Market Returns February 2026 (including dividends)

S&P 500: -0.7%

S&P 500 Equal-Weight: +3.5%

Dow Jones:  +0.3%

Nasdaq: -3.4%

MSCI EAFE:  +4.6%

MSCI Emerging Markets: +5.5%

Bonds (US Aggregate):  +1.6%

 Economic & Policy Highlights

Interest Rates & Fed Outlook

• FED officials discussed that an AI productivity boost could lead to higher rates
• Members of the Federal Reserve spoke openly about the possibility of actually raising rates in the US, as inflation remains sticky
• The Australian Central Bank raised rates 25 basis points to 3.85%, due to inflation
• The Bank of England and the ECB kept rates unchanged

Trade & Tariffs

• The US Supreme Court declared Trump’s IEEPA tariffs illegal
• The White House immediately placed a baseline 10% global tariff in its place
• President Trump mused about quitting the USMCA trade agreement with Canada and Mexico 

Employment & Growth

• The “No hire, No fire” employment situation continued to grind along
• Private credit loans saw a continued uptick in bad PIK (payment in kind) rates
• Q4 GDP came in at only 1.4%, as the gov’t shutdown and weak exports hampered the economy
• The US government announced a $12 Billion mineral stockpile, focusing on critical minerals

Consumer spending & sentiment

• US tax refunds are expected to be $90-100 billion higher than last year
• Loan delinquencies hit their highest levels since 2017, as low income and young Americans struggled

Geopolitical Volatility & Energy

• The US-Russia Nuclear Pact (START) expired
• The US amassed military assets in the Middle East
• Oil rose 2.8% as geopolitical tensions brewed towards the end of the month
• Gold rose 7.9% as investors and central banks accumulated bullion
• Japanese PM Takaichi, won a landslide victory
• The US and Israel launched Epic Fury, a military strike on Iran, on the last day of February

Summary Impact

• The “AI scare trade” gripped markets as entire sectors sold off heavily on the fear of AI’s disruptive effects
• Several private credit firms halted redemptions as investors demanded their money back on fears of potential losses
• Forecasted AI spending spooked markets
• Geopolitical concerns spilled into markets at the end of the month

Commentary:

February saw investors continuing to turn their backs on mega-cap technology stocks as worries over escalating capex spending remained front and centre.  To put the magnitude of this spending in perspective, four big tech companies (Microsoft, Meta, Google, Amazon) will spend $650 billion in capex on AI in 2026.  Conversely, 21 of the biggest companies in America (construction, autos, defence, railroads, manufacturing, etc) will spend only $180 billion in capex combined.  Investors chose to spread their bets across industries and other parts of the market globally, seeking diversification and exposure to areas with resilience to AI disruption.  These moves helped propel upwards the S&P 500 equal weight index and the majority of foreign markets.  Clearly, the “all your eggs in one basket” investment strategy of 2025 is dead, for now.

February also saw a record increase in single stock volatility despite the overall market recording historically low volatility.  The primary driver of this elevated stock volatility was the AI scare trade.  On multiple occasions, various AI developers announced that they had created AI apps that threatened the financial viability of entire industries.  Investors chose to shoot first and asked questions later.   Industries such as global logistics, cyber security, real estate services, legal services, etc. witnessed single day declines of anywhere between 10-20% in stock prices.

Fixed income markets enjoyed positive returns as rates rallied.  10-year yields in the US fell to 4.04%, a multi month low, as demand for safe havens increased.  Fixed income investors also seemed to have an insatiable appetite for corporate bonds as well, ignoring the growing cracks in private credit and the warnings that default rates could hit 15% if AI disruption intensified.  Perhaps the best sign of complacency in corporate bonds was the 100-year bond issued by Google that was many times oversubscribed.

February trading provided outsized moves in several of our holdings, in which we took the opportunity to lock in profits. As February comes to an end, global markets are entering March with an Iranian war that is poised to pressure risk assets and take volatility to a higher level.  We will remain vigilant in our goal of protecting capital and looking for low-risk opportunities to deploy assets.