Keep Calm and Stay Invested. History Suggests Patience During Geopolitical Uncertainty

• Market leadership broadened beyond mega-caps as S&P 500 Equal Weight (+3.6%), international developed equities (+6.2%), and US mid-caps (+4.1%) outperformed their cap-weighted counterparts, while gold rose 8.7% and silver gained 12.7%
• Core PPI rose 0.8% month-over-month in January (versus 0.3% expected), marking the highest monthly increase since March 2022, reinforcing Fed caution with markets pricing 94% probability of rates holding steady in March
• Magnificent 7 tech companies plan to increase AI infrastructure spending by roughly 58% in 2026 to over $700 billion, though return on investment remains uncertain and higher capex is pressuring free cash flow
• Private credit sector faced stress as Blue Owl Capital sold $1.4 billion in assets and ended quarterly redemptions in its retail fund, highlighting liquidity mismatches between long-term illiquid loans and investor withdrawal expectations

Market Summary: Keep Calm and Stay Invested

Market Performance (February)

US large-cap equities declined in February amid AI capex concerns and geopolitical tensions, with the Nasdaq 100 down 2.3% and S&P 500 falling 0.8%. However, market leadership broadened significantly: S&P 500 Equal Weight Index surged 3.6%, international developed markets led with 6.2% gains, US mid-caps rose 4.1%, and emerging markets added 2.7%. Bonds performed well, with 7-10 year Treasuries up 2.5% and the Aggregate Bond Index gaining 1.6%. Commodities rallied, led by silver (+12.7%) and gold (+8.7%).

Fed Policy & Economic Data

Markets price in a 94% probability of the Fed holding rates steady at the March meeting. January payrolls showed 130,000 jobs added versus 70,000 expected, while unemployment fell to 4.3%. Core PPI jumped 0.8% month-over-month (consensus: 0.3%), the highest since March 2022, signaling persistent inflation pressures. Q4 2025 GDP growth slowed to 1.4% annualized from Q3's 4.4%, impacted by federal government shutdown and softer consumer spending.

Sector Developments

Tech/AI: Magnificent 7 companies face scrutiny as hyperscaler capex is expected to rise 58% in 2026, exceeding $700 billion. Concerns mount over uncertain ROI and pressure on free cash flow, contributing to the recent tech selloff.

Private Credit: Blue Owl Capital's $1.4 billion asset sale and suspension of quarterly redemptions highlight liquidity mismatches in the $2 trillion private credit sector, pressuring publicly-traded alternative asset managers.

Geopolitical Perspective

Historical data shows the S&P 500 delivers positive returns 67% of the time three months after major geopolitical events, with a 5.3% median return over six months, supporting a patient, long-term investment approach.