Market insights, February 2026
Global markets had a lively month in February, with Trump’s latest tariff outburst, overlaid with more AI-triggered nervousness, leaving their mark.
The month concluded with a joint US-Israel attack on Iran that killed Ayatollah Ali Khamenei and saw hostilities spill over into neighbouring countries.
By month end, global shares, as measured by the MSCI World Index, finished up 0.73%[1]. The tech-heavy S&P 500 index ended up 0.79% for the month[2], with US software stocks taking a sizeable hit driven by AI speculation (both in US dollar terms).
Things were more positive at home, with the NZX50 recovering from a mid-month dip to post a gain of 2.23% for February (with imputation TR NZD)[3].
Here, we offer a snapshot of the key trends and themes that caught our attention and their significance (or not) to us as investors.
AI: A very expensive conundrum
The big story of the month saw equity markets roiling as AI’s (alleged) improving capabilities poked a hole in the defences of established corporates.
The US software sector bore the brunt of the pain, amid suggestions that the value of so-called ‘knowledge workers’ was increasingly diminished by AI’s prowess in highly specialist areas such as coding.
In parallel, the hype around AI was tempered by more nervousness stemming from the associated debt mountains that are building. The tech hyper-scalers continue to tap capital markets to fund their expansion and debate rages about whether early-stage investors will ever see a return on their investment.
This trepidation was brought home when Nvidia, the posterchild for today’s AI arms race, announced its latest earnings. Despite unveiling forecasted revenue of $ 78 billion USD for the quarter, which was approximately $6 billion USD above analyst expectations, the investor response was relatively muted[4].The global borrowing splurge that props up today’s AI story is not going unnoticed.
In many ways, the panic selling that we saw across equity markets in February felt irrational. Daily news flow occasionally drove a herd mentality amongst investors, with each new headline seemingly provoking a response. This is not healthy.
On the flip side, there is no denying that AI’s new-found capabilities are asking difficult questions of sectors that previously enjoyed a ‘knowledge premium’. What’s more, the move by some investors to seek tangible assets via sectors like Utilities, as a form of security in the face of AI ‘unknowns’, appears to have some merit. Please note, this should not be misconstrued as being a recommendation.
The rising appeal of tangible assets and infrastructure will have rung a bell with guests at our ‘Outlook 2026’ event last month, as it’s a theme we touched on with our colleague from Salt Funds Management.
As our previous articles have mentioned, there will inevitably be a time when investor exuberance for AI wanes. Based on historic events, it is also logical to assume that some of today’s dominant players will fall away as new market entrants emerge. Previous tech trends are littered with the carcasses of the first-stage participants. And at some stage, lenders will want more certainty about whether their debt can be serviced.
All in all, investors are facing a tense and unstable environment in the first quarter of 2026. It would be prudent to prepare for more bursts of short-term market volatility in the months ahead but it’s not something to be overly concerned by.
More tariffs: Predictable and blunt
At this stage of the article, it would be nice if we could move to a more positive topic but unfortunately Donald Trump went on the attack again. We’ll start with news of more tariffs.
Faced with a US Supreme Court ruling that he was wrong to claim that emergency powers legitimised punitive trade tariffs that started in April 2025, he resorted to his usual playbook – retaliation through trade policy.
This time, he imposed a new 10% trade tariff on global partners. From a global economic perspective, they’re certainly not helpful and add another layer of friction into an already friction-laden engine. They also do America’s reputation as a reliable trade partner no favours.
Currency and rates
Back home, New Zealand experienced its first OCR decision under the supervision of new Central Bank governor, Dr Anna Breman.
In the end, it was a bit of a damp squib with the decision to play it safe and keep the OCR on hold at 2.25%[5].
However, domestic inflation remains sticky and markets are now pricing in an interest rate rise before the end of 2026. As we’ve said before, the window of opportunity for borrowers to lock in a low rate will narrow as the year progresses.
Meanwhile in Australia, the prospect of rate rises coming sooner than year-end rose with the news that annual headline inflation stayed at+3.8% (year-on-year) in January[6]. This sits uncomfortably above the Reserve Bank of Australia’s target band of 2-3%. When coupled with a tight labour market, all signs point towards higher borrowing costs in the near term.
From a currency perspective, growing expectation of Trans-Tasman rate hikes strengthened both the Kiwi and the Aussie. As reported in the Financial Times last month, “The Aussie has gained more than 6 per cent against the US dollar this year, taking it to around a three-year high……. The New Zealand dollar has jumped 4 per cent[7].”
Good news for our exporters, less so for our importers.
US gambles on regime change in Iran
In one of the final acts of the month, Donald Trump decided he’d run out of patience with the Iranian leadership after negotiations about Iran’s nuclear intentions failed to yield the result he was looking for.
The subsequent assassination of Ayatollah Ali Khamenei sent shockwaves around the world and maintained Trump’s forceful start to 2026. He has now proactively removed from power – first by extraction, and now by assassination- the Venezuelan leader, and the Iranian leader.
In response, Iran fired rockets at neighbours across the Middle East, with Dubai, Bahrain, Qatar, and Israel all feeling their force.
From an investor perspective, the opening of a new theatre of war in the Middle East tends to turn attention to oil supply, and by default, to inflation risk. Any prolonged conflict that hinders supply and pushes prices up has the potential to increase broader price pressures.
Iran’s decision to close the Strait of Hormuz also has implications for trade flows and will cause friction the longer it remains shut.
For now, the US seems to be piling on huge military pressure immediately, before potentially pulling back and hoping that the Iranian people will topple what’s left of the leadership structures. Trump will certainly be weary of getting stuck in a protracted battle in the region, especially with the US mid-term elections approaching later this year.
In summary
Aggressive US trade policy and market wobbles linked to AI ‘unknowns’ formed a tricky combination in February- and not for the first time in recent months.
The former hinders global economic growth, while the latter risks unsettling less experienced investors. As ever, we will keep you proactively updated on any significant market developments in the weeks ahead. If you have any questions in the meantime, please do contact your Adviser.
[1]Source: https://www.msci.com/indexes/index/990100
[2] Source: https://www.spglobal.com/spdji/en/indices/equity/sp-500/#overview
[3]Source: https://www.spglobal.com/spdji/en/indices/equity/sp-nzx-50-index/#overview
[4]Source: https://www.ft.com/content/f4cda766-5650-4a97-a84f-24d3cfbeddd6
[5]Source: https://www.rbnz.govt.nz/monetary-policy/monetary-policy-decisions
[6]Source: https://www.abs.gov.au/media-centre/media-releases/cpi-rose-38-year-january-2026
[7] Source:https://www.ft.com/content/92101fcd-84b8-4485-ab4a-ac4eed81635c
Photo credit: William Rudolph for Unsplash
