remains a transformative technology, the path forward will be volatile and selective, especially when expectations are so high.
Interest Rates and Central Banks: Shift Underway, but Caution Remains
Monetary policy continued to dominate investor focus in February. Inflation is moving in the right direction globally, and economic activity is softening—both of which support the case for rate cuts. But central banks aren’t rushing. The tone remains one of caution.
United Kingdom – Bank of England (BoE)
In February, the BoE cut its base rate by 0.25%, bringing it down to 4.5%.
Inflation (CPI) fell to 2.5% in December, close to the Bank’s 2% target.
However, wage growth remains high, and services inflation is proving sticky.
Economic growth is very weak: GDP rose just 0.1% in November, and retail sales declined in December.
The BoE is clearly preparing for further cuts, but the pace will be gradual. For now, it’s focused on balancing inflation control with the need to support an economy at risk of stagnation.
United States – Federal Reserve
The Fed held its policy rate steady at 4.25%–4.50% for the fourth consecutive meeting.
Inflation continues to trend lower, but core PCE (the Fed’s preferred gauge) remains slightly above the 2% target.
GDP growth slowed to 2.3% annualised in Q4 2024, down from 3.1% in Q3.
Labour market strength continues, though job growth is moderating.
The market still expects the Fed to start cutting rates by mid-2025, but policymakers are clearly waiting for sustained evidence that inflation is fully under control. Election-year politics will not influence their timeline.
Eurozone – European Central Bank (ECB)
The ECB left interest rates unchanged and maintained a cautious stance.
While goods and energy inflation are easing, services inflation remains a concern, largely driven by wage growth.
Markets expect the ECB to begin cutting rates around Q2 2025, but no firm guidance has been given.
The ECB is walking a similar path to the BoE and Fed, waiting for inflation data to give them full confidence before acting.
Commodities and Currencies: Rotation into Safety Begins
Gold
Gold prices jumped by 6.6% in February. The rally was driven by falling real yields, anticipation of interest rate cuts, central bank buying, and ongoing geopolitical tensions.
Gold’s resurgence shows that investors are starting to prepare for a rate-cutting cycle and are seeking portfolio protection as volatility increases.
Oil
Brent crude oil rose 1.9% to finish February near $83 per barrel. Supply risks remain elevated due to Middle East tensions, though demand from China and Europe is soft.
US production levels remain high, helping to cap price gains. Oil markets are currently caught between opposing forces, geopolitical risk on one side and slow global growth on the other.
Currencies
The US dollar held firm, supported by relatively higher interest rates and demand for safe-haven assets.
The British pound weakened slightly by 1%, ending the month at $1.24. This reflected growing expectations of additional UK rate cuts and weak domestic data.
Investor Takeaways: A Time for Strategic Positioning
February served as a useful reminder that while the worst of the inflation and interest rate cycle may be behind us, the path forward won’t be smooth.
Markets are adjusting to the next phase of the cycle:
Rate cuts are coming, but not immediately.
AI remains a long-term growth theme, but price discipline is returning.
Defensive assets, like gold and high-quality fixed income, are beginning to attract more attention.
This is not the time to be sitting in excess cash waiting for certainty. Markets tend to move ahead of policy changes, and many asset classes are already pricing in what comes next.
For investors, especially globally minded expats, this is a chance to:
Rebalance portfolios with a forward-looking strategy
Reduce concentration in overvalued sectors
Add diversified exposure to high-quality income and global assets
Positioning Your Wealth for What’s Next
Markets are evolving. Inflation is slowing, central banks are changing course, and new technologies are reshaping industries. But volatility will remain part of the picture.
If you're unsure whether your current investment strategy reflects this changing environment, now is the time to take action.
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