February was largely a continuation of what we saw in January: a rotation from the technology sector to more traditional sectors.
Fixed income also saw some interesting behavior. The best-performing segment was government bonds, followed by higher-quality corporate bonds, while the riskiest segment, high yield, was the worst performer.
The main indices performed as follows:
S&P 500: -0.87%
Nasdaq: -2.32%
Stoxx Europe: +3.74%
MSCI All Country World Index (EUR): +1.73% (The dollar rose 0.33%, so the index in USD rose 1.20%).
Global fixed income index (EUR): +1.88% (The dollar rose 0.33%, so the index in USD advanced 1.41%).
Since the beginning of the year, the sectors that have risen the most are Energy (24.41%) and Materials (17.63%), while the sectors that have lagged behind the most are Financials (-6.34%) and Information Technology (-6.34%).
This raises an interesting question: are we facing a change in the sectoral cycle in which optimism surrounding the technology sector, and especially artificial intelligence, is beginning to moderate?
I don’t know for sure, but if history teaches us anything, it is that, as psychoanalyst Theodor Reik said, “history does not repeat itself, but it often rhymes.” I always insist that this comment is not a manifesto against artificial intelligence. What we are trying to analyze is whether these valuations reflect a reasonably achievable future or whether, on the contrary, they may be incorporating excessive optimism. In times of greater uncertainty, the market demands a higher risk premium, and that usually translates into greater volatility or declines.
The risk of concentration in the S&P 500
One of the most striking aspects of the current market is the historic level of concentration in the S&P 500 index, as shown in this image of the evolution of the weight of the top 10 companies since 1990. Today, the 10 largest companies represent approximately 40% of the index, while the other 490 companies represent the remaining 60%.
Source: RBC Wealth Management, Factset.
As I said before, let’s see what happened in similar situations when there was a similar risk of concentration.
Remembering the internet bubble at the beginning of the century.
Before the tech bubble burst in the early 2000s, the ten largest companies in the S&P 500 accounted for around 23% of the index, far from the current 38%. These 10 companies were:
Microsoft
General Electric
Cisco Systems
Wal-Mart Stores
Exxon Mobil
Intel Corp
Lucent Technologies
IBM
Citigroup
America Online
The internet had just been born, and a very powerful narrative was generated around this new technological paradigm, which sparked strong optimism. Six of these companies were included in the technology sector. This graph shows the Nasdaq technology index (light blue line) compared to the S&P (dark blue line) up to March 2000. Looking at this graph, our first reaction would be, “I should have invested in technology; my brother-in-law told me so.”
Source: Bloomberg
It certainly seems that at that time, you had to be invested in these companies. Those who did not invest were somehow forced to invest so as not to miss out on the wave, what is now called FOMO (Fear Of Missing Out), and that is precisely where the problem begins.
Historically, there are two main ingredients for generating stock market euphoria:
A powerful narrative (at that time, the internet)
Abundant liquidity
I don’t know which of the two came first, but in the 1990s, both factors were present. The narrative existed, and with regard to liquidity, it came from a period of abundant cheap credit:
Following the recession of 1990–91, the Fed aggressively lowered interest rates.
In 1998, following the Asian crisis and the collapse of LTCM[1], injected liquidity again.
Real interest rates (nominal rates minus inflation) remained relatively low in an environment of strong growth.
When these conditions combine, something similar usually happens: it starts with a promising narrative (new internet paradigm), then optimism sets in, and later that optimism can turn into overconfidence. Investors start to borrow money to buy more assets (the internet is the future and its growth is limitless), investment banks, sensing easy profits, create all kinds of products linked to this new paradigm and sell them en masse, and little by little valuations cease to matter because it is assumed that the new paradigm justifies everything.
Does this sound familiar?
And as often happens in these situations, all it takes is a small spark to blow everything up: reality. And reality, although sometimes late, always ends up appearing. It can come in the form of downward revisions to profits, financial difficulties due to excessive leverage, or even the occasional unexpected bankruptcy. When this happens, optimism quickly evaporates…the bubble eventually bursts.
Finally, the internet bubble burst and the market crashed. The chart above showed the previous rise; when we zoom in to include the following years, we see the other side of the story. After the crash, the Nasdaq technology index fell by nearly 82%, while the S&P 500 fell by around 45%.
