Executive Summary

Global financial markets advanced during February 2026, but the headline gain concealed an unusually large divergence between regions, sectors and investment styles. The MSCI World Index gained approximately 0.8% in US-dollar terms, while US mega-cap technology weakened and European, UK, Japanese and emerging-market equities delivered substantially stronger returns.

The S&P 500 declined approximately 0.8%, while the Nasdaq Composite fell 3.3%. By contrast, the equal-weighted S&P 500 rose approximately 3.5%, demonstrating that weakness was concentrated among several of the largest growth companies rather than across the entire US equity market.

Artificial intelligence remained the dominant market theme, but the nature of the debate changed considerably. Rapid advances in agentic AI increased concern that software, data, payments and professional-services businesses could face disruption from increasingly capable automated systems. Investors responded by rotating towards companies perceived as more resistant to technological obsolescence, including utilities, energy, materials and industrial businesses.

International markets substantially outperformed the United States. European equities reached record levels, the UK market delivered strong gains and Japanese equities surged following Prime Minister Sanae Takaichi's decisive general-election victory. The TOPIX gained approximately 9.3% in yen terms, while technology and industrial companies benefited from expectations of higher fiscal spending.

The Bank of England maintained Bank Rate at 3.75% by a narrow 5-4 vote. Four policymakers favoured an immediate reduction to 3.50%, while the Bank stated that inflation was expected to return to around its 2% target from April and that further rate reductions were likely.

The European Central Bank also held rates unchanged, leaving its deposit facility rate at 2.00%. The ECB judged that inflation remained on course to stabilise around its target while low unemployment, healthier private-sector balance sheets and increasing defence and infrastructure expenditure supported economic activity.

The Federal Reserve did not hold a policy meeting during February, leaving its federal funds target range at 3.50%-3.75% following January's decision. Markets continued to anticipate possible easing later in 2026 as inflation moderated but economic and employment risks remained under observation.

Government bonds performed strongly as yields declined, with the US 10-year Treasury yield falling approximately 29 basis points to below 4%. Gold gained more than 10% and recorded a seventh consecutive positive month, while oil also advanced amid heightened US-Iran tensions.

Key Themes During February

• Global equities advanced despite weakness in major US indices.
• The S&P 500 declined approximately 0.8%.
• The equal-weighted S&P 500 gained approximately 3.5%.
• AI disruption fears placed significant pressure on software and technology-related businesses.
• Value, defensive and asset-heavy sectors substantially outperformed growth.
• European, UK, Japanese and emerging-market equities outperformed the United States.
• The Bank of England held Bank Rate at 3.75% by a 5-4 vote.
• The ECB maintained its deposit rate at 2.00%.
• Government bonds rallied as developed-market yields declined.
• Gold gained more than 10% during the month.

Global Economic Overview

The global economy remained resilient during February, although investors became increasingly focused on differing regional growth rates, labour-market conditions and the economic consequences of technological disruption. Monetary policy also remained highly divergent, with some central banks contemplating further easing while Australia and Japan remained positioned for tighter policy.

United States

US economic data remained mixed. January nonfarm payrolls increased by approximately 130,000, exceeding expectations, while unemployment declined slightly to 4.3%. The figures reduced immediate concern about a severe labour-market deterioration.

Inflation also provided some encouragement. January consumer-price inflation moderated to 2.4% year-on-year from 2.7%, although stronger producer-price data later in February demonstrated that inflationary pressure had not disappeared completely.

Federal Reserve

The Federal Reserve did not hold a scheduled interest-rate meeting during February. Its target range therefore remained at 3.50%-3.75%, following the decision to maintain rates at the January meeting.

Markets continued to anticipate further easing during 2026, but resilient employment and uneven inflation data allowed the Federal Reserve to remain patient. The next scheduled policy decision was due in March.

US Trade Policy

Trade policy returned as an important source of uncertainty. A US Supreme Court ruling against the administration's use of emergency powers for selected tariffs forced policymakers to consider alternative legal mechanisms, creating renewed uncertainty around the durability of existing tariff arrangements.

The administration subsequently pursued alternative tariff authority, reinforcing the view that elevated trade barriers were likely to remain an important feature of US economic policy even if the legal structure changed.

Eurozone

The eurozone showed tentative evidence of improving activity. February's preliminary composite purchasing-managers index rose to 51.9, while manufacturing reached 50.8, its strongest reading in approximately 44 months.

Inflation moderated to 1.7% in January, while core inflation declined to 2.2%. The ECB nevertheless maintained its three policy rates unchanged, including a 2.00% deposit facility rate.

