The S&P/ASX 200 Accumulation Index gained 4.1% in February, with seven of the 11 sectors closing higher for the month. The Financials and Materials sectors (+9.2% and +9.0%, respectively) led the gains. The Health Care (-13.3%) and Information Technology (-9.3%) sectors underperformed during the month. The S&P/ASX Small Ordinaries Index declined by 2.6% in February, yet it maintained a twelve-month return of 23.1%, compared to the 16.2% rise in the S&P/ASX 200 Accumulation, as smaller companies continue to outperform large caps.
\nSuperloop Limited (SLC) was the month's top gainer, rising 28.3%, after posting a strong H1 result that exceeded expectations, with robust consumer growth as a key reaction driver, alongside the acquisition of Lightning Broadband. Lynas Rare Earths Limited (LYC) benefited from a sharp rise in Chinese NdPr pricing, while reporting a modest H1 result, closing the month 27.4% higher.
\nTemple & Webster Group Limited (TPW) was the worst performer for the month, declining 31.6%, with the H1 margin result disappointing investors. Despite reporting strong sales, the retailer increased discounting and promotional activity during the period. WEB Travel Group Limited (WEB) fell 30.1% after the company confirmed a Spanish tax audit of its Spanish subsidiary Sunhotels.
\nJanuary's inflation rate of 3.8% remained steady from December, meeting market expectations but continuing to surpass the RBA’s 2-3% target. While food inflation eased, housing costs surged by 6.8% as electricity prices spiked 32.2% following the expiry of government energy rebates. This persistent data prompted the RBA to hike the cash rate by 25 basis points to 3.85% in early February.
\nUnemployment remained steady at 4.1% in January, defying forecasts of an increase and highlighting ongoing tightness in the labour market. Total employment grew by 17,800, which is lower than the previous month's revised rise of 68,500, but it reflected a substantial underlying shift as 50,500 new full-time jobs more than compensated for a decline in part-time employment. This resilience in the workforce has heightened expectations of further policy tightening by mid-year.
\nGlobal equities remained mixed in February, with developed market equities down 1.0% (MSCI World NR Index (AUD)). US equities finished the month lower, with the S&P 500 Index falling 0.9%, as concerns about AI-led disruption spread across the market, supporting a continued rotation into cyclicals. The US earnings season for Q4 was nearly complete by the end of February, with results broadly beating market expectations, reflected by an average earnings beat of 6.8% and S&P 500 blended year-on-year earnings growth of 14.2%. Concerns about AI heavily impacted the Nasdaq, with the index recording its worst month since March 2025.
\nAcross developed markets, value (+3.2%) outperformed growth (-1.4%), whilst quality (+1.3%) and momentum (+1.3%) also outperformed. Global small caps outperformed in February, returning 2.2%.
\nEuropean equity markets were broadly positive, with the UK’s FTSE 100 Index rising 6.7% and Germany’s DAX Index up 3.0%. In Japan, the Nikkei 225 continued to rise after a strong January, adding 10.4% in February, lifting rolling one-year returns to 58.4%, as markets reacted to the snap election victory of Prime Minister Takaichi, which delivered a two-thirds supermajority and increased expectations of fiscal stimulus.
\nOn the economic front, following the US Federal Reserve’s decision to keep interest rates steady in January and February, officials indicated that a more restrictive stance is still needed. Policymakers highlighted that upside risks to inflation, driven by recent energy price volatility and changing tariff policies, make it unlikely that there will be rate cuts in the near term. Markets have largely adjusted their expectations, now anticipating a much slower easing cycle.
\nInflation data for February was encouraging but highlighted a path characterised by moderation rather than rapid decline. Headline CPI eased to 2.4% year-on year in January, while the core PCE index remained steady at 2.7%, reflecting ongoing services inflation and a spike in shelter costs. Growth momentum showed signs of a more noticeable slowdown, with the advance GDP estimate for Q4 2025 at 1.4%, significantly below consensus. Softening retail activity and weaker job growth suggest that the resilient expansion experienced last year is shifting into a period of more subdued activity.
\nCommodity prices continued to rise in February, with the S&P Goldman Sachs Commodity Index (USD) gaining 2.1%. Oil increased by 3.3% in February, driven by conflict in the Middle East and supply disruption concerns. Gold (+7.9%) and Copper (+1.3%) continued their upward trend, while Iron ore fell back (-3.8%), coinciding with the Lunar New Year slowdowns in China.
\nEmerging market equities outperformed developed markets in February, rising 3.7% (MSCI Emerging Markets Index (AUD)). In China, the CSI 300 increased by 0.1% in February, with a continued shift towards the region's technology stocks being moderated by concerns about the domestic property sector and related industries.
\nEconomic data from China stayed under pressure in February, with the NBS Manufacturing PMI dropping further to 49.0, marking a second month of contraction as the Lunar New Year break suppressed factory output. While holiday travel gave a temporary boost to services, the recovery in the non-manufacturing sector remained uneven, held back by the ongoing property market downturn and cautious consumer sentiment.
\nIndustrial production and retail sales data for January February showed a mixed start to the year; while infrastructure investment provided some support to activity, domestic consumption remained subdued. Investors continue to focus on the lack of aggressive fiscal stimulus from Beijing, as soft credit demand and deflationary pressures persist, highlighting the fragility of the broader economic recovery.
\nThe S&P/ASX 200 A-REIT Accumulation Index fell by 3.5% in February, lowering its rolling annual return to 4.7%. Global real estate equities outperformed, rising by 7.1% during the month, as shown by the FTSE EPRA/NAREIT Developed NR Index (AUD Hedged). Global infrastructure also outperformed, up 7.5% in February, as measured by the S&P Global Infrastructure TR Index (AUD Hedged).
\nFixed income performance improved in February as global 10-year government bond yields generally declined amid rising equity volatility, geopolitical tensions, and ongoing uncertainty over monetary and trade policies. The U.S. 10-year Treasury yield fell 29bps to 3.96%, supported by softer US inflation (headline CPI easing to 2.4% in January) and caution in market expectations around the Fed’s near-term trajectory.
\nJapanese government bond yields eased after earlier intramonth spikes, with the 10-year yields briefly touching ~2.29% but closing the month roughly 13 bps lower at 2.11%. European 10-year benchmark yields also retreated (Germany down ~15 bps), and UK gilts fell ~29 bps to 4.23% as the Bank of England held steady. Euro area headline inflation edged up to 1.9% in February, with core inflation also rising, adding nuance to market expectations.
\nDomestically, Australian 10-year yields fell over the month, dropping about 15 bps to finish near 4.62%, despite the RBA’s decision to raise the cash rate in February. The RBA-led increase contrasted with the broader global easing in yields and was a key factor behind the AUD's strength during the month; local market movements were also affected by commodity swings and risk-off flows late in February.
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