F.N.B. Wealth Management Fast Five

1. What happened in markets during February?

Global equity markets continued to broaden out during the month. This is a healthy development for markets as the rotational effects so far in 2026 have made valuations less top heavy (the Magnificent 7) while areas like small caps have seen price appreciation. However, it has also brought to light the concentration risk a lot of investors had, whether intentionally or unintentionally (index weighting of the Magnificent 7), to the technology and communications sectors. This was particularly true during AI-related risk-off trading in the last three weeks of the month that led the tech-heavy Nasdaq to finish the month at -3.3% and the S&P 500 at -0.8%. The Russell 1000 Growth Index was -3.4%. That contrasted with the Russell Mid-Cap and Small Cap Indexes that were +3.8% and +0.8% respectively. Investors also looked for opportunities outside of the U.S. as international developed markets were +4.6% (MSCI EAFE Index) and emerging markets were +5.5% (MSCI EM Index) for the month. Year-to-date, international markets are +10.1% for developed and +14.9% for emerging markets.

The U.S. Treasury market built off its strong 2025 performance with the best monthly performance in a year. The 10-year Treasury yield enters March below its recent trading range of 4.00% to 4.25%. The decline in longer-term Treasury yields can be a positive development for interest rate-sensitive areas of the economy like housing. Within the corporate bond market, yield spreads between investment grade bonds and Treasuries did widen out slightly in February as investors started questioning some of the massive borrowing from some of the largest technology companies.

Precious metals and the energy complex dominated commodity headlines again in February with gold +7.9%, silver +10.1%, West Texas Intermediate (WTI) oil +2.8% and gasoline +4.0%.

2. Why did AI negatively impact the S&P 500 in February?

Markets had some existential topics like job displacement and industry disruptions from AI to think about in February. Now, as we have discussed in previous reports, 2026 was always going to be a year in which investors in major technology companies started to ask questions about the return on AI-related capital expenditures (capex). In many respects, February’s technology sell-off stemmed from broad-based questions about future earnings growth and possible margin compression. Speculation was exacerbated by a Cintrini Research report titled “The 2028 Global Intelligence Crisis,” which presented a scenario wherein technology-related job losses result in lower consumption and lead to dire economic consequences. While the report was purely hypothetical, markets responded adversely to the information. It is important for investors to remember that when technological advancements and financial markets move as fast as they have, it is human nature to think about the potential negative outcomes, which can accelerate emotional decisions. In the short term, the new technologies can be very disruptive, but over time, AI’s benefits as a tool for employee enablement and productivity may serve to counterbalance potential job displacement.

3. What was the U.S. Supreme Court’s IEEPA decision?

The U.S. Supreme Court voted against the Administration’s global tariffs that were imposed under the International Emergency Economic Powers Act (IEEPA). The Court voted 6-3 that the tariffs exceeded the authority granted under IEEPA law. The decision means that the average effective tariff rate could possibly drop to as low as 6.5% post-decision. However, the ruling does not provide guidance on any reversal or refund requirements of the already collected tariffs (approximately $170 billion) or on current tariffs on steel, aluminum and automobiles — and the Administration may choose to pursue other means of implementing tariffs. That said, even before the ruling, the annualized effective tariff rate since October had dropped from 11% to 9%, and, as of this writing, the Administration’s newest proposal is for a 10% effective tariff rate, which is meaningfully lower than the 16.5% average annualized effective tariff rate in Q3 2025. The lowered rate is a positive development for U.S. importers and consumers and may ease some inflationary pressures.

4. What about inflation?

Personal Consumption Expenditures (PCE) for December (delayed due to the Q4 government shutdown) came in at +0.4% m/m while Core PCE (ex-food and energy), the Fed’s preferred measure of inflation, was +0.36% m/m. On an annual basis, Headline PCE was +2.9% and Core PCE came in at +3.0%. Real personal spending increased by +0.1% and personal incomes increased +0.3%, but the personal savings rate dropped to 3.6% during the month. Spending slowed in tariff-impacted goods while consumers spent more on service categories. Looking at more recent data, the U.S. Producer Price Index (PPI) for January came in above expectations at +0.5% month-over-month and +2.9% year-over-year (consensus estimates were for +0.3% m/m and +2.6% y/y). This was the biggest monthly increase since September while PPI ex-food and energy was +3.6% y/y, which was the highest since July 2025. Service cost increases in areas like financials services, airfares and physician care will be included in the next PCE report. The key takeaway from these reports is that prices continue to grind higher, inflation remains sticky and consumers are becoming stretched. Unfortunately, if inflation does not come down, then it will take a material breakdown in the labor market to justify significant rate cuts from the Fed. In fact, the minutes from the Fed’s January meeting showed that “the vast majority of participants judged that downside risks to employment had moderated in recent months while the risk of more persistent inflation remained.” Inflation remains a potential economic headwind in 2026.

5. What is the Chief Investment Office monitoring in March?

March started out like a lion, and we are unsure if it will leave like a lamb, but here are three things we are thinking about:

1. The armed conflict between the U.S., Israel and Iran creates a lot of uncertainty for global financial markets as any military engagements in the Middle East historically send energy prices higher. Inflation is a natural outcome of higher energy prices, which can have an impact on monetary policy. Using history as a guide, equity markets are often higher twelve months following the initial engagement, but short-term volatility can create reactivity with investors. The progression and duration of the conflict will drive market behaviors.
2. The Federal Open Market Committee’s (FOMC) meets again on March 18. We don’t anticipate a rate change at this meeting but will be looking for updated commentary on inflation, employment and the quarterly Summary of Economic Projections (SEP), which shows the expectations for future interest rate cuts.
3. Our Equity Research Team will also be watching for continued rotation amongst the various capitalization ranges and sectors with the U.S. equity markets.

Charts of the Month

Markets During Conflict:

When conflicts arise, long-term investors must first recognize they should not assume to know what path a conflict will take. Only the governments involved can determine the course of the conflict (duration and outcomes). As such, long-term investors should understand that properly diversified portfolios that remain invested in the markets have historically rewarded patient investors. Initial reactions are often not what the equity markets experience 12 months following the event.

Previous Geopolitical Events

Concentration Risk Ease:

Something that has become evident to many investors over recent months is that they had a concentration risk in their portfolios whether intentionally or unintentionally. Even investors who were exclusively using passive index strategies had their portfolios build a concentration in the Magnificent 7 companies over the last couple of years due to the price appreciation of those stocks. As the technology sector has experienced AI-related selling, the concentration of the Magnificent 7 has shrunk in the S&P 500. A healthy sign for the equity markets is that the S&P 500 finished February positive for the year, while the tech-heavy Nasdaq is -2.4% year-to-date. This means equity investors are finding value in the other 493 names in the S&P 500. That is also a reflection of a healthy U.S. economy.

Magnificent 7 vs the other S&P 500 - 493