Investment Commentary - February 2026

Markets experienced a mixed but broadly constructive month in February as investors navigated a combination of supportive economic data, shifting sector leadership and rising geopolitical tensions. Economic indicators across several major economies continued to point toward resilient global growth, while signs that inflation pressures were moderating helped sustain confidence in the outlook for monetary policy. Against this backdrop, most major asset classes produced positive returns, although performance varied significantly across regions and sectors.

Equity markets were shaped by a continued shift in leadership away from the largest US technology companies. While the recent US earnings season again delivered generally solid results, investor sentiment toward the mega-cap technology sector softened amid concerns about the scale of ongoing capital expenditure related to artificial intelligence. As a result, some of the largest growth stocks lagged the broader market and global growth equities declined -1.6% during the month.

Performance in equity markets continued to broaden geographically. Developed market equities delivered a +0.8% total return in February, although regional outcomes differed markedly. In the United States, the S&P 500 returned -0.8%, reflecting weakness across several technology-related sectors. By contrast, Japanese equities performed strongly. Following a decisive election result that increased expectations of further fiscal support, the Topix rose +10.5%, making it one of the strongest performing developed markets.

The rotation away from the largest technology companies also supported more cyclical and asset-heavy sectors that could benefit from continued investment in artificial intelligence infrastructure. Materials, utilities and energy companies were among the strongest performers, while some software and financial companies faced pressure as investors reassessed the long-term implications of rapid technological change.

Emerging markets also benefited from this shift in leadership and delivered returns of +5.5% during the month. Stronger performance in manufacturing-focused economies in Asia, along with gains in commodity-exporting markets in Latin America, contributed to the outperformance relative to developed markets.

In the UK, equities produced strong gains. The FTSE 100 rose +6.5%, supported by its exposure to energy and materials companies as well as the broader rotation toward value-oriented sectors. More domestically focused companies lagged somewhat, with the FTSE 250 rising +2.3%.

Fixed income markets benefited from a decline in bond yields during February as investors sought higher-quality assets amid geopolitical uncertainty and concerns about the longer-term economic implications of artificial intelligence. Global developed market government bonds returned +1.2%, while the global aggregate bond index returned +1.1%.

In the United Kingdom, government bonds were among the strongest performers. UK gilt yields fell 25 basis points during the month as inflation data surprised to the downside. Consumer price inflation slowed to 3.0% in January, increasing expectations that the Bank of England may be able to begin easing policy in the coming quarters. As a result, UK gilts returned +2.5% in February.

Elsewhere in Europe, inflation also continued to moderate. Eurozone consumer price inflation fell to 1.7% year-on-year, below the European Central Bank’s target. Although policymakers left interest rates unchanged at their February meeting, the softer inflation backdrop and concerns about weaker demand helped push longer-dated bond yields lower across the region.

Corporate credit markets delivered more modest gains. Global investment-grade bonds returned +0.8% during the month. Credit spreads widened slightly, with investment-grade spreads increasing 10 basis points and high-yield spreads widening 21 basis points. Despite these moves, the broader impact on performance remained limited as underlying government bond yields declined.

Commodities also posted positive returns during February, although performance varied across sectors. The Bloomberg Commodity Index rose +1.1% over the month. Precious metals performed particularly well, rebounding after a sharp correction at the end of January and delivering +12.4% returns during February. Demand for defensive assets increased amid geopolitical tensions and continued central bank purchases. Energy markets were more volatile. Rising US inventory levels weighed on oil prices during much of the month. However, tensions in the Middle East escalated at the very end of February.

Currency markets were relatively stable compared with other asset classes, although several notable moves occurred during the month. The decline in bond yields in several developed markets reduced some of the support for the US dollar, while improved sentiment toward international equities encouraged capital flows into other regions. As a result, several cyclical and emerging market currencies strengthened modestly against the dollar. The Japanese yen also attracted demand during periods of geopolitical uncertainty, while movements across European currencies remained relatively contained as investors balanced weaker inflation data with expectations that central banks would proceed cautiously with any policy easing.