Monthly Market Review
February 2026
U.S Overview
February proved to be a challenging month for U.S. equity markets, driven primarily by a sharp rotation away from mega-cap technology and software stocks. Growing concern over the disruptive effects of artificial intelligence on established business models — particularly in software, fintech, and services — weighed heavily on these sectors. The S&P 500 finished the month with a loss of approximately 1%, while the Nasdaq posted a decline of over 3%, its worst monthly performance in nearly a year. At the same time, value-oriented sectors, including energy, healthcare, industrials, and materials, held up comparatively well, reflecting the broadening market rotation that began in January.
Despite this general decline in U.S equity markets, our portfolios continued to show resilience by outperforming the U.S. stock market and producing positive returns, largely buoyed by their broad diversification.
The Federal Reserve held interest rates steady at its February meeting. While the initial release of treasury yields moving below 4% provided some support for bonds, that dynamic reversed late in the month after producer price index data came in significantly hotter than expected, raising questions about the pace and timing of any future rate adjustments. Inflation, particularly in the services sector, remains a key variable for the Fed and for fixed income performance going forward.
International Overview
In contrast to U.S. equity weakness, international markets delivered strong gains in February, and this divergence was one of the more notable performance drivers for our portfolios. A weaker U.S. dollar, more attractive valuations relative to U.S. equities, and growing investor confidence in European fiscal expansion proved to be a tailwind for European markets.
Europe’s STOXX 600 extended its gains through much of February, supported by stronger than expected earnings reports and improving business sentiment. Germany’s long-anticipated fiscal shift toward a more growth-oriented policy posture was a significant catalyst for the region. The European Central Bank held rates steady at its February meeting and maintained a cautiously optimistic tone on inflation, noting that eurozone inflation declined to 1.7%.
Once again, tariff dynamics remained a source of tension. Threats of new U.S. tariffs on European goods created periodic volatility, though markets showed some relief when the U.S. Supreme Court struck down portions of the tariff regime under IEEPA late in February.
In Asia, trading was partially muted by Lunar New Year holiday closures across China, Hong Kong, South Korea, and Taiwan. Japanese equities retreated modestly amid profit-taking and AI-related concerns, though sentiment was supported by strong export data and new investment commitments.
Emerging markets delivered mixed results. A weaker U.S. dollar continued to reduce the burden of dollar-denominated debt, but geopolitical instability in select regions and slower Chinese growth tempered the overall picture. Our portfolios maintain limited exposure to the most volatile emerging market economies.
What does this mean for you?
February’s results illustrate the value of our diversification approach. Portfolios holding meaningful international equity exposure benefited from one of the strongest months for non-U.S. markets in recent memory, while those concentrated in U.S. large-cap growth strategies faced headwinds from the tech-driven selloff.
All three of our Diversified portfolios generated positive returns for the month. Our Fossil Free portfolios tracked their benchmarks closely in February, reflecting the index-oriented construction of the Fossil Free mandate. Based on the first two months of 2026, hypothetical annualized returns for our Stable Value Portfolio stand at 2.92%, reflecting cooling CD rates. The primary objective of the Stable Value Portfolio is to allow short-term or rainy-day funds to keep up with inflation while maintaining liquidity.
Continued resilience in consumption, improving balance between growth and value equities, and the stabilizing role of fixed income all contributed to portfolio resilience during the month. While markets may continue to experience short-term swings, diversification remains an important tool for managing such uncertainty.
What we are monitoring
U.S.-Israel Military Conflict with Iran: The conflict has effectively shut down commercial traffic through the Strait of Hormuz, a critical oil chokepoint through which approximately 20% of global daily oil supply travels. Oil prices surged in the days following strikes. The scope and duration of the conflict remain highly uncertain. The oil shock triggered by the Hormuz disruption has significant pass-through implications for consumer prices, corporate margins, and the Federal Reserve’s rate path.
AI disruption risks: Separate from geopolitical developments, the technology sector rotation that defined February’s equity markets has not resolved. Concerns about AI disrupting the revenue models of software, fintech, and services companies remain active, and we continue to watch how this dynamic evolves for U.S. large-cap equity valuations.
As always, we will continue to monitor and communicate with our clients in this rapidly changing market environment. Thank you for your continued trust and support. It is our privilege to serve as stewards of your financial assets.
Sincerely,
The Faith Foundation Team
