Monthly Market Update – February 2026

Global Markets Deliver a Mixed February as Investors Shift Toward Safety

February delivered a choppy but revealing month for global markets as investors recalibrated expectations around technology, inflation, and geopolitics.

Key Takeaways

• MARKETS WATCHFUL AS MIDDLE EAST TENSIONS RISE Financial markets are reacting cautiously to the escalating Middle East conflict. While oil and the U.S. dollar initially surged, equities and bonds have remained relatively stable as investors expect limited duration to severe military action.
• MILITARY CONFLICTS AND GLOBAL STOCK RETURNS The conflict involving the U.S.- Israel and Iran conflict persists for now. While short‑term volatility is common, broader economic conditions ultimately drive performance, and history shows disciplined investors who avoid reacting emotionally tend to benefit as uncertainty fades and markets recover.
• U.S. CORPORATE EARNINGS POWER ON S&P 500 earnings were very strong in Q4 2025, rising +14.2% year over year—well above the 8.3% expected at the start of the quarter and comfortably above long‑term averages and the fifth consecutive quarter of double‑digit gains.  
• THE TAX REFUND COMETH Fiscal policy may boost consumer spending in 2026, helped by larger tax refunds driven by the recent tax cuts. JP Morgan estimates that the average refund will rise to about $4,100—roughly $1,000 more than prior years—creating an additional $10 billion in seasonal consumer liquidity.
• SIX BELOW Declining mortgage rates may be another meaningful boost for U.S. consumers, with rates dipping below 6% in late February for the first time since 2022 and holding near that level into early March. Improved affordability is supporting home purchases and refinancing activity, freeing up cash for broader consumption. Together, these trends are poised to add further momentum to an already resilient economy.
• QUALITY TIME Despite trailing in 2024 and 2025, historically quality stocks have outpaced global markets, outperforming in 64% of years since 1990 and generating far higher cumulative returns. With supportive conditions re‑emerging, quality stocks have begun 2026 ahead of the broader market.

Market Summary

Asset Class Total Returns

Source: Bloomberg, as of February 28, 2026. Performance figures are index total returns: U.S. Bonds (Barclays U.S. Aggregate Bond TR), U.S. High Yield (Barclays U.S. HY 2% Issuer-Capped TR), International Bonds (Barclays Global Aggregate ex USD TR), Large Caps (S&P 500 TR), Small Caps (Russell 2000 TR), Developed Markets (MSCI EAFE NR USD), Emerging Markets (MSCI EM NR USD), Real Estate (FTSE NAREIT All Equity REITS TR).

Geopolitics: Market Contending with Mounting Conflict

Like last month, this month’s update sees the market and economic headlines also impacted by another material geopolitical event. Last month markets were digesting the U.S. operations to depose Venezuelan President Maduro and this month markets are contending with the recent U.S.-Israel coordinated strikes on Iran (initiated Saturday, February 28, 2026) and Iran’s retaliatory attacks on regional facilities. Despite heightened Middle East tensions, oil supply concerns, and potential disruptions to energy prices, production, and supply chains, markets have shown resilience so far. As of the close on March 5, 2026, year-to-date total returns looked as such:

• U.S. stocks were mixed and the benchmark S&P 500 was essentially flat (-0.02%).
• Developed market international stocks were up +4.5% (MSCI All-Country World ex U.S. in USD terms).

Emerging markets stocks had advanced +7.0% (MSCI Emerging Markets in USD terms).

U.S. Stocks: Tech Stumbles, Smaller Companies Shine

U.S. headline stock indexes slipped in February, driven largely by a sharp pullback in big technology names. The “AI trade,” which powered markets earlier in the year and for the past several years, hit its first major speed bump as investors questioned whether massive capital spending could be sustained. 

• The S&P 500 Index fell -0.8%, breaking a nine-month winning streak
• The Nasdaq Composite Index dropped -3.4%, hurt by the Technology sector’s 4-month losing streak
• February was the steepest monthly decline for both indexes since March 2025

But below the surface, the story looked different. Small- and mid-cap stocks held up well, with the Russell 2000 Index up +0.8% and the S&P MidCap 400 Index up +4.0%, benefiting from a rotation toward more defensive and economically sensitive sectors. Utilities surged more than 10%, while consumer discretionary stocks sank over 5%.

International Stocks: International Markets Lead

Outside the U.S., equity markets were notably stronger. Developed markets rose across all size and style categories, and like in the U.S., non-U.S. small-cap stocks outperformed the large-caps and value stocks outperformed their growth-style peers.

