In February, global equity markets extended their rally, posting a 1.3% gain for the month (MSCI World All-country index in EUR), although notable divergences emerged across regions and sectors. Despite the overall developed markets gains, the U.S. market stood out for its first monthly decline in ten months, largely due to concerns surrounding increased spending on artificial intelligence, potential workforce disruptions, and a surprising spike in the January Producer Price Index. The S&P 500 fell by 0.9%, but the equal-weighted index rose by more than 3.5%, reflecting stronger performance among smaller cap stocks. Consumer confidence improved, partly in anticipation of upcoming tax refunds, and corporate earnings forecasts remained robust in the 8–12% range. Meanwhile, the U.S. Supreme Court’s decision to overturn President Trump’s International Emergency Economic Powers Act introduced new uncertainty regarding tariff.  European markets remained a pocket of strength, rallying over 3% as corporate earnings exceeded expectations (especially in telecom and real estate management). However, inflation pressures persisted, with France, Germany, and Spain all reporting higher-than-expected figures. Norway, the United Kingdom, and Sweden led regional performance, while Denmark saw a sharp sell-off of more than 17% due to negative news surrounding its leading pharmaceutical company, Novo Nordisk. Japan stood out in developed Asia, surging over 8.5%. This growth was buoyed by the new (first woman ever!) Prime Minister Sanae Takaichi’s decisive election victory and pro-growth fiscal policies, as well as moderation in core inflation to 1.8%   – the lowest since October 2022. Emerging markets continued to outpace developed ones despite notable losses in their largest markets, China and India. South Korea’s shares extended their fantastic rally, soaring another 22% for the month (in own currency) and returning nearly 200% over the past year! Taiwan’s technology sector, led by the giant TSMC, also posted strong gains. Overall, for the month, the sectors of Materials, Utilities, and Energy led wider market gains, while in contrast, Communication services and Consumer discretionary stocks lagged. Gold prices edged higher, and bitcoin experienced a huge drop (~50%) before stabilizing. On the fixed income markets in February, falling interest rates boosted bondholder returns. The U.S. 10-year yield dropped below 4% before rising in March, while shorter-term rates also declined amid possible future Fed rate cuts. (bond yields and bond prices move in opposite direction). Despite healthy economic activity, concerns over AI-related unemployment and geopolitical risks pressured bond yields lower, resulting in a 1.1% total return for global fixed income for the month. Emerging market government bonds outperformed developed markets ones. Investment-grade bonds returned 0.8%, though corporate credit markets underperformed due to widening spreads. As February was closing, geopolitical tensions – a new conflict in the Persian Gulf – began to weigh on investor sentiment, dampening momentum globally in early March.
        During February, U.S. equity markets were notably volatile. The flagship equity index S&P500 posted a rare decline of 0.8%, making it the worst-performing major equity market, as investors questioned the long-term returns from AI-related capital expenditures and worried about the employment disruption AI could cause, especially in sectors like software and wealth management. This shift in sentiment led to a rotation away from  tech-heavy and growth-oriented sectors and into asset-heavy sectors – such as Materials, Utilities, and Energy – which emerged as the top performers for the month. Last year’s leaders – Information technology and Communication services – fell behind. The “Magnificent Seven” mega-cap tech stocks continued to stand out by delivering impressive results: these seven stocks generated average fourth-quarter earnings growth of 27.2% versus a 9.8% rate for the other 493 companies in the S&P500, according to FactSet. In fact, their earnings growth has surpassed 25% in 10 of the past 11 quarters, highlighting their dominant position and influence. However, even these strong results did not always translate into share price gains, as investors became more cautious about valuation levels and future growth prospects. Separately, inflation came higher-than-expected, with the Producer Price Index jumping 0.8% in January—more than twice what economists forecasted—raising concerns about persistent price pressures. Furthermore, the American economy’s annualized growth rate slowed to 1.4% in 4Q of 2025 (partly due to a longest government shutdown ever). Adding to market uncertainty, the U.S. Supreme Court overturned President Trump’s International Emergency Economic Powers Act, casting doubt on tariff collections and prompting lawsuits from companies and states. Geopolitical tensions flared as a new armed conflict between the U.S. and Iran broke out at the end of February, further contributing to market volatility and souring investor sentiment. Meanwhile, US Treasury yields declined over the course of the month because investors started anticipating additional rate cuts from the Federal Reserve this year, prompted by signs of weakness in the US labor market and the growing concerns about potential further AI driven business disruption. The yield on the 10-year Treasury fell to around 3.96%, marking its lowest point in over four months; for comparison, it stood at 4.26% at the end of January. Additionally, the yield curve began to flatten, with a particularly sharp decline observed in intermediate-term yields, reflecting the market’s shifting expectations and ongoing uncertainty.