Source: Bloomberg
If we look at what happened to the ten largest companies on the market at that time, the story is also interesting:
Eight of them still exist today.
Three of them have had a negative return over the last 24 years.
Only one of them remains in the top 10: Microsoft.
Only one has outperformed the S&P since 2000, Microsoft, and even then, it took almost two decades to fully recover lost ground, as it did not outperform the index until 2019.
This does not mean that history will repeat itself. But it does call for caution when market concentration reaches such high levels.
For this reason, we prefer to be cautious with indices such as the traditional S&P 500, where the weighting of a few companies is very high. As I always say and insist, this is not a criticism of artificial intelligence, as was the case with the internet. It is an innovation that is here to stay, but as Keynes said “It is better to be approximately right than precisely wrong.”[2]
For those who want exposure to the US market, an interesting alternative may be the S&P 500 Equal Weight, where all companies have the same weighting. This reduces the impact that sudden movements by larger companies can have. This is important because while everyone is happy when the market is rising, if there is nervousness caused by an event that affects these companies, the index suffers greatly.
We saw a recent example of this in early 2025, when the Trump administration’s announcement of tariffs caused a market correction. The chart reflects what happened during that period: The “Magnificent Seven” (represented by the light blue line), which account for about 33% of the S&P, fell approximately 25.8%, the traditional S&P 500 (represented by the dark blue line) fell 15.3%, and the S&P Equal Weight (represented by the beige line), where the magnificent seven represent 1.4%, fell 12.7%.
The difference in this case between investing in the traditional S&P or the S&P Equal Weight was close to 3% in just three months.
Source: Bloomberg
Now, the important question is how both approaches perform in the long term. In this graph, I compare both indices since the beginning of the 20th century, taking into account several crises.
Source: Bloomberg
If we analyze its performance since the beginning of the century, through several financial crises, the S&P Equal Weight has outperformed the traditional S&P. However, in shorter periods, especially when there is a very optimistic narrative surrounding a small group of companies, the traditional index tends to perform better.
Conflict in Iran
Unfortunately, I must end this commentary with the event that marked the beginning of March: the US and Israeli bombings of Iran and Iran’s subsequent retaliation.
It is not our goal to make political assessments or determine who is right. The only thing we can say with certainty is that all conflict is, above all, a human tragedy.
That said, we will attempt to analyze the effect that this type of event has on financial markets. Conflicts in the Middle East are nothing new for financial markets, but the current situation has a particularly sensitive element: the possible disruption of the global energy system.
The initial reaction of the markets has been the usual one in the face of a geopolitical shock. Global stock markets recorded widespread declines as volatility increased and investors sought refuge in defensive assets.
At the same time, there has been a classic increase in demand for safe-haven assets such as gold, high-quality sovereign bonds, the Japanese yen, and the Swiss franc. The main concern for the markets is not so much the military conflict itself as its implications for global energy supplies. The focus has been on the Strait of Hormuz, one of the most critical points in global energy trade. Approximately 20% of oil and liquefied natural gas transported by sea passes through this strait. Any disruption to traffic on this route can cause immediate tensions in energy prices.
Following the escalation of the conflict, oil and gas prices rose sharply. Brent crude oil stood at around $80 per barrel, while natural gas prices rose significantly in Europe.
This move has reignited fears of a new energy shock, especially in Europe, which is still in the process of adapting after the energy crisis triggered by the war in Ukraine.
Beyond the immediate impact on markets, the real risk lies in the macroeconomic consequences of rising energy prices. A sustained increase in oil and gas prices could result in:
Greater inflationary pressures.
Delays in interest rate cuts by central banks.
A deterioration in global economic growth.
In other words, the conflict reintroduces the risk of a stagflationary scenario, in which growth weakens while inflation remains high.
Despite the initial noise, historical experience suggests that the impact of conflicts in the Middle East on financial markets is usually temporary. An analysis of several conflicts in the region since 1970 shows that, although stock markets tend to react with short-term declines, the effects on financial markets and global growth tend to moderate once the initial uncertainty subsides.
In fact, in many historical episodes, oil prices experienced initial increases that subsequently normalized if there was no prolonged disruption to energy supplies. The path we travel during the investment process is fraught with obstacles and uncertainties. But remaining calm and making decisions based on a detailed analysis of each asset in our portfolio, rather than on media noise, remains, in our opinion, the best ingredients for achieving good long-term results.
