As many will have noticed, February was another turbulent month in markets. But like previous upswings and downswings, this too shall pass. This month, the threat of US tariffs on China, Canada and Mexico become a reality rather than some idle threat from a political campaign. Tariffs of the magnitude Trump is talking about are expected to be inflationary, with economists forecasting impacts on sectors such as consumer good and manufacturing supply chains.

While markets around the world fell fairly steeply during February, if you zoom out to the last 12 months, they are still looking strong off the back of a bull run. The strong statements and actions coming out of the US combined with ongoing geopolitical conflicts in Ukraine and the Middle East means increasing investor uncertainty, and markets are reflecting this. As we often say, markets hate uncertainty so the market falls make logical sense.

The 'Magnificent Seven' tech stocks, which previously led the market higher throughout 2024, have taken the brunt of the recent market losses. Nvidia (the AI chip maker) in particular saw some big losses after their latest earnings report - which on paper was actually fairly healthy, but not impressive enough for some investors. The threat of cheaper AI technology like the Chinese designed Deep Seek tool is likely to be behind the lower confidence in US businesses like this.

The US Federal Reserve (aka The Fed) is determined not to let the latest political events affect their central banking policy decisions. They have a challenge on their hands as tariffs pull on two levers - they weigh down economic growth and increase inflation. This means that the Fed will likely struggle to keep their US inflation target under control under the current scenario. Back home, the RBNZ’s February 50 basis point cut saw a swathe of mortgage rate changes with several banks offering sub 5% rates for their two year terms. The flip side to this of course is Term Deposit rates have taken another haircut, so traditional savers may be looking for alternative options in the coming 12 months.

When it came to the local share market, the NZX 50 had a poor February, ending up down 3%. A big impact on this was retirement care giant Ryman Healthcare, which went to the market to raise $1 billion of new capital to repay debt with. Over the ditch, the Australian ASX 200 (in AUD terms) performed even worse - finishing 3.8% down for the month. The Japanese market (in Yen terms) was down similar levels to NZ and Australia. The main UK, Eurozone and Emerging Market indexes bucked the downward trend, seeing positive growth albeit not as strong as many months in 2024.

Moving on to bonds, since the start of 2025 the interest you could earn from US 10-year government bonds has dropped from 4.80% to 4.22%. This drop means that bonds which pay returns in other currencies but are converted back to New Zealand dollars (aka hedged to NZD) are looking more attractive to local investors. And back home, our government bonds have seen stronger performance gaining nearly 0.7% in value over the month.

While there is plenty of doom and gloom around the world right now, there are some pockets of positivity - especially in the domestic economy. Household spending is finally trending higher, business confidence is starting to stabilise, and the agricultural sector confidence is up. And in the face of all this uncertainty, it's always handy to take a zoom out, remembering that markets go up over the long-term despite this short-term volatility. So keep calm, carry on and perhaps avoid checking in with your investments too often!

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