Slide 1 - February 2026 (Cover Slide)
'Good day, everyone, and thank you for joining us. Welcome to Student of the Market for February 2026. As always, our goal today is to step back from the daily noise, look at what the markets are telling us through history and data, and translate that into practical insights you can use with clients.
January gave us a strong start to the year, but as we'll discuss, the real story isn't just performance - it's leadership, diversification, and how investors can stay disciplined when markets evolve.'
Transition:
'Let's start by framing the major themes we'll cover today.'
:40
Slide 2 - Agenda / Topics Overview
'Here's the roadmap for today's discussion. We'll begin by looking at January's market performance and what history tells us about strong starts to the year. From there, we'll examine leadership within U.S. equities - particularly what's happening with the Magnificent Seven and small‑cap stocks.
We'll also broaden the lens to emerging markets, revisit the role of the Federal Reserve, and close with a reminder of why diversification remains one of the most powerful tools investors have - especially over full market cycles.'
Transition:
'Let's start with the question investors often ask after a good January: does a strong start really matter?'
1:15
Slide 3 - A Positive Return for Stocks to Start 2026
'U.S. stocks posted a positive return in January (+1.4%), continuing a trend investors have become accustomed to over the last several years. That naturally raises the old market adage saying, 'So goes January, so goes the year.'
When we look at a century of data, history suggests there is some signal here - but it's not a guarantee. In years with a positive January, stocks finished higher over 80% of the time (50 out of 62 yrs). In contrast, a negative January has seen a lose 39% of the time (15 of 38 yrs).
The key takeaway for investors isn't that January predicts the future - it's that early momentum often reflects improving fundamentals, which can support markets as the year unfolds.'
Transition:
'While the market has been moving higher overall, leadership beneath the surface has been shifting.'
2:15
Slide 4 - Market Leaders: The Magnificent Seven
'The Magnificent Seven have dominated headlines and returns over the past couple years (2023 & 2024 especially), but what's interesting in early 2026 is how much more varied performance has become within this group (similar to last yr).
After driving most S&P 500 returns in 2023 and 2024, fewer of these stocks are outperforming the broader market so far this year. All 7 outperformed in 2023, 6 in 2024 but only 2 in 2025. That doesn't mean the story is over - but it does suggest leadership is broadening.
This dispersion within market leaders is often healthy. It reminds us that even within a concentrated group, outcomes can differ significantly, reinforcing the importance of diversification - even among large cap, well‑known names.'
Transition:
'Another place we've seen leadership shifts is in smaller companies.'
3:15
Slide 5 - Small Caps: A Hot Start to 2026
'Small‑cap stocks got off to one of their strongest relative starts in decades versus large caps. Historically, that kind of outperformance has been associated with improving economic expectations and easing financial conditions.
However, history also cautions us. Some of the strongest small‑cap starts - like in 2021 and 2023 - ultimately faded as the year progressed. So while this early strength is encouraging, it's not a reason to chase returns.
This is a great opportunity to remind clients that leadership rotates, and portfolios built to capture multiple sources of return tend to be better positioned over time.'
Transition:
'To put that into perspective, it helps to look at how small caps behave over full calendar years.'
4:10
Slide 6 - Small Cap Stocks Rarely Hit Their Average
'Despite averaging just under 12% annually over the long term, small‑cap returns are anything but average in most years. They tend to experience wide swings - both positive and negative (43 years greater than+20% and 31 years were you lost money) - with only a handful of years landing close to that long‑term average (ironically the only 2 years out of 100 that were around that average were the last 2 calendar years, 2024 and 2025).
This chart highlights an important behavioral lesson. Investors who expect 'average' returns year‑to‑year are often disappointed. But those who stay invested through volatility have historically been rewarded over full cycles.
This reinforces why timing small caps - or any asset class - is so difficult, and why consistency matters more than precision.'
Transition:
'Zooming back out, let's look at where U.S. stocks stand in the broader historical and political context.'
5:15
Slide 7 - U.S. Stocks and the Election Cycle
'U.S. stocks delivered strong performance in 2025, and history shows that market returns often have varied depending on where we are in the election cycle (non-election odd years being the best like 2025).
Midterm election years have tended to experience less than avg returns (if an administration is ever going to implement polices that might be difficult they do it early in an administration vs. goosing the economy closer to the Pres election a couple years later). One note on mid term election years, we have had two consecutive negative election years (2022 -18% and 2018 -4%). So the less than avg mid term election year return is weighed down a bit by the 2 recent periods being negative. Historically we have never had 3 mid term election years that were negative (we have had 2 other back to back mid terms that were negative- but never a third)- so hopefully that tend continues.
Transition:
'Beyond the U.S., some of the most notable performance has come from overseas.'
6:25
Slide 8 - Emerging Market Stock Performance
'Emerging market stocks have delivered their strongest outperformance versus U.S. stocks in more than a decade (Mar 2010). Importantly, history shows that periods of emerging‑market leadership often cluster together rather than occur in isolation.
After long stretches of underperformance (> 20% EM outperformance resulted in EM outperformance of 4.7% over the next 12 months, the opposite is true when EM underperforms by 20% or more it avg underperformance over the next 12 months is -8%), valuations tend to reset, and even modest improvements in growth or global conditions can drive strong returns.
For diversified portfolios, this is a reminder that leadership rotates globally - not just across sectors or market caps.'
Transition:
'Another key influence on markets this year has been monetary policy.'
7:26
Slide 9 - The Fed on Pause
'The Federal Reserve is currently on hold, but history suggests these pauses rarely last very long (about 3.5 to 9 mo). In past cycles, when rate cuts resumed after a pause, markets often delivered strong returns over the following year (stks and bonds, multi sector bond +12%).
Today, markets are pricing in potential rate cuts later in 2026 92). While timing remains uncertain, this environment reinforces the importance of staying invested rather than trying to predict policy shifts. Rate cuts and an economy that avoids recession has driven returns in markets the last couple years (stocks especially) and that story appears to be in place for 2026.'
Transition:
'With uncertainty around rates and leadership shifts across markets, diversification becomes even more critical.'
8:26
Slide 10 - Benefits of Diversification: Win More by Losing Less
'This slide illustrates a powerful concept: long‑term success isn't just about capturing upside - it's about limiting downside.
Historically, portfolios that captured a chunk of the upside of the stock market and experienced smaller drawdowns often ended with higher long‑term wealth. We call this winning more by losing less.
This slide illustrates that investing $100k at the worst time in Oct 2009 on the left still results in $650k on 12/31/25. On the right we look at the same scenario except we only capture 89% of all the bull markets and all the bear markets. This results in a slightly better outcome (more $$) but with 89% of the risk, 89% drawdown and 89% of the volatility. This is winning more by losing less.
This is a message investors often underestimate, especially after strong bull markets.'
In closing, early 2026 reminds us that markets are rarely driven by a single narrative. While stocks started the year on positive footing, leadership is broadening across market caps, regions, and sectors, and history suggests these transitions are a healthy part of long term market cycles. From shifting equity leadership and renewed strength in emerging markets to a Federal Reserve on pause, the common thread is uncertainty - and opportunity - for disciplined investors. The most reliable path forward remains the same: stay diversified, stay invested, and focus less on short term signals and more on long term fundamentals that drive durable outcomes over time. Thanks for joining and we will see you next month on BlackRock's Student of the Market.
GPS0226-5226587-EXP0227