[1] Long Term Capital Management (LTCM) was a hedge fund founded in 1994 by John Meriwether, with the participation of prominent figures such as Robert Merton and Myron Scholes (Nobel Prize winners in Economics). It collapsed in 1998 after huge losses on highly leveraged positions, leading to a bailout coordinated by the New York Federal Reserve.
February Market Review
February was largely a continuation of what we saw in January: a rotation from the technology sector to more traditional sectors.
Fixed income also saw some interesting behavior. The best-performing segment was government bonds, followed by higher-quality corporate bonds, while the riskiest segment, high yield, was the worst performer.
The main indices performed as follows:
(The dollar rose 0.33%, so the index in USD rose 1.20%).
(The dollar rose 0.33%, so the index in USD advanced 1.41%).
Since the beginning of the year, the sectors that have risen the most are Energy (24.41%) and Materials (17.63%), while the sectors that have lagged behind the most are Financials (-6.34%) and Information Technology (-6.34%).
This raises an interesting question: are we facing a change in the sectoral cycle in which optimism surrounding the technology sector, and especially artificial intelligence, is beginning to moderate?
I don’t know for sure, but if history teaches us anything, it is that, as psychoanalyst Theodor Reik said, “history does not repeat itself, but it often rhymes.” I always insist that this comment is not a manifesto against artificial intelligence. What we are trying to analyze is whether these valuations reflect a reasonably achievable future or whether, on the contrary, they may be incorporating excessive optimism. In times of greater uncertainty, the market demands a higher risk premium, and that usually translates into greater volatility or declines.
The risk of concentration in the S&P 500
One of the most striking aspects of the current market is the historic level of concentration in the S&P 500 index, as shown in this image of the evolution of the weight of the top 10 companies since 1990. Today, the 10 largest companies represent approximately 40% of the index, while the other 490 companies represent the remaining 60%.
Source: RBC Wealth Management, Factset.
As I said before, let’s see what happened in similar situations when there was a similar risk of concentration.
Remembering the internet bubble at the beginning of the century.
Before the tech bubble burst in the early 2000s, the ten largest companies in the S&P 500 accounted for around 23% of the index, far from the current 38%. These 10 companies were:
The internet had just been born, and a very powerful narrative was generated around this new technological paradigm, which sparked strong optimism. Six of these companies were included in the technology sector. This graph shows the Nasdaq technology index (light blue line) compared to the S&P (dark blue line) up to March 2000. Looking at this graph, our first reaction would be, “I should have invested in technology; my brother-in-law told me so.”
Source: Bloomberg
It certainly seems that at that time, you had to be invested in these companies. Those who did not invest were somehow forced to invest so as not to miss out on the wave, what is now called FOMO (Fear Of Missing Out), and that is precisely where the problem begins.
Historically, there are two main ingredients for generating stock market euphoria:
I don’t know which of the two came first, but in the 1990s, both factors were present. The narrative existed, and with regard to liquidity, it came from a period of abundant cheap credit:
When these conditions combine, something similar usually happens: it starts with a promising narrative (new internet paradigm), then optimism sets in, and later that optimism can turn into overconfidence. Investors start to borrow money to buy more assets (the internet is the future and its growth is limitless), investment banks, sensing easy profits, create all kinds of products linked to this new paradigm and sell them en masse, and little by little valuations cease to matter because it is assumed that the new paradigm justifies everything.
Does this sound familiar?
And as often happens in these situations, all it takes is a small spark to blow everything up: reality. And reality, although sometimes late, always ends up appearing. It can come in the form of downward revisions to profits, financial difficulties due to excessive leverage, or even the occasional unexpected bankruptcy. When this happens, optimism quickly evaporates…the bubble eventually bursts.
Finally, the internet bubble burst and the market crashed. The chart above showed the previous rise; when we zoom in to include the following years, we see the other side of the story. After the crash, the Nasdaq technology index fell by nearly 82%, while the S&P 500 fell by around 45%.
Source: Bloomberg
If we look at what happened to the ten largest companies on the market at that time, the story is also interesting:
This does not mean that history will repeat itself. But it does call for caution when market concentration reaches such high levels.
