Executive Summary
· Markets remain driven by interest-rate expectations, with investors increasingly confident that easing cycles will continue in 2026.
· Inflation continues to moderate, though progress remains uneven across developed economies.
· Global equities advance cautiously, supported by liquidity expectations rather than strong earnings growth.
· Regional divergence persists: U.S. valuations remain stretched, while UK, European and Asian markets retain relative value appeal.
· Gold and real assets remain well supported, reflecting ongoing geopolitical and policy uncertainty.
—
Iran
Markets reacted nervously at first on Monday 2nd March, as the US and Israel launched attacks on Iran. Iran responded by attacking several of the US’s allies in the region, both civilian and military. The worry being that 20% of the world’s Oil pass through the Strait of Hormuz on a daily basis and Iran has the potential to either destroy or certainly delay the tankers carrying oil from the Middle East to destinations around the world.
Oil prices spiked initially before calming, and shares in nearly all countries dropped initially before gaining back most of their losses, with all 3 major indices in the US finishing higher than they started on the day.
It is important to remember that diversified portfolio will be shielded from some of this volatility. We don’t know yet how long the violence in the Middle East will last, but there will be opportunities as well as falls.
—
Global Equities Context
Global equity markets moved modestly higher through February, extending the cautiously constructive start to the year. U.S. markets continued to benefit from expectations of Federal Reserve easing, although losses among large technology companies are becoming the norm. Outside the U.S., investors increasingly rotated toward markets offering stronger valuations and broader earnings participation. UK and European equities attracted renewed inflows as interest-rate expectations stabilised, while Japan and India continued to demonstrate structural growth advantages. Overall, markets appear increasingly dependent on anticipated policy easing rather than accelerating economic momentum — leaving sentiment sensitive to inflation surprises or delays to rate cuts.
—
Central Banks: Waiting for Confirmation
Central banks continue to signal that policy easing is approaching, but remain unwilling to move prematurely.
In the United States, Federal Reserve officials emphasised that inflation progress is encouraging but incomplete. Labour-market conditions are gradually softening, helping reduce wage pressure, yet policymakers remain cautious given lingering tariff effects and services inflation. Markets continue to price the first rate reduction later in the first half of 2026.
In the UK, the Bank of England again held the base rate at 3.75%, reinforcing its data-dependent stance. Inflation has eased further but remains above target, and policymakers remain conscious that wage growth and services inflation could slow the final stage of disinflation. The overall message suggests cuts are likely later in the year, provided economic weakness persists.
—
UK: Growth Concerns Begin to Dominate
The UK economic outlook remains characterised by weak but stable growth. Household finances are gradually improving as inflation falls, though consumer spending remains cautious. Business investment continues to lag, reflecting uncertainty around demand, taxation and global trade conditions.
The labour market is showing clearer signs of cooling, with vacancies declining and unemployment edging higher. While this helps ease inflationary pressure, it also reinforces concerns that economic momentum remains fragile. With fiscal flexibility limited, attention remains firmly on monetary policy as the primary support mechanism for growth through 2026.
However, the UK’s FTSE 100 is largely dominated by companies that make money globally rather than in the UK itself. This, added to the fact that the UK and Europe are considered significantly better value than companies in the US at present, means that the outlook for the UK market is significantly better than the UK economy.
—
Other viewpoints
Cash
Cash returns remain attractive relative to recent history, but forward expectations continue to weaken. As markets increasingly anticipate rate cuts, investors holding large cash allocations may face declining reinvestment rates later this year.
Fixed Interests
Bond markets continued to stabilise during February. Expectations of lower policy rates supported gilts and U.S. Treasuries, while credit markets remained resilient. Fixed income once again appears capable of delivering both income and diversification benefits within portfolios. The bond markets have seen some capital growth along with the normal interest
returns over the last 12 months. We expect this to continue going forward as interest rates continue to fall.
Alternatives
Gold remained firm during the month, supported by falling real yield expectations and ongoing geopolitical uncertainty, but it seems expensive for an entry level investment at present. Commodity markets remain sensitive to supply disruptions and trade policy developments. Real assets continue to provide useful diversification against inflation and policy uncertainty.
UK Shares
UK equities remain supported by attractive valuations and international earnings exposure. Domestically focused sectors continue to lag amid subdued consumer demand, but improving rate expectations could provide support later in the year. Relative valuation continues to make the UK market appealing compared with global peers.
The FTSE 100 continues its surge, nearly reaching 10,900 after breaching 10,000 for the first time just this year.
US Shares
U.S. equities continue to perform poorly compared to their global peers as leadership remains worrying and valuation concerns persist. The dominance of mega-cap technology stocks leaves indices vulnerable to sentiment shifts. While AI-driven productivity expectations remain supportive over the long term, markets appear increasingly priced for favourable outcomes.
However, the S&P 500 and the Nasdaq have had very poor starts, with only the Dow Jones, which measures industrial shares, competing with international rivals, but still lagging far behind Europe, the UK and Japan. All 7 of the ‘Magnificent 7’ technology companies are down since the start of the year, with Microsoft down nearly 18%, Amazon and Tesla down 10% and the other 4 down, though not as much. With the dollar expected to fall further due to worries about whether or not it can continue running the current deficit and AI seeming to have lost its shine with the investment world, the case for investing heavily in the US going forward is no longer as compelling as it was.
European Shares
European equities maintained steady performance, supported by moderating inflation and stable monetary conditions. Valuations remain reasonable relative to historical averages, and exporters continue to benefit from currency dynamics and improving global demand expectations.
Asian Shares
Japan continues to benefit from corporate governance reforms and sustained investor inflows. China remains uneven, with policy support offsetting structural economic challenges. India continues to stand out as a long-term growth market, supported by demographics, infrastructure investment and strong domestic consumption trends.
Emerging Markets
Emerging markets delivered mixed performance. A softer dollar supported capital flows, particularly into commodity exporters and Asian markets. However, external debt exposure and political risk remain key differentiators, reinforcing the need for selective exposure.
—
Highlights & Risks
Highlights:
· Markets increasingly confident that global rate cuts will continue in 2026.
· Fixed income outlook continues to improve after several difficult years.
· UK, European and Asian equities remain attractively valued relative to the U.S.
· Gold and alternatives continue to provide portfolio resilience.
Risks:
· Inflation progress could stall, delaying monetary easing.
· U.S. equity valuations and market concentration remain elevated.
· Weak global growth may pressure corporate earnings.
· Trade tensions and geopolitical developments remain potential volatility triggers