• Developed-market international stocks (MSCI EAFE) added +4.6% to January’s +5.2%
• Japanese equities (MSCI Japan) were up +8.6% (USD), their third consecutive positive month and the best monthly gain since November 2022
• European equities (MSCI Europe ex UK) were up +2.8% in U.S. dollar terms—the seventh straight month of positive returns, the longest monthly winning streak since January 2018
• Emerging markets (EM) added +5.5% to January’s +8.8% gain
• Asia has been the leader, with the MSCI Asia ex Japan Index up +5.9% in February (in U.S. dollar terms). Taiwan was particularly strong, with the MSCI Taiwan Index up +12.8% (USD), its strongest showing since May 2025 on record foreign fund inflows from strong AI demand.
• Latin America (MSCI Latin America) was up a solid +3.8% (USD), and has been up in five of the last six months

 2025 Rotation Continues Through February 2026

Year-to-Date 2026 Total Return (%)

Source: Bloomberg. Data as of 2/28/2026.

Bonds: Bond Markets Rally as Yields Fall

U.S. bonds had a strong month as Treasury yields dropped. The 10‑year yield fell to 3.95%, while the Bloomberg U.S. Aggregate Bond Index returned +1.6%, its best showing in a year. 

• Within the Bloomberg U.S. Aggregate Bond Index, Treasury and mortgage‑backed securities led the advance
• Municipal bonds also showed strength (+1.2% in February), notching a seventh straight month of gains

Globally, bonds also ticked higher, with non‑U.S. fixed income (Bloomberg U.S. Aggregate Bond ex U.S. Index) up +0.7% in February and up +2.4 for the year.

Economy & Policy: Resilient Manufacturing and Steady Rates

Inflation continued to ease in February. Of course, that was prior to the Iranian strikes. 

• Annual headline and Core CPI moderated, with January figures coming in at +2.4% and +2.5%, respectively. For headline Inflation, that was its slowest pace since May 2025, and for Core CPI it was the slowest pace in almost five years. 
• Importantly, shelter costs rose at an annual rate that was the slowest since August 2021.

Economic growth (GDP) softened to +1.4% in Q4 2025, but consumer spending remained resilient. ISM reported that manufacturing and services PMIs both expanded and exceeded Wall Street expectations. Additionally, housing data was also predominantly positive as building permits, housing starts, and existing home sales increased month-over-month, although new home sales declined.

Looking ahead to the Fed’s monetary policy meeting in March, the market broadly expects the Fed to hold rates steady again. 

• The market currently expects two more rate cuts for the remainder of the year. Probabilities look highest for the Fed to deliver a -25bp cut in June and September for a terminal rate range of 3-3.25%. 
• Elsewhere, the European Central Bank and the Bank of England held interest rates steady at their February meetings.

Bottom Line

The economic backdrop remains constructive, but investors face rising geopolitical risks, new inflation pressures, and stress in pockets of private credit. Selectivity, quality, and disciplined risk management will be crucial as markets navigate a more uncertain Spring. But investors shouldn’t lose sight of the fiscal and monetary policy tailwinds that may buoy markets and the historical record of overcoming geopolitical events that the U.S. economy has demonstrated over the last century.

Source: Bloomberg. Data as of February 28, 2026.
Price Returns for Equity, Total Returns for Bonds.
* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.

MARKETS WATCHFUL AS MIDDLE EAST TENSIONS RISE

Financial markets are adjusting as conflict escalates across the Middle East. The death of Iran’s Supreme Leader Ayatollah Ali Khamenei and subsequent military exchanges among the U.S., Israel, and Iran have raised geopolitical risk to its highest level in years. Yet despite dramatic headlines, markets so far are responding with caution rather than panic. Investors initially sought safety the way they usually do: the U.S. dollar strengthened and oil jumped sharply on fears that energy supplies could be disrupted. Still, stocks and bonds have been surprisingly steady, suggesting investors expect U.S. military involvement to be limited in scope and duration. Investment manager Capital Group points to three key variables to watch: how aggressively Iran retaliates; whether oil shipments through the crucial Strait of Hormuz remain secure; and who ultimately takes control in Tehran.

