Market Commentary: February 2026
A Busy Start to the Year
There’s been no shortage of headlines to start 2026.
From renewed debate about an “AI bubble” to escalating geopolitical tensions, investors have had plenty to digest. Technology earnings have come under intense scrutiny — not just from the so-called “Magnificent Seven”, but from a much wider group of AI-focused companies.
With that in mind, we begin this month in the United States.
United States
The year had barely begun when the US government removed President Maduro from Venezuela. Some commentators believe this could mark the start of a broader US effort to reshape Latin America’s geo-economic landscape — and curb Russian and Chinese influence in the region.
Central America’s location makes it strategically vital. The Panama Canal, the Caribbean Sea and Pacific ports are key shipping routes for both legal and illicit trade.
Russia already exploits these routes through a “shadow fleet” of ageing vessels used to move sanctioned oil. It also uses Caribbean offshore shell companies to manage an estimated $70 billion in assets, according to the Centre for the Study of Democracy. Meanwhile, China has provided billions of dollars in development loans across Latin America and continues to expand its economic footprint.
Stricter policing of shipping routes could increase reliance on US Gulf Coast refineries to replace lost Russian or Venezuelan oil supply. It could also weaken Russia’s position as a key regional supplier.
However, the strategy carries risk. Coercion could push some Latin American governments closer to China rather than away from it. Commercial incentives, not just force, will ultimately determine alignment.
Greenland tensions ease
Shortly afterwards, President Trump declared his intention to take control of Greenland — a move that briefly unsettled markets. Tensions cooled quickly, and what appears to be a mutually agreeable arrangement was reached. The US gained greater freedom of operation in Greenland without altering ownership.
Markets wobbled, but less dramatically than expected. Many investors seemed unconvinced that the rhetoric would translate into lasting disruption.
The US economy: resilience with warning signs
Despite recession fears, the US economy defied pessimistic expectations in 2025. It may do so again in 2026.
Two themes stand out.
1. Jobless expansion
Economic growth continues — but employment growth has slowed.
While GDP remains the headline measure of success, a softer labour market makes the economy more fragile. Artificial intelligence may be driving efficiencies and profits in large companies, but not necessarily job creation. In January, Amazon inadvertently revealed plans to lay off 16,000 employees.
The S&P 500 climbed above 7,000 points for the first time on 28 January, buoyed by improved sentiment after the Greenland tensions eased and expectations of reduced capital requirements for major banks.
However, markets dipped at month-end after disappointing results from one major technology firm. Microsoft shares fell 10% on 29 January. By contrast, Apple, Meta and Tesla exceeded expectations. Alphabet and Nvidia report in February.
The “AI bubble” debate remains firmly alive.
2. The ‘K-shaped’ economy
Wealthier households continue to benefit from rising equity markets. Meanwhile, low- and middle-income families are more exposed to inflation and a slower jobs market.
This widening inequality weighed on consumer confidence in January’s data.
Inflation control remains a core theme. While the worst projections following “liberation day” tariffs have not materialised, affordability of essential goods and services remains politically sensitive.
Trump versus the Federal Reserve
President Trump reignited tensions with the Federal Reserve in January.
Fed Chair Jerome Powell revealed he is under criminal investigation by the Department of Justice relating to testimony on renovation costs of Federal Reserve buildings. It marked the latest chapter in a power struggle between the White House and the central bank.
Trump has repeatedly criticised Powell for not cutting interest rates quickly enough. Powell responded firmly, emphasising the importance of central bank independence and warning against political interference in monetary policy.
There has been strong global support for the Fed from other major central bankers.
Trump has since distanced himself from the investigation and instead nominated Kevin Warsh — a former Fed board member — to succeed Powell when his term expires in May, subject to Senate confirmation.
For now, markets remain calm. But any perceived erosion of Fed independence could create longer-term volatility.
United Kingdom
UK markets experienced brief turbulence in response to Greenland tensions, but quickly stabilised.
The FTSE 100 breached 10,000 points for the first time on 2 January and reached an intra-day high of 10,257.75 on 16 January.
Inflation rose unexpectedly to 3.4% in the 12 months to December 2025, according to the Office for National Statistics. Alcohol and tobacco duty increases, rising airfares and food prices were key drivers.
Although widely viewed as a temporary uptick, it reduced expectations of a February interest rate cut.
The housing market showed signs of recovery. Average prices rose 0.3% in January, and Nationwide forecasts 2–4% growth across 2026.
Prime Minister Keir Starmer balanced diplomacy throughout January — remaining firm on Greenland, avoiding escalation over Venezuela, and making a historic visit to Beijing, the first by a British Prime Minister in eight years. While largely symbolic, it may lay foundations for improved trade relations with China.
Europe
The Eurozone economy grew 0.3% in the fourth quarter of 2025, exceeding expectations.
Germany expanded by 0.3% and France by 0.2%. Spain closed 2025 with 2.8% growth, double the Eurozone average.
Despite tariffs and political uncertainty, Europe has now grown for nine consecutive quarters.
However, growth remains modest. Structural concerns — particularly around German car manufacturing — persist. With inflation close to the 2% target, the European Central Bank faces less pressure to cut rates.
Far East
China navigated 2025 more effectively than many predicted at the outset of trade tensions.
GDP growth was running at around 4.8% late in the year. While exports to the US declined, shipments to Africa, ASEAN, Latin America and the EU rose significantly.
China’s fiscal expansion reached roughly 10% of GDP in 2025 and is expected to continue. Much of this funding refinanced local government debt, supported troubled property developers and recapitalised banks, rather than funding large infrastructure projects.
Structural challenges remain, particularly an ageing population and property market weakness. Avoiding further escalation with the US will be critical.
Japan also drew attention after significant bond issuance and the announcement of a snap election on 8 February. Prime Minister Sanae Takaichi hopes to strengthen her coalition majority. If successful, increased defence spending and a two-year food tax suspension could push debt-to-GDP ratios toward pandemic levels.
Japanese bond and currency markets were volatile throughout January.
Emerging markets
Latin America faces uncertainty following US action in Venezuela. Mexico could be particularly exposed, while Brazil’s strong trade links with China provide some resilience.
Argentina is expected to improve economically in 2026 following US financial assistance and mid-term legislative gains for President Javier Milei.
Indonesia experienced market turbulence after MSCI warned it could downgrade the country to frontier market status, citing transparency concerns and limited free-floating stock availability.
Summary
We warned in January that investor patience would be tested in 2026.
We simply didn’t expect quite so much news so early in the year.
Politics has been turbulent. Yet financial markets have shown surprising resilience. They have wobbled, but not dramatically.
Some critics have coined the term “TACO” — “Trump Always Chickens Out” — suggesting that aggressive rhetoric does not always translate into action. Whether or not that view holds, markets appear increasingly selective in how seriously they take political threats.
As ever, we remain focused on long-term strategy rather than short-term noise.
If you would like to discuss how current events may affect your portfolio, please contact the Aetas Wealth team.
Sources
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