February 22, 2025: Global Markets Mixed as Fed Holds—Strategic Rotation Opportunities Emerge

While the S&P 500 dipped 0.54% to 6,144.15 amid softer PMI data, the emerging correlation between stocks and bonds (now at 0.6) signals a fundamental shift in market dynamics. Here's how traders and investors can navigate this evolving landscape.

Core Analysis

Key Developments:

  • U.S. preliminary composite PMI disappointed expectations, driving market uncertainty
  • FOMC minutes reveal preference to pause rate cuts, challenging market expectations
  • Stock-bond correlation regime shift continues, marking a structural change from the 2002-2021 period

Market Breakdown:

  • Winners: KOSPI (+1.7%), IBEX 35 (+0.98%), S&P/TSX (+0.65%)
  • Losers: DAX (-1.8%), CAC 40 (-1.17%), FTSE 100 (-0.62%)
  • EM sovereign bonds underperformed (-0.29%) while EM corporate credit showed resilience (+0.09%)

Strategic Playbook

Short-Term (Traders):

  • Consider tactical positions in South Korean equities, capitalizing on recent momentum
  • Monitor European markets for oversold conditions, particularly in German equities

Long-Term (Investors):

  • Maintain 5% commodity allocation for portfolio volatility reduction
  • Consider rebalancing bond exposures given the shifting correlation landscape

Forward Outlook

Catalysts:

  • Upcoming central bank decisions in Israel, Hungary, Thailand
  • German elections impact on European markets
  • Global macro economic releases next week

Risk Radar:

  • Geopolitical tensions around Ukraine negotiations
  • Potential policy shifts under Trump administration affecting market sentiment

Sources

Data sourced from:

  • Gramercy Emerging Markets Weekly
  • Markets Insider Global Indices
  • IMF World Economic Outlook
  • Russell Investments 2025 Global Market Outlook
  • Harbor Capital Insights

Data as of February 22, 2025. Past performance does not guarantee future results.