MARKET COMMENTARY – FEBRUARY 2026

January was a volatile month for financial markets, driven by heightened geopolitical tensions and shifting expectations around monetary policy. Despite this, investor appetite for risk remained intact and global equities rose over the month. Economic data came in stronger than expected, as activity indicators exceeded forecasts and easing inflation continued to support real income growth for consumers.

Equity markets benefited from this improving growth backdrop, while global bonds made limited progress. Performance was uneven across regions and styles. Markets outside the US continued to outperform, with further weakness for the US dollar being a factor, highlighting the benefits of diversification after a prolonged period of US dominance.

Geopolitical risks increased materially during the month, particularly following developments in Venezuela and renewed trade tensions involving the US and Europe over President Trump’s plans for Greenland. Assets exposed to geopolitical risk reacted, with gold posting sharp gains and European defence-related equities performing strongly. Although tensions moderated towards the end of the month and the gold price fell significantly from its highs.

Within equities, leadership broadened beyond US large-cap technology stocks. Emerging markets were the strongest-performing region followed by Japan, ahead of the performance of the Magnificent Seven (technology and AI related) stocks. Smaller companies continued to perform well, with US small-caps and UK mid‑caps delivering gains.

Earnings growth, rather than valuation expansion, was the primary driver of equity returns. Positive earnings revisions were particularly notable in emerging markets, Japan and materials-related sectors. In the US, the fourth‑quarter earnings season delivered positive surprises, with reported earnings coming in meaningfully ahead of expectations.

Fixed income markets delivered modest returns overall as stronger economic data and fiscal concerns weighed on government bonds. Japanese government bonds had a particularly weak start to the year following the announcement of snap elections, while US Treasury yields rose at the front end of the curve as expectations for near‑term Federal Reserve rate cuts were pushed further out.

European government bonds were more resilient, supported by improved risk sentiment. Inflation‑linked bonds outperformed conventional bonds, reflecting ongoing sensitivity to long-term inflation risks. Corporate credit markets remained relatively stable, with investors continuing to favour quality.

Commodities had a strong start to the year, supported by sharp gains in energy and precious metals, with gold and silver seeing a sharp pull back towards the end of the month and going into February as geo-political tensions eased and markets were reassured by President Trump’s nomination for the next chair of the US Federal Reserve. Oil prices increased as supply conditions tightened and winter demand proved stronger than expected.

Looking ahead, the economic outlook remains supportive with a backdrop of generally robust economic data and stabilising inflation. Equity returns are expected to broaden further in 2026 as earnings growth becomes more balanced across regions and sectors. Bonds are likely to play an important role through income generation and diversification. The prospect of continued geopolitical risk, political uncertainty and the long-term impact on AI on existing business models means that diversification across asset classes, market sectors and regions remains of key importance.

Total returns in GBP to 31/01/2026

*December 2025

Source of data: FE Analytics, www.bankofengland.co.uk, www.ons.gov.uk

This commentary in no way constitutes a solicitation of investment advice and should not be relied upon in making investment decisions. Past performance is not a reliable indicator of future results. The value of your investments can fall as well as rise and are not guaranteed.