Market Summary – February 2026
A month of big questions beneath calm markets
At first glance, February looked uneventful. Major stock markets didn’t move dramatically, and there were no obvious signs of crisis. But beneath the surface, important shifts are taking place. Investors are rethinking US dominance, questioning the impact of artificial intelligence, and rediscovering opportunities outside America.
As we move into March, another factor has begun to attract more attention: rising geopolitical tensions in the Middle East and what they could mean for energy prices and inflation. While markets have remained relatively calm so far, these developments are a reminder that the global environment remains complex and occasionally unpredictable.
US politics, noise with consequences
Markets have become used to political drama in Washington, but that doesn’t mean it has no impact. Trade threats, legal battles over tariffs, and bold foreign policy moves have all created uncertainty. Even when tensions cool, the aftereffects linger.
One clear sign of this is the US dollar. It has weakened over the past year and hasn’t fully bounced back after each episode of political tension. That suggests international investors are becoming a little more cautious about holding US assets. America is still the world’s largest economy, but confidence isn’t quite as unquestioned as it once was.
For everyday investors, this means currency movements now matter more. A falling dollar can reduce overseas returns from US investments and may signal a gradual shift in global capital flows.
AI, excitement turns to anxiety
Artificial intelligence remains the biggest long-term story in markets, but the mood has changed. Last year, AI enthusiasm drove US technology stocks to record highs. This year, investors are asking harder questions.
Big tech companies are still spending huge sums building AI infrastructure, but those investments are becoming expensive. Share prices have cooled, not because companies are failing, but because expectations were extremely high.
There’s also growing debate about whether AI could replace jobs more quickly than many expect. Some research has painted dramatic pictures of software companies and service firms being disrupted almost overnight. These scenarios have shaken confidence, even though the economic data hasn’t yet shown widespread job losses.
In reality, the global economy is still growing at a steady pace. US growth remains around 2%, and unemployment hasn’t spiked. But markets don’t just react to today’s numbers, they react to what might happen tomorrow. That uncertainty has taken some of the shine off the tech sector.
The result is a more cautious and selective market. Investors are no longer buying technology stocks simply because they’re linked to AI. They’re looking more closely at who will truly benefit.
A shift away from US tech leadership
For years, US mega-cap technology companies led global markets. Now, leadership is broadening.
Japanese stocks have performed strongly, supported by improving corporate governance and stronger company profits. Europe has also quietly delivered solid returns, helped by lower valuations and improving energy stability. Emerging markets, particularly parts of Latin America, have surprised on the upside.
Latin America’s strength may seem unexpected given political tensions with Washington. However, demand for commodities like copper and lithium which are both essential for AI infrastructure and electrification, are providing support. At the same time, the region’s stock markets are still relatively inexpensive compared to the US.
This broadening of market leadership is healthy. It suggests global growth is not dependent on one sector or one country.
Energy and geopolitics a new variable to watch
One of the biggest risks investors are monitoring as we enter March is the potential impact of rising tensions and conflict in the Middle East.
Energy markets are particularly sensitive to geopolitical developments in the region because of its central role in global oil supply and shipping routes. Any disruption to production or transport could quickly push oil prices higher.
So far, markets have reacted cautiously rather than dramatically. Oil prices have moved modestly higher but remain well below the levels seen during previous geopolitical shocks. However, investors are aware that a sustained rise in energy prices could slow the recent progress made in bringing inflation down.
For central banks, this creates a delicate balance. Lower inflation has been opening the door to potential interest-rate cuts later this year. A sharp rise in energy costs could delay that process.
At this stage it is best viewed as a risk to monitor rather than a crisis, but it reinforces why markets may remain more volatile over the short term.
Bonds back in favour
While stock markets have been unsettled at times, bonds have quietly regained importance. During moments of market stress, government bond prices have risen, helping cushion portfolios.
This return of bonds as a stabiliser is significant. For much of the past few years, bonds struggled alongside equities. Now they are once again behaving as investors traditionally expect offering protection when risk assets wobble.
For diversified investors, this is an encouraging development and helps provide balance in a more uncertain geopolitical environment.
The bigger picture
The most important takeaway from February is not crisis it’s transition. The global economy is still expanding and corporate profits are generally holding up. In many regions, company earnings remain resilient and balance sheets are healthy.
Looking ahead to the next six months, markets may face periods of volatility. Geopolitical risks, questions around interest-rate timing, and the evolution of the AI investment cycle could all create short-term uncertainty.
However, the fundamental case for equities remains intact. Global earnings growth continues, economic activity remains positive, and outside the US many markets still trade at attractive valuations.
For long-term investors, this environment reinforces the importance of staying diversified and maintaining a disciplined approach. While headlines may feel dramatic at times, the underlying drivers of economic growth and corporate profitability remain in place.
End of Tax year Planning
As we approach the end of the financial year get in touch with your adviser if you want to take advantage of the annual tax efficient allowances.
ISA allowance,
If you have not already done so You can put up to £20,000 into an Individual Savings Account (ISA). Any unused allowance is lost after 5 April. ISAs shelter savings and investments from income tax and capital gains tax, so utilising the full £20,000 limit can significantly reduce future tax bills.
Pension Contributions
The annual pension allowance is £60,000 for most people, and you receive tax relief on contributions up to that limit or 100% of your earnings (whichever is lower). High earners may be subject to the Tapered Annual Allowance (TAA) but you may also be able to carry forward unused allowances from the past three years to increase your effective limit.
From April 2029 only the first £2,000 of pension contributions made via salary sacrifice will be exempt from National Insurance contributions. Contributions above £2,000 will be subject to both employee and employer NICs. Speak to your adviser about utilising pension contributions before these changes to maximise tax and National Insurance savings.
Changes to Venture Capital Trusts.
From April 2026 the up-front income tax relief on new Venture Capital Trust (VCT) investments will drop from 30% to 20%, reducing the immediate tax incentive for investments. If you are considering a VCT investment you still have a small window to take advantage of the current 30% income tax relief.
