by Rebecca Anderson

Sage Insights: Market Observations Beyond the Tech Giants

In February, markets were defined by a high volume of key headlines and events.

Investors weighed shifting narratives on artificial intelligence spending, trade policy, and the Federal Reserve’s posture. Market leadership continued to rotate during the month, as sentiment moved between optimism and caution in response to new economic data and policy developments.

By month-end, two themes stood out: a continued broadening of global equity participation, driven by the uncertain impact of AI on the overall economy, and a meaningful, though not definitive, impact on tariff policy following a Supreme Court ruling. While volatility surfaced at points, the broader investment backdrop remains characterized by economic resilience and increasing dispersion across sectors and regions.

In this edition of Insights, we review February’s market performance and consider how these developments are shaping portfolio positioning as 2026 progresses. Lastly, we share a brief perspective on geopolitical developments that reached new levels over the weekend.

Monthly Market Recap

Fixed Income Markets

Bond markets navigated competing forces during February. The Federal Reserve maintained a cautious stance, with policymakers’ commentary suggesting rates may remain higher for longer than previously expected. At the same time, episodes of equity volatility prompted periodic flight-to-quality demand for U.S. Treasuries, ultimately pushing rates lower in the month.

  • U.S. taxable bonds provided stability, rising 1.6% as investors used investment-grade bonds as a high-quality alternative to cash.
  • Tax-exempt bonds gained 1.3% and remain well-supported by strong demand for elevated after-tax yield and robust credit fundamentals.
  • Floating-rate loans fell 1.4% amid a concentration in software loans, putting pressure on the index as the sector declined amid concerns that AI could negatively affect borrowers’ business models.
  • International bonds yielded a 0.7% return as the market navigates regional differences in inflation and central bank policies. European yields continue to decline, while Japanese Government Bond (JGB) yields reached 30-year highs.

Equity Markets

Global equities were higher in February. International markets led alongside U.S. mid- and small-cap stocks, as the equity rally broadened and leadership shifted from U.S. large caps to smaller U.S. firms and non-U.S. companies.

  • U.S. large-cap stocks declined 0.8% despite having approached record levels early on. Still, they encountered resistance amid renewed scrutiny of AI-related capital expenditures and concerns about the long-term viability of some business models, which sent software stocks down nearly 10%.
  • U.S. mid and small-cap equities climbed 4.1% and 2.2% with policy changes creating a tailwind of fiscal stimulus (via anticipated tax refunds). This includes household tax refunds and incentives for domestic manufacturing, which disproportionately benefit mid- and small-cap companies with high domestic revenue exposure.
  • International and emerging market equities were the strongest performers, gaining 5.0% and 5.5%, respectively, supported by an aggressive fiscal agenda in Japan and by demand for hardware for running AI models (ChatGPT, Gemini) sourced from companies in Taiwan and South Korea.

Broadening Leadership in a More Discerning Market

For much of the past several years, U.S. large-cap growth stocks, particularly a concentrated group of mega-cap technology companies, have driven a disproportionate share of global equity returns. Strong earnings growth, expanding margins, and investor enthusiasm surrounding artificial intelligence sustained this market leadership.

February reflected a more discerning environment and broader market participation. The most favorable performance within the U.S. large-cap market has widened from just 7 stocks to the rest of the market.

In today’s market, the artificial intelligence trade has shifted from a phase of speculative hype to a rigorous “show-me-the-money” environment. While AI remains a long-term growth engine, financial markets are no longer issuing blank checks to tech giants.

This transition has triggered a notable rotation in U.S. equities, with mid-cap and value-oriented companies gaining favor due to clearer earnings visibility and lower valuations relative to overextended mega-cap tech.

For the diversified investor, we believe this broadening market provides a strategic opportunity to look beyond domestic borders and consider international equities as a differentiated growth-oriented alternative.

Supreme Court Ruling on Tariffs: Relief, Not Resolution

Trade policy re-emerged as a central focus for markets following a long awaited Supreme Court decision. In a 6–3 ruling, the Court determined that the International Emergency Economic Powers Act (IEEPA) does not grant the President authority to impose broad-based tariffs.

Markets responded positively. Investors interpreted the ruling as a reduction in policy uncertainty and a potential easing of cost pressures for companies reliant on global supply chains. The average effective tariff rate is expected to decline from approximately 15–16% to 10% under the temporary framework. Even a one- to two-percentage-point reduction in trade costs can directly translate into lower inflation, higher economic output, and improved earnings visibility for corporate America.

However, the ruling did not eliminate tariffs. Trade policy, therefore, continues to evolve, and longer-term outcomes will depend on legislative developments and international negotiations.

From an economic perspective, lower tariff rates may act as a modest tailwind. Reduced import costs can ease input pressures on businesses and temper the effects of incremental inflation. At the margin, this can support corporate confidence and potentially encourage inventory rebuilding and capital investment.

That said, trade policy adjustments alone are unlikely to determine the trajectory of inflation or monetary policy.

For diversified portfolios, the takeaway is not to position around a single policy outcome, but to remain balanced. International equities may benefit from differentiated trade exposure, while high-quality fixed income can provide stability should policy uncertainty re-intensify or growth expectations shift.

