Monthly markets review - February 2026
An overview of markets in February when US shares underperformed other regions amid a rotation away from big US technology stocks.
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The month in summary:
Global shares rose in February with non-US markets outperforming the US. Investors rotated away from large cap technology stocks amid worries over the returns to be made from the significant spending on AI. Government bonds generally delivered positive returns and outperformed corporate bonds. The US Supreme Court ruled that President Trump could not use emergency powers to impose trade tariffs. Conflict between the US and Iran began on the final day of the month when markets were closed.
Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions, and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.
Global equities
Global shares, as measured by the MSCI World index, gained in February although US shares fell. The month saw considerable divergence across styles and sectors of the market. Value stocks rose 2.9% for the month, while growth stocks fell 1.6%. This gap pointed to a shift away from higher-valuation companies towards businesses with steadier earnings, stronger cash flow and more moderate valuations.
US
US equities, as measured by the S&P 500 Index, declined 0.8%. The modest drop during a volatile month reflected a change in market leadership and greater investor caution. Investors revisited expectations for companies tied to long-term structural themes such as digital transformation and artificial intelligence, where share prices had already assumed many years of strong sales and profit growth. As confidence in those expectations lessened, capital moved towards firms with more dependable and near-term results.
Sector performance followed a similar pattern. Utilities, materials and consumer staples ranked among the stronger performers, supported by stable demand and relative resilience during slower economic periods. In contrast, consumer discretionary, communication services and information technology lagged. In many cases, even companies that reported solid results struggled to see their share prices advance, as investors focused more on starting valuation levels than on incremental earnings surprises.
US small-cap stocks gained 3.9% and outperformed their large-cap counterparts. The rebound came after an extended stretch of underperformance and aligned with improving expectations for domestic economic activity, conditions that tend to favour smaller and more domestically focused companies. Small caps also have less exposure to the largest growth and technology names that came under pressure during the month.
Weakness in technology-related areas remained a key theme. Investors took a more selective view of which business models are likely to benefit most from artificial intelligence investment. That reassessment weighed particularly on higher-priced software and platform companies and contributed to the underperformance of growth indices and the broader large-cap benchmark. At the same time, some hardware and infrastructure providers held up relatively better. That underscored a shift towards companies seen as enabling AI adoption rather than those whose benefits are still largely theoretical or many years away.
Eurozone
Eurozone shares gained in February, benefitting from signs of an economic pick-up in the region and ongoing rotation away from US shares. Gains were led by the energy, communication services and real estate sectors. Healthcare and financials underperformed.
The information technology sector ended the month higher overall but software stocks came under significant pressure due to the threat of disruption by AI. Similarly, financials were among the weaker sectors as investors worried about the impact new AI applications could have on certain industries, notably wealth management.
The European Central Bank (ECB) maintained interest rates on hold at 2% and ECB President Christine Lagarde repeated the view that inflation is “in a good place”. Annual inflation fell to 1.7% in January from 2% in December 2025. The HCOB flash eurozone composite index indicating an improving rate of economic expansion, with a reading of 51.9 in February, up from 51.3 in January. The manufacturing sub-index hit a six-month high of 52.1.
France adopted a budget for 2026, ending months of deadlock. The budget aims to increase defence spending and reduce the deficit to 5% of GDP by the end of 2026 from 5.4% at the end of 2025.
UK
The FTSE All-Share index registered a strong advance in February, supported by the rotation away from AI stocks. Top gaining sectors included healthcare, basic materials, utilities, and telecommunications. Within healthcare, some large pharmaceutical stocks performed well amid robust corporate earnings and deals to boost drug pipelines.
Within the UK index, large cap stocks outperformed while the more domestically focused FTSE 250 index posted a 2.3% return, lagging the FTSE 100 index.
The Bank of England (BoE) kept interest rates steady at 3.75% but signalled that a reduction could come in March. The BoE cuts its UK economic growth forecast for the next two years and raised its unemployment forecast. Meanwhile, data from the Office for National Statistics showed that the UK economy grew by just 0.1% year-on-year in Q4 2025. Inflation slowed to 3% in January after a 3.4% reading in December.
Japan
Japanese equities rose strongly in February, with the TOPIX Total Return up 10.5% and the Nikkei 225 up 10.4%. Domestically, a landslide victory for the LDP in the House of Representatives election boosted expectations for political stability and pro-growth “high-pressure economy” policies.
Global markets were volatile amid geopolitical concerns and worries that advances in generative AI could disrupt software and IT services; related Japanese sectors underperformed on substitution fears.
However, leadership broadened across cyclicals and companies seen as benefitting from domestic demand. AI-infrastructure beneficiaries (such as optical components/cables and semiconductor-related names) outperformed, alongside non-ferrous metals and trading companies helped by firmer metal prices, and real estate supported by domestic reflation expectations.
Emerging markets
The MSCI Emerging Markets (EM) Index ended February markedly ahead of the MSCI World index. Within the developed market index, non-US equity markets delivered positive returns while the US equity market declined in US dollar terms. The EM index’s returns were led by gains from index heavyweights Korea and Taiwan.
