Financial markets: Analysis and convictions of CPRAM - February 2025

Malik Haddouk, Director of Diversified Management, and Juliette Cohen, Strategist, decipher the markets, and Julien Levy-Kern, Diversified Portfolio Manager, shares his convictions on the themes to follow.

The financial markets started the year 2025 on a positive note, which could bode well for the year if we believe the saying. Indeed, over the month, the MSCI World increased by +3.13%, driven by a rebound in all global stock indices, which all ended in positive territory.

The gold medal this time goes to the eurozone, which soared by more than 8.10%.

The US market, on the other hand, only increased by +2.36%. This excellent European stock performance is primarily explained by the Trump administration's decision to defer tax increases on European and Chinese products, and by the support of the European Central Bank, which continues to reduce borrowing costs.

Government bonds remained within a range at the beginning of the year, with US Treasury yields decreasing compared to the end of December to 2.54%, while European nominal rates slightly increased, with German 10-year yields ending at 2.45%. This bond stability is explained by the ability of central banks to meet market expectations.

Indeed, as expected, the Bank of Japan raised its policy rate by +25 bps, the European Central Bank reduced borrowing costs for the fifth time by 25 basis points to 2.75%, and the US central bank unanimously voted to maintain its policy rate within the range of 4.25%-4.50%, while indicating that it was not in a hurry to lower it further at the moment, waiting for more clarity on the future impacts of the Trump administration's decisions.

The earnings season for companies is in full swing in Europe and the United States and is rather positive, especially in the United States, where profit margins continue to remain at historically high levels.

Finally, it should be noted that the results of major US technology companies were somewhat overshadowed by the announcement of the Chinese company DeepSeek (which offers cost-effective generative AI), which, if proven accurate, could reduce the world's dependence on them. This is a story to follow.

Global stocks started the year on a strong footing and Europe managed to achieve a mini recovery after last year's significant underperformance.

In our opinion, the asymmetry between valuations and positioning explains this behavior. However, this early year outperformance seems to be primarily driven by short position covering.

The eurozone could face a tariff skirmish in the coming days. The weeks ahead will undoubtedly be challenging for investors. Nevertheless, European fundamentals remain constructive for the time being, with a resilient economy, expected company profit growth of +8% on average, and a central bank that will continue its monetary easing with 3 or 4 further rate cuts to bring the terminal rate to around 2% by the end of the year.

Furthermore, despite the recent recovery, stocks appear attractive compared to credit and bonds. The region already benefits from a high risk premium and could benefit from other more positive catalysts such as the upcoming German elections, a potential ceasefire in Ukraine, and a reduction in budgetary uncertainty in France.

US stocks reached new historical highs in 2025. The global markets have responded positively to the various announcements by Donald Trump, suggesting a certain moderation in the United States' approach to tariffs.

European stocks are outperforming US stocks by a wide margin, notably supported by the encouraging results of Richemont, up 28%, and Burberry, reigniting investors' appetite for the Luxury sector.

In this context, themes related to demographic change and innovation, with performances around 5%, are outperforming the MSCI World, particularly in the Well-being/Lifestyle and Cybersecurity sectors.

AI is slightly behind at 3%, with significant dispersion within the theme related to the announcement by the Chinese start-up DeepSeek, stating that its conversational AI robot, or LLM, would be able to rival ChatGPT at a significantly lower development cost. All sectors involved in AI development have been impacted by this news, particularly semiconductor and data center stocks, with some experiencing a decline of over 15%, such as Nvidia. Whether DeepSeek's efficiency gains prove true or not, a wave of increasingly efficient and low-cost LLMs should contribute to a broader and faster adoption of AI.

The market has seen opportunities in SaaS, notably Salesforce, and even more so in the Cloud, particularly with Snowflake.

Our key points

We note from this month of January, the good performance of the stock markets with the marked outperformance of Europe as well as the relative stability of long-term interest rates. On the American stock side, we note the underperformance of the 7 magnificent and the movement of deconcentration in the indices.