February brought a mix of performance across global markets, with U.S. equities experiencing declines after a strong start to the year. The S&P 500 and Russell 3000 indexes faced losses, driven largely by underperformance in tech stocks, while large and mid cap stocks outpaced small caps.
In contrast, defensive sectors such as consumer staples and utilities performed well. International equities showed resilience, with European markets, particularly Germany, seeing notable gains, while Japan lagged. Emerging markets (EM) were mixed, with China posting strong returns and India and Taiwan facing challenges.
In fixed income, lower yields across the curve provided a safe haven, leading to gains in longer-duration assets, including Treasuries and corporate bonds.
Real assets also outpaced broader markets, with U.S. REITs benefiting from lower yields and increased deal-making activity. Energy commodities saw a boost from cold weather, though crude oil prices faced pressure. Overall, February highlighted a tug-of-war between risk sentiment and defensive positioning in the face of economic uncertainties.
After a positive start to the year in January, domestic equity markets fell in February. The S&P 500 declined 1.3% and the broader Russell 3000 Index lost 1.9% for the month. Large and mid cap stocks outpaced small caps, with the Russell 1000 Index gaining 1.7% versus 5.3% for the Russell 2000 Index. After trailing sharply in 2024, value stocks outperformed their growth counterparts for the second consecutive month; the Russell 3000 Value Index eked out a 0.2% gain vs. a 3.7% loss for the Russell 3000 Growth.
Five of the “Magnificent 7” stocks lagged the broad market in the sell-off, with only NVIDIA (+4.0%) and Apple (+2.6%) posting gains for the month. Tesla (−27.6%), Amazon (−10.7%), and Alphabet (−16.5%) were the three largest individual detractors. Consumer discretionary (−8.9%) and communications services (−6.2%) were the two worst performing sectors in February. On the other hand, defensive sectors protected investors’ capital in a risk-off environment, with consumer staples (+5.0%), real estate (+3.7%), and utilities (+2.0%) all finishing in the positive territory. Energy (+2.6%), a laggard in the prior 12 months, also posted a modest gain.
Overseas equities remained surprisingly strong, with both developed (+1.9%) and emerging (+0.5%) markets rising for the month and outpacing U.S. equities. Europe (+3.7%) experienced a reversal in performance as investor inflows increased, the threat of tariffs had yet to materialize, and efforts were made toward peace in Ukraine. Germany (+3.9%), much maligned in 2024 due to economic malaise and political turmoil, has been a standout in 2025 due to hopes it will loosen fiscal policy. Japan was an exception, with the Nikkei 225 down 6% in February. However, these losses were muted for U.S.-based investors because of the 2.8% rise of the yen vs. the U.S. dollar (USD).
Mixed performance across EM countries masked a noteworthy recovery in China (+11.8%). While economic and geopolitical uncertainty remain heightened, enthusiasm around DeepSeek’s lower cost AI-model helped reignite excitement around China’s tech prospects and drove a rally in MSCI EM Index giants such as Alibaba (+44.7%) and Tencent (+19.5%). A meeting between Chinese President Xi Jinping and several of the country’s top corporate executives also lifted optimism. The meeting signaled a turnaround in Beijing’s approach toward private sectors—notably tech—following years of regulatory assault. A reversal in India (−8.1%), which continues to battle slower economic growth, and tech-heavy markets such as Taiwan (−4.4%) offset these gains. Despite continued strong demand for its high-end chips, Taiwan Semiconductor (−8.6%), which represents over 50% of the MSCI Taiwan Index, was pulled down on profitability concerns as the company seeks to diversify its global supply chains.
In February, as risk assets sold off amid mounting growth concerns, fixed income served as a safe haven. The asset class broadly delivered positive returns as yields fell sharply across the curve and provided a boost to performance. However, the path lower was volatile, as rates fluctuated throughout the month on economic news.
Early on, yields climbed following hotter-than-expected CPI data, but eventually retreated as growth fears took hold and consumer confidence waned—as illustrated by the sharp monthly decline in the February Conference Board Consumer Confidence Survey.
By month-end, the 10-year yield stood at 4.19%, down 36 bps, while the 2-year yield fell 22 bps to 3.98%.
The sharp decline in yields fueled sizable gains across core fixed income sectors, with longer duration assets leading the way. Long duration Treasuries surged 5.2%, easily outpacing returns of 2.4% for intermediate Treasuries and 0.7% for short Treasuries.
Meanwhile, U.S. mortgage-backed securities and investment grade corporates posted returns of 2.6% and 2.0%, respectively, contributing to a 2.2% gain for the Bloomberg Aggregate Index. The fall in Treasury yields did cause some spread widening in leveraged credits, but the additional carry in high yield and leveraged loans allowed these sectors to deliver positive returns of 0.7% and 0.1%, respectively.
Real assets generally outpaced broader markets in February. Global REITs were up 2.2%, led by U.S. REITs (+3.7%), which rose on a drop in 10-year Treasury yields, increased deal making activity, and greater debt availability. The healthcare (+9.4%) and telecom REITs (+9.5%) sectors—which have compelling demand outlooks and posted strong fourth quarter results—led the way, while office (−3.9%) and lodging REITs (−5.2%) were down. Clean energy (−2.2%) was down on policy uncertainty, while global infrastructure (+0.1%) and metals and mining equities (+0.1%) were slightly positive.
Cold weather helped to push natural gas prices (+30.9%) higher and demand continued to increase from data centers and the electrification of the economy. Natural gas prices, which are sensitive to short-term weather events, were up 138.2% year-over-year. WTI crude prices dropped 3.8% following OPEC+’s decision to begin unwinding voluntary production cuts starting in April. Crude prices were also negatively affected by rising U.S. inventories and fears of a tariff-induced economic slowdown. North American natural resource equities (+1.4%) ended the month in positive territory. MLPs (+3.4%) continued to benefit from growing power demand, rising natural gas prices and attractive relative dividend yields. Commodities were up 0.8%, led by the energy subindex (+4.9%), as the agriculture (−2.3%) and livestock (−5.4%) subindexes fell on concerns over the impending trade war. ⬛