February started where January ended, with weakness in risk assets, though sentiment quickly reversed to see major equity market indexes hitting new all-time highs by month end. Early in February, a weak US January jobs report, followed by weak US manufacturing reports, caused investors to focus on a potential US economic slowdown in addition to ongoing concerns over emerging market instability. A reasonably strong conclusion to the US earnings reporting season, coupled with a heavy dose of M&A announcements throughout the month (see below), contributed to the sharp rebound in risk assets.
February was another very strong month for strategic corporate activity. Notable deals announced in February included Smith & Nephew’s acquisition of medical device company ArthroCare for $1.7 billion, Continental AG’s $1.9 billion acquisition of Veyance, L’Oreal’s $8.9 billion deal to acquire 8% of its own shares from Nestle, Mallinckrodt’s $1.3 billion acquisition of Cadence Pharmaceuticals, Comcast’s blockbuster $45 billion acquisition of Time Warner Cable, the $900 million acquisition of Viber Media by Japan’s Rakuten, Jos. A. Bank’s $825 million acquisition of Eddie Bauer, Actavis’ $25 billion deal to buy Forest Laboratories, Clayton Dubilier’s $1.8 billion acquisition of Ashland Inc.’s water technologies unit, Signet Jewelers $1.4 billion acquisition of Zale Corp., RF Micro Devices’ $1.6 billion acquisition of TriQuint Semiconductor, and Facebook’s $19 billion acquisition of WhatsApp.
Developed market equity markets mostly rose in February (see page 6), led by France (+5.9%), Australia (+5%), and the UK (+4.9%); the US S&P500 ended up 4.5%. US small caps outperformed slightly with the Russell 2000 up 4.7% (see page 3). Materials (+6.9%) and Consumer Discretionary (+6.2%) were the best performing US sectors (see page 2), while Telecom (-1%) and Financials (+3.1%) were the worst performing. Large cap growth (+5.1%) outperformed large cap value (+4.3%) in February (see page 3). Emerging Market equities were mostly higher in February (see page 7), with the biggest gains in Argentina (+19.4%), the Philippines (+8.1%), and Indonesia (+4.8%) and losses in Mexico (-4.7%) and Russia (-0.8%).
In currencies, the USD Index weakened 2% in February (see page 8). The biggest gains against the USD were seen in Norwegian Krone (+4.6%), New Zealand Dollar (+3.7%), and the Swiss Franc (+3%). The USD also weakened against most emerging market currencies with the biggest gains by the Indonesian Rupiah (+5.1%), Brazilian Real (+3.1%), and Turkish Lira (+2.4%); the Russian Ruble (-2.7%) and Chinese Yuan (-1.4%) weakened against the USD.
US Treasuries rallied slightly in February, most strongly at the longer end of the curve (see page 10). 10 year rates closed the month at 2.65%, down slightly from 2.67% at January month end. Investment grade and high yield US credit spreads tightened in February (see page 11), as did European sovereign spreads (see page 12), most of which are now at multi-year tight levels.
In commodities, the GSCI index closed up 4.5% in February (see page 9), led by gains in Agriculture (+9.3%), Precious Metals (+7.1%), Livestock (+6.3%), Energy (+3.7%), and Industrial Metals (+1.3%). Within individual commodities, Coffee led gains (+41.7%), followed by Lean Hogs (+12.7%), Sugar (+11.4%), and Soybeans (+11.4%); Copper (-0.5%) and Natural Gas (-0.4%) weakened slightly; Gold finished the month up 6.6%.
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