United Kingdom

The Bank of England held Bank Rate at 3.75%, but the 5-4 vote was significantly more dovish than markets had anticipated. Four members preferred an immediate reduction to 3.50%.

The Bank noted that CPI inflation had declined from 3.8% in September 2025 to 3.4% in December and was expected to return to around 2% from April. Wage growth and services inflation were also moderating, while unemployment had risen to just above 5%.

UK economic growth remained subdued, with fourth-quarter GDP expanding only 0.1% quarter-on-quarter. Business surveys were more encouraging, however, with February's preliminary composite PMI rising to a 22-month high of 53.9.

Japan

Japanese markets were transformed by a decisive general-election result that strengthened Prime Minister Sanae Takaichi's political position. Her party secured a two-thirds supermajority, reducing uncertainty surrounding fiscal policy and reinforcing expectations of expansionary government expenditure.

Late in the month, Takaichi nominated two relatively dovish economists to the Bank of Japan board. Investors interpreted the appointments as increasing the likelihood of a more gradual path of monetary tightening.

China

China continued to experience weak consumer demand and persistent deflationary pressure. The People's Bank of China maintained its one-year loan prime rate at 3.0% and five-year rate at 3.5% for a ninth consecutive month.

Technology and advanced manufacturing remained strategically important, but Chinese equities substantially underperformed several other Asian markets during February.

Global Outlook

February reinforced the growing divergence between economic regions and central-bank policies. The global economy remained capable of expansion, but technological disruption, geopolitical tension, tariffs and differing inflation conditions increasingly influenced investment returns independently of the conventional economic cycle.

Equity Markets

Global equities advanced approximately 0.8% in US-dollar terms during February, but regional and sector dispersion was exceptionally wide. International equities generally outperformed the United States, while value and asset-heavy companies substantially outperformed technology-oriented growth stocks.

United States

The S&P 500 declined approximately 0.8%, while the Nasdaq Composite fell 3.3%, its weakest monthly performance since March 2025. The Russell 2000 gained approximately 0.8%.

The equal-weighted S&P 500 rose approximately 3.5%, compared with the decline in the conventional capitalisation-weighted index. This demonstrated that the underlying market was considerably stronger than the headline S&P 500 performance suggested.

Growth Versus Value

Value outperformed growth for a fourth consecutive month. The Russell 1000 Value Index gained approximately 2.6%, while the corresponding Growth Index declined approximately 3.4%.

Utilities, energy, materials, consumer staples and industrials were among the strongest areas as investors favoured physical assets and businesses considered less vulnerable to AI-driven disruption.

Artificial Intelligence and Software

Software companies came under significant pressure as advances in agentic artificial intelligence raised concerns that increasingly capable systems could automate functions previously performed by specialist applications and professional-service providers.

Concerns spread beyond conventional software into data services, payments, legal and tax services, insurance brokerage, property services, online travel and logistics. Investors increasingly distinguished between companies enabling AI infrastructure and those whose existing business models could potentially be disrupted by it.

Europe

European equities performed strongly, with the MSCI Europe ex UK Index gaining approximately 3.5% in euro terms. Several major European indices reached record levels as corporate results and substantial share buybacks supported valuations.

Telecommunications, energy, basic resources, utilities and consumer-defensive sectors were particularly strong. Technology and financial services underperformed.

United Kingdom

UK equities produced exceptional gains. The MSCI United Kingdom Index rose approximately 7.5% in sterling terms, while the FTSE All-Share gained approximately 6.5%.

Commodity exposure, defensive businesses and increasing expectations of Bank of England rate cuts supported performance. Sterling weakness also increased the translated value of overseas earnings for multinational companies.

Japan

Japanese equities surged following Prime Minister Takaichi's landslide election victory. The TOPIX rose approximately 9.3% in yen terms and 10.5% in US-dollar terms, with the Nikkei delivering similarly strong returns.

Technology and industrial companies led the rally as investors anticipated greater government spending on semiconductors, defence and artificial intelligence.

Asia-Pacific

The MSCI Asia Pacific ex Japan Index gained approximately 6.1% in US-dollar terms. South Korea and Taiwan were standout performers as semiconductor and memory manufacturers benefited from strong AI-related demand.

Emerging Markets

The MSCI Emerging Markets Index gained approximately 5.5%. South Korea rose 22.6%, Taiwan 12.3%, South Africa 10.4%, Mexico 7.2% and Brazil 3.9%, while China and Argentina underperformed.

