February delivered a continued grind higher for global equities, although leadership broadened materially beneath the surface. The MSCI ACWI gained 1.3% over the month, as investors rotated away from crowded mega cap AI and software names towards more cyclical and value leaning parts of the market. The macro backdrop was shaped by three overlapping themes: a growing debate over the payback from heavy AI investment; policy uncertainty around US trade tariffs following a Supreme Court ruling on the administration's emergency powers; and a late month rise in geopolitical risk as conflict involving the US and Iran escalated on the final day of February. Bond markets responded constructively, with yields generally moving lower as risk sentiment wobbled and investors leaned back into the 'gradual disinflation' narrative. In the U.S., equity performance was driven by sharp rotations and AI-related volatility. After a strong start to the year, small-cap performance was uneven through February, while several high-profile AI and software names — including Nvidia — experienced significant drawdowns despite earnings beats, reflecting investor concerns around AI capex intensity, monetisation and broader headwinds facing the software sector. Financials and private credit exposed stocks also came under pressure amid liquidity concerns, adding to broader index weakness. European equities continued to hold up well, underpinned by earnings momentum and a supportive rates backdrop. The ECB kept rates on hold at 2%, while eurozone inflation prints and surveys pointed to a modest improvement in momentum, helping sustain confidence in a 'soft landing' path. Commodities were firmer overall, with precious metals notably volatile early in the month before rebounding into month end as geopolitical risks intensified; oil also lifted late, following the escalation in the Middle East. In the UK, equities advanced strongly. The FTSE All Share rose 6.5%, supported by the rotation away from high valuation tech, resilient earnings and strength in more defensive UK large caps. Sector leadership was broad, with healthcare, basic materials, utilities and telecoms among the top performers. The Bank of England held Bank Rate at 3.75% (5-4 vote), while reiterating that further easing remains likely as inflation pressures cool. Supporting that tone, headline CPI eased to 3.0% YoY in January, down from 3.4% in December, reinforcing the view that the inflation profile is moving back towards target over the coming quarters.