Korea was the EM index’s top-performing market in the month as it benefited from the combination of a rally in memory-related stocks and a positive outlook for governance reform. Thailand was close behind, also posting double-digit returns in US dollar terms, aided by optimism about political stability following the country’s general election. Taiwan’s returns were supported by strength in technology hardware stocks.
South Africa’s gains were once again helped by strength in precious metals prices. The government’s budget provided an optimistic outlook which was also beneficial. The smaller markets of Peru, Philippines and Mexico outperformed but the remaining markets in the EM index lagged the broader benchmark.
Brazil underperformed, despite its positive returns. While the real strengthened in the month, softer economic activity data indicates growth is slowing. The UAE and India also delivered positive returns but ended the month behind the index. The US-India trade deal was supportive of the Indian index market though news of higher government borrowing weighed on investor sentiment. Saudi Arabian and Chinese index markets both declined, underperforming the MSCI EM index. In China, performance was dragged down by weakness in internet stocks.
Asia ex Japan
Asia ex Japan equities advanced strongly in February, with the MSCI AC Asia ex Japan Index rising 5.9% for the month. Performance was driven primarily by North Asian export markets. Korea, Thailand, Taiwan all posted strong gains, as they were supported by continued demand for technology hardware and semiconductor supply chains. China’s stock market experienced a significant decline, a reflection of ongoing concerns about domestic growth concerns.
Sector returns showed a clear tilt towards technology and cyclically sensitive areas. Information technology led the market. While software and services declined, strength in the hardware and equipment industries and semiconductors more than offset that weakness, as investors focused on companies tied to artificial intelligence, data centres and electronic components. Industrials also delivered solid returns, supported by capital goods and transport-related businesses linked to global manufacturing activity. The materials and utilities sector posted steady gains, aided by infrastructure demand.
Communication services was the weakest sector during the month. Media and entertainment shares faced profit-taking and softer advertising expectations following a strong previous run. Consumer discretionary also declined overall.
Global bonds
It was a positive month for global government bond markets, with yields falling across the board as geopolitics and AI-related news dominated markets. Credit markets underperformed, posting negative excess returns as spreads widened across both investment grade and high yield markets (excess return is the additional return on an investment above a benchmark or a risk-free rate).
There were a number of events during the month driving global uncertainty, although the escalating conflict in Iran began on 28 February when markets were closed.
In the US, the Supreme Court ruled that the administration’s use of the International Emergency Economic Powers Act (IEEPA) to impose broad based tariffs was unconstitutional. ln response, the administration signalled that it would use a temporary authority (section 122) in which to impose the global tariffs and downplayed the possibility of refunds.
Signs of labour market weakness, in combination with an overarching risk-off mood amid a sell-off in US equities and increased anxiety over AI driven business disruption, saw investors price in additional US rate cuts this year. US Treasury yields fell over the month in reaction.
Government bond market yields across the eurozone also fell. January’s flash inflation (CPI) release was in line with expectations at 1.7%, marking its lowest level since 2021. The European Central Bank (ECB) kept interest rates unchanged at 2% as expected, with President Lagarde acknowledging that inflation was in a “good place”.
In the UK, the decision by the Bank of England to keep interest rates unchanged at 3.75% drove gilt yields lower. A split vote (4 members voted for a 25bps rate cut) and a dovish communication raised expectations for a rate cut when the monetary policy committee next meet in mid-March. Political developments added uncertainty to the UK bond market outlook, with the Labour Party’s by-election defeat increasing pressure on Prime Minister Starmer’s position and raising questions about potential easing of the government’s fiscal rules.
In Japan, following Prime Minister Takaichi’s decisive election victory early in the month, investors saw scope for more restrained fiscal spending than previously thought, which supported demand for Japanese government bonds. Meanwhile, January’s inflation (CPI) release came in below expectations, supporting the view that some of the price pressures experienced early last year were transitory.
Commodities
Commodities, as measured by the S&P GSCI index, notched up modest gains in February after January’s strong performance. Precious metals was the top performing component but had a volatile start to the month. Gold and silver both saw their prices slump in the wake of Trump’s nomination of Kevin Warsh to be the next Fed Chair. This allayed some of the market’s worries over inflation, which had been fuelling demand for precious metals. However, prices subsequently rebounded.
Elsewhere, energy ended higher although the natural gas component experienced declines. Agriculture also gained. Livestock was lower in the month.
The final day of the month saw an escalation of conflict in the Middle East. Markets were closed for the weekend but prices of oil and other commodities rose when markets reopened on 2 March.
Digital assets
Early February 2026 saw a sharp drawdown, with Bitcoin falling below the psychological $70,000 mark and even testing levels near $61,000. On 5 February, Bitcoin registered a major move placing it among the fastest single-day crashes in crypto history. Crypto markets experienced approximately $3 billion to $4 billion in total liquidations over a week. Most of the liquidations were in Bitcoin and Ethereum as speculative leverage has largely diminished in alt coins. The selloff was amplified by adjacent narratives such as geopolitical uncertainty and Kevin Warsh's nomination as Fed chair.
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