Market Trends | February edition

The S&P 500 declined around 1% in February after trading in a tight range, masking performance under the hood.¹ A rotation within equities was the story of February- away from software to the full AI value supply chain such as semis, memory, power needs and “old economy” sectors such as energy, industrials and materials.

While losses in software and select mega-cap tech hurt the cap-weighted S&P 500, the majority of index constituents performed well; the S&P 500 Equal Weight Index rose 3.4% for the month.²

The broadening of performance beyond a narrow “AI” trade was reflected in Q4 results, which confirm that the earnings engine is widening.

S&P 500 Q4 earnings are on track for a fifth-consecutive quarter of double-digit growth, on pace for a 14% year-over-year gain (vs +8% expected preseason).³

Technology stocks still lead, but nearly every sector is accelerating: 10 of the 11 sectors in the S&P 500 had higher growth rates last quarter than they did the previous year.⁴

The widening of earnings growth and evolving manifestation of AI broadens opportunity in the market but puts a greater emphasis on selectivity and fundamentals. The market in early 2026 is rewarding companies with durable margins, improving earnings, and clear cash-flow visibility.

The Supreme Court ruled 6–3 that the President’s use of the International Emergency Economic Powers Act (IEEPA) to impose tariffs was unlawful.

The decision was not a big surprise — and doesn’t change the administration’s focus on trade as central to its economic and strategic policy.

Financial markets treated the ruling primarily as a headline shock rather than a fundamental regime shift. The White House quickly moved to its plan B, with President Trump vowing to impose a global 10% tariff — subsequently raised to 15% — under Section 122, which have an expiry of 150 days. The Administration may also use other tools under its extensive tariff authority, namely Section 301 (unfair trade practices) and Section 232 (national security) tariffs.

The SCOTUS ruling did little to change the broader backdrop of firm inflation tied in part to geopolitical fragmentation, and policy constraints tied to debt sustainability. Indeed, if prolonged uncertainty around tariff rates were to emerge, investor attention could shift more meaningfully to fiscal implications of lost tariff revenue.

But that does not appear to be a present concern: After several months of remaining range bound near 4.20%, 10-year Treasury yields fell below 4% on the final trading day of the month.⁵

While long-dated bonds acted as a “ballast” against equity volatility in February, gold and silver also returned as portfolio diversifiers. Elevated geopolitical risk should keep gold, particularly, in focus as both a return driver and portfolio diversifier. Gold tends to see support in regimes of elevated geopolitical risk, especially with real yields still historically low and central bank demand near record levels.

The backdrop for global investing is shifting after a strong run for international markets in 2025. Propelled by shifting geographic allocations, a weaker U.S. dollar, and exposure to essential infrastructure needed for the AI buildout, emerging markets have seen very strong returns, earnings growth, and positive flows so far in 2026.⁶

In the first eight weeks of 2026, investors added $31.7 billion to U.S.-listed emerging market equity ETFs with single-country ETFs recording exceptional demand, led by South Korea and Brazil.⁷ Notably, year-to-date flows into single-country ETFs have already exceeded the total inflows for all of 2025, underscoring the intensity and conviction behind the trade.8

Learn more about AI and energy in our 2026 Thematic Outlook