For this reason, we prefer to be cautious with indices such as the traditional S&P 500, where the weighting of a few companies is very high. As I always say and insist, this is not a criticism of artificial intelligence, as was the case with the internet. It is an innovation that is here to stay, but as Keynes said “It is better to be approximately right than precisely wrong.”[2]
For those who want exposure to the US market, an interesting alternative may be the S&P 500 Equal Weight, where all companies have the same weighting. This reduces the impact that sudden movements by larger companies can have. This is important because while everyone is happy when the market is rising, if there is nervousness caused by an event that affects these companies, the index suffers greatly.
We saw a recent example of this in early 2025, when the Trump administration’s announcement of tariffs caused a market correction. The chart reflects what happened during that period: The “Magnificent Seven” (represented by the light blue line), which account for about 33% of the S&P, fell approximately 25.8%, the traditional S&P 500 (represented by the dark blue line) fell 15.3%, and the S&P Equal Weight (represented by the beige line), where the magnificent seven represent 1.4%, fell 12.7%.
The difference in this case between investing in the traditional S&P or the S&P Equal Weight was close to 3% in just three months.
Source: Bloomberg
Now, the important question is how both approaches perform in the long term. In this graph, I compare both indices since the beginning of the 20th century, taking into account several crises.
Source: Bloomberg
If we analyze its performance since the beginning of the century, through several financial crises, the S&P Equal Weight has outperformed the traditional S&P. However, in shorter periods, especially when there is a very optimistic narrative surrounding a small group of companies, the traditional index tends to perform better.
Conflict in Iran
Unfortunately, I must end this commentary with the event that marked the beginning of March: the US and Israeli bombings of Iran and Iran’s subsequent retaliation.
It is not our goal to make political assessments or determine who is right. The only thing we can say with certainty is that all conflict is, above all, a human tragedy.
That said, we will attempt to analyze the effect that this type of event has on financial markets. Conflicts in the Middle East are nothing new for financial markets, but the current situation has a particularly sensitive element: the possible disruption of the global energy system.
The initial reaction of the markets has been the usual one in the face of a geopolitical shock. Global stock markets recorded widespread declines as volatility increased and investors sought refuge in defensive assets.
At the same time, there has been a classic increase in demand for safe-haven assets such as gold, high-quality sovereign bonds, the Japanese yen, and the Swiss franc. The main concern for the markets is not so much the military conflict itself as its implications for global energy supplies. The focus has been on the Strait of Hormuz, one of the most critical points in global energy trade. Approximately 20% of oil and liquefied natural gas transported by sea passes through this strait. Any disruption to traffic on this route can cause immediate tensions in energy prices.
Following the escalation of the conflict, oil and gas prices rose sharply. Brent crude oil stood at around $80 per barrel, while natural gas prices rose significantly in Europe.
This move has reignited fears of a new energy shock, especially in Europe, which is still in the process of adapting after the energy crisis triggered by the war in Ukraine.
Beyond the immediate impact on markets, the real risk lies in the macroeconomic consequences of rising energy prices. A sustained increase in oil and gas prices could result in:
In other words, the conflict reintroduces the risk of a stagflationary scenario, in which growth weakens while inflation remains high.
Despite the initial noise, historical experience suggests that the impact of conflicts in the Middle East on financial markets is usually temporary. An analysis of several conflicts in the region since 1970 shows that, although stock markets tend to react with short-term declines, the effects on financial markets and global growth tend to moderate once the initial uncertainty subsides.
In fact, in many historical episodes, oil prices experienced initial increases that subsequently normalized if there was no prolonged disruption to energy supplies. The path we travel during the investment process is fraught with obstacles and uncertainties. But remaining calm and making decisions based on a detailed analysis of each asset in our portfolio, rather than on media noise, remains, in our opinion, the best ingredients for achieving good long-term results.
For more Market Reviews, click here.
[1] Long Term Capital Management (LTCM) was a hedge fund founded in 1994 by John Meriwether, with the participation of prominent figures such as Robert Merton and Myron Scholes (Nobel Prize winners in Economics). It collapsed in 1998 after huge losses on highly leveraged positions, leading to a bailout coordinated by the New York Federal Reserve.
[2] A Treatise on Probability: The Connection Between Philosophy and the History of Science : Keynes, John Maynard: Amazon.es: Libros
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