A fast and unified leadership transition could keep Iran’s response forceful but contained. A fractured succession, however, could make escalation more unpredictable — and markets more volatile. For bond investors, the primary concern is the impact on inflation. Rising oil prices feed directly into higher consumer costs, which had been coming down in recent months. That could add pressure on the Federal Reserve to hold off on further rate cuts. Additionally, higher rates would raise borrowing costs for businesses and consumers, which could eventually slow economic growth, which has shown decent momentum prior to the Iran strikes.

Oil Prices Have Spiked This Year Amid Growing Tensions in Iran

Daily crude oil price (WTI, USD per barrel)

Source: Capital Group, LSEG Refinitiv. Oil prices are represented by the spot price for West Texas Intermediate (WTI) crude. As of March 2, 2026.

MILITARY CONFLICTS AND GLOBAL STOCK RETURNS

As of this writing, the U.S.-Israel and Iran conflict remains regionally contained, but with uncertainty elevated and the ultimate impact very unclear. When such events are unfolding, as headlines are blaring and anxieties are rising, it is helpful to keep a historical context. Avantis Investors recently provided some useful perspectives across major geopolitical and military conflicts of nearly 100 years of U.S. stock data:

1. Markets are Resilient to Conflict. While the current situation involves significant uncertainty regarding oil supplies and supply chains, the market has a century-long track record of navigating geopolitical unrest. Historically, market volatility often spikes in the short term as prices react to new information, but a decline is never guaranteed.
2. Positive Returns are Statistically Likely. Data from the last 100 years shows that following major military conflicts, U.S. stock returns have been more frequently positive than negative across three-month, one-year, and three-year horizons. Notably:
   
   • Across major historical military conflicts, there were no instances of negative returns on a three-year horizon following a conflict.
   • The average annualized return over those three-year periods was approximately +13%.
3. Context Matters. Market performance isn’t dictated solely by conflict. Broad economic conditions—such as whether the economy is already in a recession (like during the 1973 oil embargo)—play a major role in how stocks ultimately perform during a war.
4. International Stability. The pattern of resilience is not exclusive to the U.S. Since 1990, both non-U.S. developed markets and emerging markets have shown similar trends. Despite short-term fluctuations, three-year returns following conflicts remained positive in every case studied.

The bottom line is that for investors, the historical evidence suggests that “staying the course” is the most effective strategy. As event-driven uncertainty subsides, disciplined investors who avoid emotional selling are typically rewarded as markets, and economies, recover and grow.

With Military Conflicts, Long-Term Discipline Is Key for Investors

Growth of $1 in U.S. Stocks Since 1926

Sources: Data from July 1926 – December 2025. Source: Ken French Data Library, Avantis Investors.

U.S. CORPORATE EARNINGS POWER ON

In the long term, it is earnings that ultimately drive stock prices, and with the fourth quarter earnings season just wrapped up, results were strong. The S&P 500 year-over-year earnings growth rate for Q4 2025 is +14.2%, which is well above expectations coming into the quarter. On December 31, 2025, the consensus expectations for the Q4 earnings growth rate was +8.3%. And although that is lower than the 5-year-average earnings growth rate of +15.9%, it remains comfortably above the 10-year average earnings growth rate of +9.9%. That marks the tenth consecutive quarter of positive year-over-year earnings growth and the fifth consecutive quarter of double-digit growth for the index. All eleven sectors have reported year-over-year earnings growth, led by the Information Technology, Industrials, Communication Services, and Materials sectors. Looking forward, the picture remains bright. The forecast is for another four quarters of double-digit growth. Some softness is expected for the current Q1 2026 results. Analysts have reduced estimates for the first quarter, cutting their prior estimates by about -1.5% (from December 31 to the end of February) and taking it down to (a still solid) +11.4% growth rate. That isn’t unusual. In a typical quarter, analysts usually reduce earnings estimates during the first two months of a quarter. And it is important to note that while analysts lowered Q1 estimates over the past two months, they also increased earnings estimates for the remaining three quarters of 2026 during this same period. The bottom-up EPS estimate for Q2 2026 increased by +0.7%, Q3 2026 increased by +1.2%, and the bottom-up estimate for Q4 2026 increased by +2.2%. As a result, the full calendar year 2026 bottom-up earnings estimate for the S&P 500 increased by +0.8%.

Yet Another Quarter of Strong Earnings Growth

S&P 500 Earnings Growth Rate (Year-over-Year %)

Source: FactSet.

