February 2026 Market Insights Report
As we review the markets for February, I write this on Sunday morning following the joint U.S. and Israeli strike on Iran. We now know that a significant portion of Iran’s leadership, including Ayatollah Ali Khamenei, has been killed.
As is always the case, we will leave the political discussions to the pundits and instead focus on the potential economic and market ramifications.
Big Picture
February 2026 was a month of rising rate fears colliding with still‑resilient growth:
Equities started the month on a solid footing globally but ended with a sharp risk-off move after a surprise upside inflation print in the U.S., along with growing concerns about the impact of AI on the economy and employment.
In the bond market, government bonds generally lagged, with yields backing up as markets priced out some of the expected rate cuts.
Within the overall macro economy, we saw a tone shift as the narrative shifted from “soft landing with imminent cuts” toward “sticky inflation, slower and later easing,” even as full-year 2026 outlooks still call for positive global growth and constructive equity returns.
Equities
Global and Regional Performance
Coming off a strong January, global stocks remained broadly positive on a year‑to‑date basis, but February’s late‑month sell‑off clipped gains and raised volatility.
U.S. equities:
Early February: Mixed performance with pressure on large‑cap tech and AI‑linked names, while more traditional sectors (industrials, value, cyclicals) held up better.
Late February: The S&P 500 and Dow saw their steepest single‑day declines in months on February 27 after hotter‑than‑expected PCE inflation data. Growth and high-duration tech were hit hardest.
The S&P 500 finished the month down 0.8%.
The Nasdaq fell 3.3% as the “Magnificent Seven” retraced some earlier gains.
Non-U.S. markets: Europe and parts of emerging markets continued to benefit from cooling local inflation and relatively supportive policy expectations, and in many cases outperformed U.S. large-cap growth on a year‑to‑date basis.
Style and Sector Trends
Value vs. Growth: Value and cyclicals, including financials, industrials, and some commodity-linked sectors, generally led early in 2026 as leadership broadened beyond mega-cap technology.
AI and Technology: AI remains a core structural theme, but February revealed the other side of the trade. Concerns about rising AI-related capital expenditures and business model risks drove increased volatility. Technology and Communication Services were the poorest-performing S&P sectors for the month.
Fixed Income
Government Bonds
Performance: Core government bonds underperformed as yields drifted higher. Stronger economic data and sticky inflation reduced confidence in aggressive rate-cut paths that had been priced in late 2025.
Yield Curve: Markets continued debating the timing of the first Fed and ECB cuts, with yield curves remaining relatively flat by historical standards as expectations shifted toward slower and shallower easing.
Credit Markets
Spreads: Credit spreads widened modestly, reflecting risk-off sentiment tied to AI-related business risks and the late-month equity selloff, though there were no signs of systemic stress.
High Yield vs. Investment Grade: High yield remained more sensitive to growth and funding cost expectations, while investment-grade credit held up better, supported by solid corporate balance sheets.
Inflation, Central Banks, and Rates
U.S. Inflation Shock: The January PCE report released on February 27 showed a surprise reacceleration, challenging the view that inflation was gliding smoothly back to 2%. This triggered a repricing of Fed expectations and a broad risk-off move. For the month, the U.S. Aggregate Bond Index returned -0.2%.
Central Bank Expectations:
Federal Reserve: Markets pushed out both the expected start date and pace of rate cuts, reinforcing the view that policy will remain restrictive for longer.
Other Developed Market Central Banks: Many had already signaled a cautious approach to easing in the first half of 2026, consistent with forecasts that most would either remain on hold or only gradually ease policy.
Currencies and Commodities
U.S. Dollar: Strategists entered 2026 broadly bearish on the dollar, expecting modest depreciation over the year as global growth broadened and U.S. exceptionalism faded. February’s inflation surprise, however, provided tactical support as rate-cut expectations were scaled back.
Euro and Other Majors: The euro outlook remains moderately constructive due to improving European growth expectations and less aggressive Fed easing.
Commodities: Price action was choppy, driven by shifting growth expectations and AI-driven demand narratives in energy and metals. No single dominant trend defined the month.
This morning, Bloomberg reported that OPEC+ has agreed to a production increase of 206,000 barrels of oil per day in April. In terms of precious metals, gold rose 7.9%, and silver advanced 10.1% during February.
Forward-Looking Context
Growth: Analysts still project “sturdy” global growth around the high 2% range for 2026, with the U.S. expected to outperform earlier pessimistic forecasts.
Equities: Consensus outlooks continue to call for high single to low‑double‑digit returns for global equities over the next 12 months, with leadership broadening beyond U.S. mega‑cap tech and more room for non-U.S. markets.
Key Risks to Watch: Key watchpoints after February’s events are:
Persistence of inflation surprises
Timing and depth of central‑bank easing
AI‑related capex and profitability pressures
Geopolitical and election‑year volatility
Geopolitical Impact and Energy Markets
We have already entered a period of heightened geopolitical tension. In the coming week, gold and silver are likely to remain strong, and oil and natural gas may see increased demand.
The Strait of Hormuz takes center stage. At its narrowest point, it is only 21 nautical miles wide, and the navigable shipping lanes are roughly 2 miles wide in each direction. Iran may attempt to close this waterway to gain leverage.
These narrow channels carry a significant share of global oil traffic. Roughly 20 million barrels per day passed through the strait in 2025—about 25% of the world’s seaborne oil trade. With very limited alternative routes, even small disruptions could have outsized global effects. Concerns remain that Iran’s Revolutionary Guard could attempt to block the passage using underwater mines.
Markets will remain focused on inflation and employment data while searching for clues from the Federal Reserve. The optimal outcome remains a transition to lower inflation and a soft landing. However, current geopolitical tensions and the upcoming midterm elections will add to the “wall of worry” that markets must continue to climb.
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