Global Markets React to US-Israel Strike on Iran
February will likely be remembered for the start of the US-launched special military operation “Epic Fury” in Iran. The objective of the operation is the neutralization of Iran’s missile infrastructure and, in the long term, regime change. The situation reached a climax on February 28, when Iran’s Supreme Leader Ali Khamenei was killed in an airstrike, triggering volatility across financial markets.
Geopolitical Tensions and Market Response
The immediate aftermath of the strike saw Brent crude oil prices climb above $80 a barrel, fueled by concerns about a prolonged blockade of the Strait of Hormuz 1. Natural gas prices in Europe also experienced a sharp rise following QatarEnergy’s halt to liquefied natural gas production. Precious metal markets exhibited high volatility in early March. Interestingly, the cryptocurrency market reacted relatively calmly, with Bitcoin continuing its decline, falling 17% in February to around $66,000 BTC/USD.
The US dollar demonstrated strength, reaching 1.1600 EUR/USD on March 3rd. While the initial shock of the military operation caused a fall in stock markets on March 1st, US stock indexes subsequently recovered and remained largely unchanged on March 2nd. European stock markets, yet, have not yet mirrored this recovery.
Sectoral Divergence in US Stock Markets
February saw a marked divergence between US stock sectors. The Nasdaq Composite fell 3.4%, its weakest monthly performance since March 2025, driven by concerns surrounding artificial intelligence (AI) and higher-than-expected inflation rates. The S&P 500 decreased by 0.9%. Conversely, the Dow Jones Industrial Average rose 0.2%, briefly surpassing the 50,000 mark and achieving a tenth consecutive positive month, largely due to capital rotation into the industrial and energy sectors.
European shares outperformed the US, with the STOXX 600 index rising by 3.7% in February.
Supreme Court Ruling on Trump’s Tariffs
A historic February 20th Supreme Court decision limited the White House’s authority to unilaterally impose tariffs under the International Emergency Economic Powers Act (IEEPA). In response, Donald Trump reversed previously imposed tariffs that had generated over $160 billion in US dollar revenue. He subsequently implemented a temporary 10% general tariff under Article 122 of the Trade Act, later increased to 15%. This move sparked international backlash and new challenges at the World Trade Organization (WTO), but also accelerated some bilateral trade deals.
Japan’s LDP Victory and “Sanaenomics”
The largely anticipated victory of Japan’s Liberal Democratic Party (LDP) in the February 8th parliamentary election, led by Prime Minister Sanae Takaichi, has solidified “Sanaenomics,” a fiscal policy focused on substantial defense and semiconductor industry subsidies. This LDP win provides relative stability, signaling a decisive shift towards a more self-sufficient Japan. The victory removes legislative obstacles to an aggressive, deficit-financed industrial policy.
This fiscal policy has altered Japan’s interest rate environment, pushing 10-year government bond (JGB) yields above the 2% threshold as markets anticipate upcoming bond issuances. Increasing pressure on the JGB yield curve is prompting investors to exit yen carry trades, reducing global liquidity. While the Japanese yen continues to fluctuate between reflationary pressures and its traditional “safe haven” status, the era of cheap yen-financed borrowing is over.
Q4 2025 Earnings Season and Tech Sector Outlook
The 2025 Q4 earnings season concluded with a solid 14.2% year-over-year gain for the S&P 500, marking the fifth consecutive quarter of double-digit growth. This was driven by revenue growth of 9.4%, the strongest since the end of 2022. All eleven stock sectors showed positive results, with the “Mag7” companies driving market growth with a 27.2% profit increase, while the remaining 493 companies in the index experienced a more moderate 9.8% profit growth.
Despite positive results, shares of some “Mag7” companies, including Nvidia, experienced declines following the earnings announcements. Nvidia shares fell over 5% despite exceeding estimates for data center revenue ($62 billion) and providing an upbeat Q1 forecast ($78 billion). Investors focused on risks related to AI capital expenditures, uncertainty surrounding OpenAI transactions, and relatively high valuations. Despite a forward P/E ratio of 21.6x for the S&P 500, which remains high relative to historical averages, the fundamental outlook remains bullish, with forecasts predicting sustained earnings growth of 14.6% in fiscal 2026.