         European equities delivered hefty gains in February – the pan-European index Stoxx600 added 3.7% (in EUR). UK large-cap stocks stood out, achieving a 6.5% total return (FTSE100 index in GBP) thanks to a sector mix favoring AI and rising oil prices. However, the broader FTSE250, heavier on domesticly-oriented companies, lagged behind with “just” 2.3% return. Eurozone shares rallied, led by Energy, Communication services, and Real estate, as signs of economic improvement emerged and investors rotated away from US stocks. The European Central Bank (ECB) held rates steady at 2%, with inflation dropping to 1.7% in January, while the HCOB Eurozone composite PMI index indicated accelerating economic growth – it climbed to 51.9 in February (any reading above 50 indicates expansion). In particular, its manufacturing sub-index hit a six-month high of 52.1. Across Europe, corporate earnings momentum was strong, with more upside surprises than in previous quarters. France broke a prolonged budget deadlock, aiming to increase defense spending and shrink its deficit to 5% of GDP by year-end. Some of the best performing equity markets in February were those of Norway, the UK, and Sweden. Oddly, Denmark saw a sharp sell-off – over 17% – as its major constituent, Novo Nordisk, slumped by more than 15% after trial data for a new weight-loss jab showed it was less effective than a similar product from its American rival, Eli Lilly. UK equities outperformed despite a weaker pound and left-leaning election results. The Bank of England kept rates at 3.75% but hinted at a possible cut in March, even as it downgraded growth forecasts and raised unemployment expectations. UK GDP growth was minimal at 0.1% year-on-year in Q4 2025. Interestingly, software stocks there in the Information technology sector faced significant pressure due to concerns about AI disruption, and Financials were also weak as investors worried about AI's impact on wealth management. Government bond market yields across the eurozone also fell., UK Gilts led sovereign bond market performance due to cooling inflation and increased prospects for rate cuts, achieving a 2.5% return (in GBP). UK inflation slowed to 3.0% in January, prompting gilt yields to drop by 25 basis points. Eurozone inflation was below target in January, and the ECB kept rates unchanged while signaling inflation would stay below target through 2026 and 2027. European government bond yields fell, with Spanish and Italian bonds outperforming German Bunds thanks to stable spreads and higher income. 
      In February, the turnover of the Bulgarian Stock Exchange (BSE) doubled on an annual basis, reaching over EUR 40 million. The stellar ascend from the last two months was interrupted and all stock indices declined for the month: the flagship SOFIX (-5.2%), the broad BGBX40 (-4.4%) and the "junior" BeamX (-3.3%). The best-performing stock among the SOFIX blue chips was the pharmaceutical manufacturer “Sopharma” AD, while the worst performer for the month was the holding company “Chimimport” AD, with movements of +1.6% and -23.5%, respectively. During the month, the first Bulgarian crowdfunding platform on BSE, SpaceCrowd, was launched, which will support start-ups with the possibility to raise up to EUR 5 million. Among the important structural events is the dual listing of the shares of “Sirma Group Holding” AD simultaneously on the Bulgarian and Frankfurt Stock Exchanges through the EuroBridge segment. A ceremony on the Frankfurt Stock Exchange officially marked the start of trading – an act that significantly expands the international visibility of Bulgarian companies.
Source: Bloomberg, BSE