Growing uncertainty: How US politics affected global markets in February 2025
After an optimistic start to 2025, the narrative of US equity market exceptionalism lost some of its luster in February. Doubts about the impact of the US government’s policies began to affect business and consumer confidence, leading to renewed concerns about economic growth. This lackluster performance in the US impacted equity markets in the developed world, which saw prices fall slightly during the month.
February saw a deterioration in both consumer and business sentiment. There was a notable decline in service sector activity and small business investment plans, as well as a significant drop in consumer confidence – the largest since August 2021. Although the House of Representatives passed a budget framework that extended the Tax Cuts and Jobs Act of 2017, this did not indicate a clear commitment to further fiscal stimulus. In this environment, government bond yields fell over the course of the month.
Global small-cap stocks, which typically benefit from falling yields, did not perform well as concerns about economic growth took precedence over the benefits of lower discount rates. Similarly, despite lower yields, concerns about the future earnings of US mega-cap tech companies, particularly those involved in artificial intelligence, also dominated. Coupled with fears of an escalation around the imposition of tariffs on imports into the US, US markets faced discounts.
In contrast, European equities outperformed their US counterparts in February. The MSCI Europe ex-UK Index rose by 3.4 %, buoyed by growing expectations of a ceasefire in Ukraine.
The Asian stock markets also performed positively. Chinese shares in particular showed a robust recovery. Important meetings between Xi Jinping and prominent business leaders indicated a possible improvement in regulatory conditions. Developments in Japan were different. Local markets weakened due to the strength of the yen against the dollar.
The Tareno Global Water Solutions Fund recorded a performance of -1.23% (W-EUR tranche) in the month under review.
Our month in the water: a mixture of expectations and caution
All eyes were on the company results last month. What we saw was in most cases as expected. However, the forecasts were often characterized by caution. This is not surprising, but the market’s reaction was sometimes harsh.
Itron, a leading manufacturer of electricity, gas and water meters, expects sales to continue to rise in 2025, albeit not quite as strongly as in the past year. This assessment is also shared by Xylem, one of Itron’s competitors in the meter sector. Itron was particularly optimistic about its software business, which boosted the share price over the course of the month.
Watts Water impressed with excellent results in the fourth quarter despite significant challenges in Europe, confirming the impression that the company is exceptionally well managed. The focus on software solutions for the real-time monitoring of flow systems is particularly promising. This is an area that is also to be strengthened through acquisitions.
Although Pentair reported minimal sales growth, it achieved a remarkable increase in margins and profits. This is thanks to a restructuring strategy that is to be continued until 2025. The expected savings should enable double-digit EPS growth. Looking ahead to 2026, a recovery in the housing market could additionally boost earnings.
Georg Fischer is on its way to becoming a leading global provider of flow solutions. The company has successfully completed the integration of Uponor faster than expected. Despite conservative forecasts, our confidence in the new strategic direction remains strong.
Veolia has delivered convincing results for 2024, meeting or exceeding forecasts despite a volatile economic climate. The company expects to maintain this momentum thanks to internal efficiencies and growth initiatives. Thanks to its solid balance sheet, Veolia also has the flexibility to make investments and potential strategic acquisitions.
Shares in Tetra Tech plummeted in February after Elon Musk took unexpectedly aggressive action against USAID, a major customer of the company. Given the uncertainty surrounding Musk’s future actions and potential litigation, the view on Tetra Tech remains clouded.
Focus on European markets: potential for outperformance in an uncertain environment
The reporting season is coming to an end and the flow of corporate news will dry up. Geopolitics will keep the markets busy and volatility at a high level. We feel comfortable with our current positioning, which aims to see European stocks continue to outperform their US counterparts. Some of the companies we follow have seen their share prices punished too severely following the publication of cautious forecasts. We are probably not far away from some attractive entry points.