These latest developments do not eliminate the evolving nature of global trade policy. We continue to believe that maintaining disciplined allocations across asset classes remains the most prudent course in a dynamic regulatory environment.

Perspective on Geopolitical Conflict Escalation

On Saturday, February 28, the United States and Israel initiated a large-scale military operation aimed at key Iranian leadership compounds and military installations. Iran responded swiftly with ballistic missiles directed at Israeli territory and multiple U.S. military bases throughout the Middle East, escalating the situation into a major regional conflict.

Geopolitical developments of this magnitude can lead to immediate market reactions. While the current situation remains highly fluid, the duration and scope of the conflict, including any potential disruption to energy markets or global trade routes, will influence how markets respond in the weeks ahead. International oil prices rose by 6.0% as roughly one-fifth of global supply travels through the region, which could be at risk if the conflict is prolonged.

That said, history provides valuable context. Since 1941, U.S. large-cap equities typically experienced an initial pullback following major geopolitical shocks. However, over subsequent 1-year periods, markets have historically recovered, generating average returns of approximately 9.3%, with annualized returns exceeding 11.0% over the 3-year and 5-year horizons, respectively.

In the end, history has shown that the drivers that tend to matter most for your portfolio over the long run are the fundamentals: global economic growth and the steady march of innovation.

While events like the current conflict in the Middle East are unsettling, both for the tragic loss of life and the geopolitical uncertainty they create, diversification remains a key strategy. Spreading investments across asset classes and geographies is designed to help manage periods when specific markets come under pressure.

As a result, weakness in one segment of the market is more likely to be offset by steadier performance or gains in another segment. For example, a $100,000 investment made in a diversified portfolio in 1976, rebalanced quarterly, would have grown to over $6 million by 2026, successfully navigating through multiple wars, recessions, inflation shocks, and global crises along the way.1 As shown in the graph below, major global events inevitably trigger short-term volatility, but they have not historically altered the long-term trajectory of disciplined, diversified investment strategies.

Closing Thoughts

February’s market backdrop illustrated that financial markets rarely move in straight lines, particularly when structural forces, policy evolution, and geopolitical developments converge.

The recent escalation involving Iran introduces an added layer of near-term uncertainty. At the same time, the broader investment landscape continues to reflect economic resilience and expanding market participation. Artificial intelligence remains a powerful structural theme, though investor focus has shifted from unqualified enthusiasm to greater scrutiny of capital discipline and return timelines. Meanwhile, trade policy developments provided clarity on certain legal boundaries, while leaving longer-term global negotiations still in flux.

As 2026 progresses, we continue to position portfolios to balance opportunity with resilience, aligning investment strategy with our clients’ unique goals and objectives rather than short-term headlines.

 

 

Footnotes

[1] Returns of a diversified portfolio of 40% Barclays US Aggregate Bond Index, 40% S&P 500 Index, and 20% MSCI EAFE Index from February 29, 1976, to the Present. The MSCI EAFE Index was launched on March 31, 1986. Data shown prior to inception consists of returns of a diversified portfolio of 40% Barclays US Aggregate Bond Index and 60% S&P 500 Index. Statistical information presented does not reflect the deduction of advisory fees or other expenses associated with maintaining an investment portfolio. Past performance of an index is not an indication or guarantee of future results. It is Returns of a diversified portfolio of 40% Barclays US Aggregate Bond Index, 40% S&P 500 Index, and 20% MSCI EAFE Index from February 29, 1976, to the Present. The MSCI EAFE Index was launched on March 31, 1986. Data shown prior to inception consists of returns of a diversified portfolio of 40% Barclays US Aggregate Bond Index and 60% S&P 500 Index. Statistical information presented does not reflect the deduction of advisory fees or other expenses associated with maintaining an investment portfolio. Past performance of an index is not an indication or guarantee of future results. It is not possible to invest directly in an index. Exposure to an asset class represented by an index may be available through investable instruments based on that index.

 

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The information and statistics contained in this report have been obtained from sources we believe to be reliable but cannot be guaranteed. Any projections, market outlooks, or estimates in this letter are forward-looking statements and are based upon certain assumptions. Other events that were not taken into account may occur and may significantly affect the returns or performance of these investments. Any projections, outlooks, or assumptions should not be construed to be indicative of the actual events that will occur. These projections, market outlooks, or estimates are subject to change without notice. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, product, or any non-investment-related content referred to directly or indirectly in this newsletter will be profitable, equal to any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer reflect current opinions or positions. All indexes are unmanaged, and you cannot invest directly in an index. Index returns do not include fees or expenses. Actual client portfolio returns may vary due to the timing of portfolio inception and/or client-imposed restrictions or guidelines. Actual client portfolio returns would be reduced by any applicable investment advisory fees and other expenses incurred in managing an advisory account. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Sage Financial Group. To the extent that a reader has any questions regarding the applicability above to his/her situation or any specific issue discussed, he/she is encouraged to consult with the professional advisor of his/her choosing. Sage Financial Group is neither a law firm nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of Sage Financial Group’s written disclosure statement discussing our advisory services and fees is available for review upon request. Copyright 2026.