Indicative February Performance

Fixed Income Markets

Government bonds delivered strong returns during February as yields declined across most major developed markets. Defensive demand increased late in the month amid geopolitical tension, renewed credit concerns and volatility within technology equities.

US Treasuries

The US 10-year Treasury yield declined approximately 29 basis points and ended February below 4%. The yield curve flattened, with the spread between 10-year and two-year yields narrowing from approximately 74 basis points to 59 basis points.

European Government Bonds

German government bonds advanced, with the 10-year Bund yield falling approximately 20 basis points. Stable ECB policy and moderating inflation supported demand.

UK Gilts

UK government bonds were among the strongest performers. The 10-year gilt yield fell by almost 30 basis points to its lowest level since late 2024 as investors responded to the Bank of England's dovish 5-4 decision.

Japanese Government Bonds

The Japanese 10-year government-bond yield declined approximately eight basis points but remained above 2% for a third consecutive month. Expectations of expansionary fiscal policy and a potentially slower Bank of Japan tightening cycle remained important influences.

Corporate Credit

Global investment-grade corporate bonds gained approximately 0.8%, while global high-yield bonds returned around 0.2%. Credit spreads widened, particularly among lower-quality borrowers, despite the positive underlying bond returns.

Private Credit

Private credit returned to the centre of investor attention following several isolated liquidity and credit events. Concerns surrounding withdrawal restrictions in a retail private-credit vehicle and the collapse of UK mortgage lender Market Financial Solutions raised questions about liquidity, valuation and concentration risk.

The developments did not indicate a broad private-credit crisis, but they reinforced the importance of distinguishing genuinely illiquid long-duration investments from products offering investors comparatively frequent redemption terms.

Foreign Exchange

Currency markets reflected changing central-bank expectations, political developments and renewed trade uncertainty.

US Dollar

The US Dollar Index strengthened during February, reversing part of its recent weakness as tariff uncertainty returned and investors sought defensive liquidity.

Euro

The euro remained supported by improving eurozone activity, although expectations that the ECB would maintain a relatively accommodative policy stance limited significant appreciation.

Sterling

Sterling declined approximately 1.5% against the US dollar as investors increased expectations of additional Bank of England easing. It also recorded its largest monthly decline against the euro since June 2025.

Japanese Yen

The yen weakened late in the month after Prime Minister Takaichi nominated two comparatively dovish economists to the Bank of Japan's board, increasing expectations of a slower pace of monetary tightening.

Emerging-Market Currencies

Emerging-market currency performance varied considerably, with commodity-linked economies generally benefiting from stronger raw-material prices while domestic political and monetary conditions remained important sources of differentiation.

Commodities

Precious metals and selected energy commodities performed strongly during February as geopolitical uncertainty, declining bond yields and strategic demand continued to support real assets.

Gold

Gold gained more than 10% during February and completed a seventh consecutive positive month. Lower government-bond yields, geopolitical uncertainty and continued institutional and central-bank demand supported the advance.

Oil and Energy

Oil prices extended January's gains as uncertainty surrounding US-Iran negotiations and broader Middle East tensions increased the geopolitical risk premium.

Copper and Industrial Metals

Industrial metals remained supported by long-term investment in electricity networks, defence, data centres and advanced manufacturing. Strong equity performance among mining companies reflected continued investor demand for hard-asset exposure.

Critical Minerals

Strategic minerals remained an important geopolitical investment theme as governments sought to reduce dependence upon concentrated international processing and refining capacity.

Agricultural Commodities

Agricultural markets remained sensitive to weather, trade policy and geopolitical developments affecting global shipping and fertiliser costs.

Digital Assets

Digital assets remained volatile during February as investors continued to reassess speculative exposure following the weakness experienced during the final months of 2025 and January 2026.

Bitcoin

Bitcoin remained highly sensitive to global liquidity, changes in risk appetite and institutional fund flows. The broader rotation towards commodities and defensive assets reduced some of the speculative momentum that had supported cryptocurrencies during earlier stages of the cycle.

Ethereum

Ether and other smart-contract-platform assets remained influenced by institutional adoption, network competition and the continuing development of tokenised financial markets.

Tokenisation

Institutional development of tokenised securities, deposits, stablecoins and settlement infrastructure continued independently of short-term cryptocurrency performance.

Risk Considerations

• Digital assets remained vulnerable to rapid changes in global liquidity.
• Institutional access had not eliminated substantial volatility.
• Tokenisation remained structurally distinct from speculative token investment.
• Leverage and concentrated ownership remained important risks.

