Faye:
It’s been a volatile start of the year – the S&P 500 is up about 2% so far, but that muted headline number masks some big intraweek swings. We saw dramatic moves in software names as AI-disruption fears weighed on performance, but other parts of the market stepped in. Equal weighted exposures outperformed as megacap tech lagged, and international markets continued their strong streak.
Importantly, we think that fundamentals look encouraging, across both the macro and then micro as Q4 earnings results wrap up. Looking ahead, we think a strong economy and accelerating momentum increase the cost of staying on the sidelines.
:40
As a result, we continue to prefer stocks over bonds, and bonds over cash.
Maxine:
Let’s start with the story of the month: artificial intelligence angst applied pressure to tech names and was ultimately a drag on growth indices. Software, the hardest-hit group, is down more than 20% YTD, with the selloff accelerating amid a new wave of AI-driven platform and workflow automation launches.
We also saw dispersion increase– tech is nearly flat on the month, but the spread between the sector’s top performer and biggest laggard is nearly 100%. Pockets like semiconductors and tech hardware have moved higher while software has trailed.
1:30
Faye:
Despite the volatility and the headlines, February actually brought quite a bit of good news across both earnings and macro data.
We entered the Q4 earnings season expecting 7% year-over-year EPS growth, and we’re now tracking at 14%. That’s the fifth consecutive quarter of double-digit earnings growth. The guidance ratio this season is above the long-term, pointing to further momentum ahead.
And add to that, economic data has continued to come in better than expected across much of the U.S. economy – Bloomberg’s Economic Surprise Index is in positive territory, with upside surprises across housing, industrial activity, the labor market, and surveys and business cycle indicators.
2:15
Maxine:
In encouraging news for portfolio builders, other parts of the market stepped up in February amid the U.S. tech volatility. International markets have continued to pull higher, extending last year’s trends – MSCI EAFE Index is up over 8%, and MSCI Emerging Markets Index is up over 13% year-to-date.
That recent performance has been supported by strong earnings growth. In fact, despite the rally this year, the MSCI EM Index’s 12-month forward P/E ratio has actually declined since the start of the year.
2:50
Other asset classes have performed well, too. Bonds have continued to provide ballast, delivering positive returns during periods when the S&P 500 sold off.
Faye:
So, let’s pull this all together:
• We remain constructive on equities in 2026, and while we continue to like tech and growth, especially at more attractive entry points, we don’t think AI equities are the only game in town anymore. We like value and cyclical exposures as economic growth accelerates.
• We see opportunity to seek income beyond cash and we favor core bonds for ballast and flexible bond strategies.
• And finally, we believe diversifiers like gold, plus liquid alternatives, can help improve portfolio outcomes by providing uncorrelated returns or enhanced income.
3:40
Check out the full Advisor Outlook for more of our best thinking, and reach out to your local market team or call 877-ASK-1BLK to dive more deeply into our outlook for 2026.
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