February brought the expected volatility, and plenty of significant events unfolded. The last day of the month might even go down in history due to a dispute between Ukrainian President Zelensky and Donald Trump's team regarding potential peace negotiations. Markets did not react entirely negatively to this development; on the contrary, it boosted European markets as Europe will now have to take a more independent stance. Defense and steel companies benefited the most, which is not surprising given the increasing demand for military equipment.
In the picture: Market sentiment, according to Goldman Sachs FICC, has reached at least the same negative levels as during the 2008 Crisis or the 2022 inflation shock. Yet, markets remain close to historical highs.
The heightened volatility was largely driven by tariffs and trade barriers—exactly what could be expected from Trump’s economic policy. His approach remains largely unchanged from his previous term when tariffs were one of his primary tools to “protect” the U.S. economy.
So far, Trump has announced the following tariffs:
Markets have reacted mixedly to these measures. In the short term, they could have a negative impact by increasing costs for businesses and squeezing profit margins. However, historical precedent suggests that if Trump simultaneously introduces measures to support the domestic economy—such as cutting corporate taxes, which fueled a market rally to all-time highs during his last term—it could actually drive markets higher. We will see what he comes up with this time.
In an uncertain market environment, investors naturally seek safer havens. When economic uncertainty rises, capital tends to shift toward dividend stocks, real estate investment trusts (REITs), and U.S. Treasury bonds.
What is a REIT?
A Real Estate Investment Trust (REIT) is a publicly traded company that owns and manages income-generating properties. REITs allow investors to participate in real estate income streams without directly owning or managing properties.
For this reason, we have added Realty Income to our portfolio, one of the most stable players in the long-term commercial real estate leasing market.
Beyond real estate, we are also seeing increased demand for long-term U.S. Treasury bonds. This makes sense—when markets anticipate economic slowing, investors seek security in guaranteed government bond yields.
Macroeconomic data suggests that U.S. consumer activity is starting to weaken, which is one of the most crucial variables for economic growth. Markets naturally fear inflation, but now the discussion has expanded to include stagflation.
What is stagflation?
Stagflation is an undesirable combination of economic stagnation, high inflation, and high unemployment. It occurs when growth slows but prices remain elevated, creating a difficult environment for both consumers and central banks.
If economic growth continues to slow, it could actually be a deflationary factor, which would give the Fed more room to lower interest rates. In such a scenario, rate-sensitive stocks and bonds could become more attractive again.
The technology sector faced challenges in February. Nvidia (NVDA) reported extremely strong earnings, reaffirming its leadership in AI technology, but high volatility and profit-taking led to a mixed stock price performance.
In a risk-off environment, where investors rotate out of higher-risk assets, it is common for tech stocks to lose momentum temporarily. This is also why the Futuro portfolio stagnated in February—capital outflows from tech firms caused a temporary slowdown in performance.
On the other hand, this creates new buying opportunities, as we firmly believe that technology and AI remain the primary growth drivers for the future.
Meanwhile, the Balance portfolio is benefiting from the current market environment—investor concerns work in our favor since our exposure to bond ETFs is now paying off. We have previously explained our strategy with these bond ETFs in great detail—check out our previous updates here.
We track the S&P 500 as our key market sentiment indicator, as it provides a reliable reflection of investor mood and overall market expectations. Since the beginning of the year, the index has remained mostly flat, indicating that investors are still searching for direction.
Currently, the S&P 500 is sitting at a key support level—not the strongest, but one that could still act as a short-term launching point for a rebound.
There are two major potential scenarios:
Market rally – Trump has already demonstrated a playbook in his previous term that markets remember well. He initially shook things up with trade tariffs, causing volatility and short-term declines. However, he then rolled out aggressive corporate tax cuts, which unlocked capital, boosted corporate earnings, and sent markets soaring to all-time highs. If a similar strategy unfolds, it could be highly bullish for equities.
Economic slowdown – If Trump focuses solely on trade barriers without introducing pro-growth policies, the outcome could be different. Persistently high interest rates and ongoing inflationary pressures could gradually slow the economy and push markets into a corrective phase.
For now, we are closely monitoring the market with a defensive stance while looking for selective buying opportunities as valuations become attractive.
Note: This article is for informational purposes only and does not constitute investment advice. Investing in financial markets involves risks, and conducting independent analysis before making investment decisions is crucial.