Private Equity

Private-equity markets remained active during February, although public-market volatility and renewed scrutiny of private credit increased the importance of conservative financing and realistic valuation assumptions.

Deal Activity

Industrial services, infrastructure, healthcare, energy and business services became increasingly attractive as investors diversified away from highly valued technology companies.

Technology Investments

The rapid development of agentic AI required private investors to reassess software and technology businesses according to their vulnerability to automation. Recurring revenue alone was no longer sufficient protection where core functionality could potentially be replicated by general-purpose AI systems.

Financing

Declining government-bond yields improved the financing outlook, while expectations of further Bank of England and Federal Reserve easing supported sentiment.

Recent private-credit incidents nevertheless reinforced the importance of lender diversification, covenant protection and matching investment liquidity with underlying asset liquidity.

Exits

Strong European, UK and Japanese equity markets improved regional exit conditions, while weaker US technology valuations complicated pricing for growth-oriented IPO candidates.

Secondaries

Secondary markets remained an important source of liquidity as institutional investors managed mature private-market allocations and sought exposure to assets with shorter expected holding periods.

CE Global Private Equity Observations

• AI disruption became an increasingly important due-diligence consideration.
• Hard-asset and essential-service businesses attracted greater interest.
• Private-credit liquidity structures required careful scrutiny.
• International exit markets remained stronger than US technology markets.
• Conservative leverage remained essential despite falling bond yields.

Artificial Intelligence & Technology

February represented an important evolution in the artificial-intelligence investment cycle. Investors increasingly focused not simply on which companies could benefit from AI, but also on which established business models could be displaced by it.

Agentic Artificial Intelligence

Advances in AI agents capable of completing multi-stage tasks increased expectations that software could automate workflows previously requiring multiple specialist applications or human professionals.

The potential disruption extended across software development, research, data processing, legal work, tax preparation, payments, insurance, travel and logistics.

Software

Software valuations came under pressure as investors reconsidered the durability of subscription revenue and customer switching costs. Applications providing easily replicated functionality faced greater risk than systems deeply embedded within regulated or mission-critical workflows.

Semiconductors

Semiconductor and AI-infrastructure demand remained comparatively strong, particularly in South Korea and Taiwan. This created a notable distinction between companies providing the physical computing infrastructure for AI and software businesses potentially vulnerable to disruption.

Enterprise Adoption

Companies increasingly experimented with autonomous and semi-autonomous workflows. The strongest commercial opportunities remained those capable of demonstrating measurable productivity gains without introducing unacceptable security, reliability or regulatory risk.

Technology Risks

• Agentic AI could reduce demand for selected software applications.
• Traditional competitive advantages may weaken as model capabilities improve.
• Software valuations remain vulnerable to rapid reassessment.
• Semiconductor demand remains strong but increasingly dependent upon sustained AI investment.
• Security, governance and reliability remain barriers to full automation.

Sector Spotlight

Hard Assets and Low-Obsolescence Businesses

February's sector spotlight examines the growing investor preference for hard-asset and low-obsolescence businesses as artificial intelligence creates uncertainty around traditional software and professional-service models.

The Investment Rationale

Physical infrastructure cannot generally be replicated by software alone. Electricity networks, pipelines, factories, logistics facilities, mines and other essential assets therefore provide a degree of protection against rapid technological substitution.

Utilities

Utilities benefited from increasing electricity demand associated with data centres, electrification and manufacturing. Regulated networks can also provide comparatively predictable returns on long-duration investment.

Energy

Energy infrastructure remains essential regardless of changes in software technology. Data-centre development has strengthened the relationship between digital growth and electricity, natural gas, storage and generation.

Industrials

Engineering, maintenance, automation and specialist manufacturing companies benefit from physical-world complexity that is difficult to replace entirely with AI.

Materials and Mining

Copper, gold, rare earths and other strategic materials remain essential to electricity, defence, semiconductors and infrastructure. Limited supply and difficult permitting can provide significant barriers to new competition.

Private-Market Opportunities

• Electricity-grid infrastructure
• Industrial maintenance
• Specialist manufacturing
• Energy infrastructure
• Critical-mineral processing
• Transport and logistics assets

Principal Risks

Physical assets remain exposed to capital intensity, commodity cycles, regulation and financing costs. Low technological obsolescence does not automatically imply attractive investment returns where entry valuations or leverage are excessive.

