February 2026 Monthly Market Update

Economic Overview

Global equity markets delivered mixed results in February, following a strong January, with the S&P 500 declining 1.75% for the month. Weakening AI momentum and increasing scrutiny led value-oriented stocks to again outperform growth-oriented stocks, with the Russell 1000 Value rising 2.6% while the Russell 1000 Growth Index declining 3.4%. Small caps were more resilient, with the Russell 2000 up 0.8% for the month. Outside the U.S., international equities continued their strong start to the year with MSCI EAFE returning 4.6% and MSCI Emerging Markets rising 5.5%, emphasizing the benefits of global diversification. The USD weakened in the first half of February then strengthened in the back half as geopolitical risks began to rise. Bond returns were muted with both taxable and tax-exempt bonds relatively flat in February. Commodity markets remained volatile but firm as geopolitical tensions and energy market dynamics supported prices.

Economic data released throughout February pointed to a resilient but moderating backdrop. Labor market data was mixed with payrolls in February declining by 92,000 and downward revisions to prior months with falling participation rates. The unemployment rate inched higher to 4.4%, reinforcing the “low hiring, low firing” narrative. Inflation remained stubborn with year over year change in headline CPI of 2.4% and core PCE of 3%, supporting the view that inflation pressures continue to gradually ease even if progress toward the Federal Reserve’s 2% target remains uneven. Other economic reports saw healthy service sector business surveys and manufacturing indicators moved back into expansionary territory. Consumer-related indicators were soft, including weaker retail sales and declining consumer confidence readings. Housing activity remained constrained by affordability challenges tied to still-elevated home prices and mortgage rates.

Policy developments were key in February, with substantial developments in trade and foreign policies including the Supreme Court striking down tariff levies enacted under IEEPA and large-scale military action to effect regime change in Iran. Tariff policy remained unclear with a 15% across the board levy, under Section 122, announced following the SCOTUS ruling – this too will be subject to a wide array of legal challenges and is limited to 150 days, after which Congressional approval is required. U.S. foreign policy produced a shock to the system (and energy prices) at month end with military action in Iran resulting in substantial energy infrastructure disruption and corresponding volatility and energy price increases. While the conflict has yet to materially alter the global economic outlook, the duration of energy infrastructure disruption is the key factor with the capital markets monitoring an ever-evolving landscape by the minute.

Taken together, the month of February saw some consolidation following the strong start to 2026. U.S. equities faced headwinds from large-cap growth weakness and ongoing debate surrounding the durability and economic implications of the AI investment boom. At the same time, improving equity market breadth, continued strength in international markets, and a still-resilient economic backdrop helped keep the broader risk environment relatively constructive as investors navigated a very active policy and geopolitical landscape.