The S&P 500 Index declined by 0.87% in February 2026 amid rising geopolitical tensions in the Middle East, following the declaration of the Iran Conflict on February 28. Additionally, the U.S. Supreme Court struck down emergency tariffs on February 20, prompting the administration to pursue alternative trade measures and adding further market uncertainty. Global equities advanced, with the MSCI World Index up 0.64%, though this masked significant internal divergences. Key drivers included a 10.4% surge in Japanese equities following election results and a 5.5% rise in emerging markets. Value stocks outperformed, rising 2.9%, while growth stocks declined 1.6%. The NASDAQ 100 fell 2.59% as investors continued to rotate away from high-valuation, AI-driven growth stocks.
Precious metals regained some footing in February after their volatile decline at the end of January. The best-performing sectors were utilities, energy, and materials, benefiting from sector rotation and rising commodity prices. The weakest sectors were information technology and financials, with software companies facing pressure from AI-related disruption risks.
Economic activity increased at a slight to modest pace. Consumer spending showed clear bifurcation, with higher-income consumers increasing spending on luxury goods, travel, and experiential activities, while low-to-moderate income consumers became more price sensitive and hesitant on nonessential purchases. Manufacturing activity was mixed, and employment remained largely unchanged, with hiring focused on replacing vacancies rather than expanding workforce levels. Firms continued to report challenges in finding skilled labor, particularly in engineering, healthcare, and trades, while fewer workers were switching jobs. Wage growth remained moderate, with several contacts noting that increases had returned to more “normal” levels.
Tariff-related cost pressures remained a consistent theme. Residential real estate sales, construction, and lending activity softened, while banking conditions were generally stable or improving, supported by increased demand for credit cards, home equity loans, and commercial lending. The Federal Reserve maintained the federal funds rate at 3.50–3.75%, citing elevated economic uncertainty. Inflation remains somewhat elevated, though outlooks for future activity are mildly optimistic, with most expecting slight to modest growth in the coming months.