Investment Perspective

The February rotation demonstrated that AI may create investment opportunities outside the technology sector as capital moves towards assets that enable digital growth or remain difficult to automate. The strongest opportunities combine essential physical infrastructure with recurring revenue and disciplined leverage.

Regulatory Update

February's regulatory environment was shaped by tariff litigation, monetary-policy developments, artificial intelligence and renewed scrutiny of private-market liquidity.

US Trade Policy

The Supreme Court's ruling against the administration's use of emergency tariff powers created uncertainty around the legal basis for parts of the US trade regime. Alternative tariff mechanisms remained available, meaning companies continued to require flexible trade and supply-chain planning.

Bank of England

The Bank of England's 5-4 decision significantly increased the probability of further monetary easing. The Bank stated explicitly that, based on current evidence, Bank Rate was likely to be reduced further.

European Central Bank

The ECB maintained its data-dependent approach and kept rates unchanged, while continuing the measured decline of its APP and PEPP securities portfolios.

Artificial Intelligence

Rapid improvements in agentic AI increased the importance of governance, human oversight, data protection and operational-resilience controls as businesses delegated more complex workflows to automated systems.

Private Credit

Recent liquidity events reinforced the need for funds to align redemption terms with the liquidity of underlying private assets. Investors increasingly examined gating provisions, valuation methodology and concentration in technology-related borrowers.

Compliance Priorities

• Review tariff exposure under alternative US legal authorities.
• Prepare funding models for possible further UK rate cuts.
• Continue implementation of AI governance and oversight controls.
• Review private-credit redemption and liquidity structures.
• Assess portfolio-company vulnerability to AI disruption.
• Maintain independent private-market valuation governance.

Looking Ahead

Markets entered March with international equities performing strongly, US technology under pressure and expectations of further monetary easing increasing in the United Kingdom and United States. At the same time, geopolitical tension and rising energy risks threatened to complicate the otherwise improving inflation outlook.

Federal Reserve

The Federal Reserve's March meeting would provide the first formal US policy decision since January. Investors would focus on updated projections for inflation, employment and the likely number of rate cuts during 2026.

Bank of England

The February 5-4 vote placed a March reduction firmly within consideration. CPI inflation returning towards 2%, subdued economic activity and labour-market slack strengthened the case for easing, although policymakers remained divided over the persistence of wage and service-sector inflation.

European Central Bank

The ECB appeared comfortable with a 2.00% deposit rate, but weaker inflation or a deterioration in activity could reopen the case for additional easing.

Japan

Markets would assess how Prime Minister Takaichi's strengthened political position affected fiscal expenditure and the Bank of Japan. New appointments to the central-bank board increased expectations of a gradual approach towards additional tightening.

Artificial Intelligence

AI disruption risk would remain a central equity-market theme. Investors would continue examining which software and service businesses possessed genuine structural advantages and which functions could increasingly be performed by general-purpose AI agents.

Geopolitics and Energy

US-Iran tensions represented an increasing source of risk entering March. Any sustained disruption to energy supply could raise inflation expectations and complicate anticipated central-bank easing.

Private Credit

Investors would continue monitoring isolated credit and liquidity events for evidence of broader deterioration. Funds offering frequent liquidity against inherently illiquid loans were likely to receive particular scrutiny.

Private Markets

The broadening of equity leadership towards industrials, utilities, materials and international markets creates a wider private-market opportunity set. However, rapid valuation changes within software demonstrate the importance of incorporating technological disruption directly into underwriting.

CE Global Private Equity Perspective

February demonstrated that artificial intelligence is increasingly becoming both an investment opportunity and a source of disruption risk. The distinction between companies benefiting from AI and those vulnerable to it is becoming more important than simple classification by sector.

CE Global Private Equity believes that essential infrastructure, energy networks, industrial services, healthcare, cybersecurity and specialist manufacturing remain attractive long-term areas. Businesses combining physical-world complexity with recurring revenue may prove particularly resilient as AI capabilities improve.

Within technology, investors should favour companies possessing proprietary data, mission-critical integration, regulatory expertise or measurable productivity advantages rather than assuming that recurring software subscriptions alone provide durable competitive protection.

Private-credit developments also reinforce the importance of liquidity discipline. Investment structures should match the liquidity profile of their underlying assets, while leverage and redemption assumptions should be stress-tested under less favourable market conditions.

This market review is provided for general information and discussion purposes only. It does not constitute investment, legal, tax or other professional advice, nor an offer or solicitation to purchase or sell any security, financial instrument or investment product. Market values can rise or fall, and past performance is not a reliable indicator of future results.