Markets between love and fear

In February, the markets have shown that love is in the air: despite new tariff announcements, inflation risks, and the DeepSeek shakeup, positive market sentiment continues to prevail. In Europe, equities reached new all-time highs, and in the US, there is evidence of a broadening equity rally, as the dominance of the Magnificent Seven may be starting to fade. However, uncertainty remains at extreme levels, with renewed fears emerging following the higher-than-expected January CPI, which recorded its fastest increase in a year and a half, and some weak US economic data.

To assess whether the current environment of positive market sentiment can continue, we focus on the following themes:

  • First, inflation is the dominant concern, as the market remains highly sensitive to it, which could pose a significant challenge for Trump. Recent consumer surveys highlight growing uncertainty, with long-term consumer inflation expectations surging to 3.3%, the highest since 2008, with the highest dispersion since the 80s.
  • Second, global growth is set to stabilise as inflation gradually declines, but policy uncertainty under Trump adds risks.
  • Third, the Eurozone is supported by a clearer ECB policy path. Fiscal support in Germany following the elections and a possible increase in defence spending are key themes to monitor.
  • Finally, China remains focused on avoiding a disruptive trade war, as evident in its measured response to Trump's tariffs. 
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Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of 3 March 2025. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results.
 

Date of first use: 3 March 2025

Doc ID: 4285688