THE TAX REFUND COMETH

We have discussed how U.S. fiscal policy is expected to be a key tailwind for the U.S. consumer and capital markets in 2026. Chief among the catalysts was the One Big Beautiful Bill tax cuts. And as we approach tax season, JP Morgan has estimated that the average income tax refund in 2026 will jump to around $4,100 from about $3,1000 in the prior few years. These refunds may have a substantial impact on the economy, much like the pandemic stimulus checks. Cumulatively, the consumer is set to receive a seasonal tailwind of about $10 billion higher than last year. This extra liquidity could provide a meaningful spark for spring spending. That would be consistent with a February 26 report from Oxford Economics estimates that tax refunds will jump by nearly 20% this year, with more benefits flowing to middle- and upper-income households than usual, based on changes enacted via Trump’s 2025 tax cuts.

Average Income Tax Refund by Filing Year

2000 – 2026 (2026 reflects JP Morgan estimates as of 2/8/2026)

Source: JP Morgan.

SIX BELOW

Another potential tailwind for the U.S. consumer, and the economy overall, has been steadily declining mortgage rates. In the last week of February, mortgage rates in the U.S. fell back below 6% for the first time since 2022. The resilience of the economy since the April 2025 tariff shock, plus the fact that labor markets appear to be reaccelerating amidst a global manufacturing uptick the last two months, should only be strengthened further by the decline in mortgage rates. They stayed near 6% in the early goings of March which should maintain improved housing affordability, which encourages more home purchases, which in turn drives spending on related goods like furniture, appliances, and renovations—key components of consumer expenditure that account for a significant portion of GDP. Refinancing activity has already picked up, allowing homeowners to reduce monthly payments and redirect savings toward other consumption, such as retail or services. This could add further momentum to economic growth.

Mortgage Rates Back Below 6%

Source: Bespoke.

QUALITY TIME

Calendar years 2024 and 2025 produced great returns for global investors, with the MSCI World Index returning +18.7% and +21.1% in U.S. dollar terms, respectively. And although the world’s higher quality companies produced nicely positive returns as well over that period, the MSCI World Quality Index trailed the broader market index. There was a slight -0.3% lag in 2024 but in 2025 the Quality index lagged the broader World index by nearly -5%, the worst deficit since 2003. There are various ways to gauge quality and, in the case of the MSCI World Quality Index, it looks for firms with high return on equity, stable year-over-year earnings growth, and low financial leverage. Over time, Quality has outperformed the broader World market, both in terms of frequency and magnitude. In the 36 calendar years from 1990-2025, the Quality index has beat the World index in 23 of the years (64% of the time) and the cumulative total return of +4,714% (+11.4% annualized) for Quality trounced the +1,363% (+7.7% annualized) the World returned. After two years of underperformance for the Quality index, 2026 might be the year for a turnaround. Conditions that support Quality are re-emerging, with lower valuations firms outperforming, earning breadth improving, and defensive sector leadership broadening. It’s very early in the year, but in the first two months of 2026, Quality is ahead of the World by +1.5 percentage points.

Calendar Year Relative Performance of MSCI World Quality

% points, Relative Return of MSCI World Quality vs. MSCI World

Source: LSEG Datastream, MSCI, J.P. Morgan Asset Management. Relative returns are shown in US Dollar total return terms. Data as of December 31, 2025.

Asset Class Performance

The Importance of Diversification. Diversification mitigates the risk of relying on any single investment. It offers many long-term benefits, such as lowering portfolio volatility, improving risk-adjusted returns, and helping investments to compound more effectively.

Source: Bloomberg.

Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by The Retirement Planning Group. The performance of those funds may be substantially different from the performance of the broad asset classes and to proxy ETFs represented here. US Bonds (iShares Core US Aggregate Bond ETF); High‐Yield Bond (iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (Vanguard Total International Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “60/40 Allocation” is a weighted average of the ETF proxies shown as represented by: 24% US Bonds, 10% International Bonds, 6% High Yield Bonds, 14% Large Growth, 14% Large Value, 4% Mid Growth, 4% Mid Value, 1% Small Growth, 1% Small Value, 17% International Stock, 4% Emerging Markets, 2% Real Estate.

* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.

Chris Bouffard is CIO of The Retirement Planning Group (TRPG), a Registered Investment Adviser. He has oversight of investments for the advisory services offered through TRPG.

Disclaimer: Information provided is for educational purposes only and does not constitute investment, legal or tax advice. All examples are hypothetical and for illustrative purposes only. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed. Please contact TRPG for more complete information based on your personal circumstances and to obtain personal individual investment advice.