Market Overview
Global equities rose modestly in February, as investors adopted a cautious posture amid shifting market dynamics.
February proved to be another turbulent month for global stock markets, marked by mounting worries about the risks posed by artificial intelligence (AI). The stock prices of technology giants, which soared during the AI boom, came under pressure, as investors remained concerned that the lavish spending by these companies to build-out AI infrastructure may not lead to as much profit as hoped. Investors were also increasingly worried about companies with business models that could be vulnerable to being displaced by the growing capabilities of AI. This so-called “AI scare trade” sparked a sharp market sell-off of software-maker stocks that soon spread to other sectors deemed to be at-risk such as financials and real estate. Amid these concerns, investors rotated away from technology and other growth stocks and into value stocks. In the month, the MSCI All Country Word Index (ACWI) Value rose 3.3%, while the MSCI ACWI Growth fell 0.9%.
The month also saw renewed uncertainty about U.S. trade policy after the U.S. Supreme Court struck down the Trump administration’s sweeping global tariffs. News that the administration planned to impose new, across-the-board import taxes in the wake of the Supreme Court’s decision rattled investors, who were worried that such an action could lead to renewed tensions between the U.S. and its trading partners.
The future path of global interest rates remained a focus of investors. In the U.S., minutes from the Federal Reserve (Fed)’s last policy meeting in January signalled that officials were in no hurry to lower interest rates as long as the U.S. labour market remained stable and inflation remained elevated. Fed-funds futures traders have priced in at two rate cuts this year, with the earliest reduction expected to occur in the summer, according to the CME’s FedWatch tool. The yield on the benchmark 10-year U.S. Treasury note ended February at 3.95%, 29 basis points (bps) lower than a month earlier.
Across the Atlantic, the European Central Bank held interest rates steady at its February policy meeting and signalled that it was comfortable with its current monetary policy stance, suggesting that further rate reductions in the near term were unlikely despite cooling inflation in the eurozone. In the U.K., the Bank of England left interest rates unchanged and stated it would need further evidence that a rate cut was warranted, though it left the door open for such an action at its next policy meeting in March, as the British central bank lowered its forecast for economic growth for this year and the latest data suggested that domestic inflation fell materially in January. In February, the yield on the 10-year German Bund, Europe’s principal safe-haven asset, ended the month at 2.66%, 19 bps lower than a month earlier.
Meanwhile, in Japan, expectations were growing that the Bank of Japan will raise interest rates soon, even as reflationist Prime Minister Sanae Takachi, fresh off her party’s landslide victory in parliamentary elections, expressed reservations about the Japanese central bank’s pivot to a more hawkish monetary-policy stance. Elsewhere in Asia, China’s central bank left its benchmark lending rates unchanged for the ninth consecutive month, as policymakers sought to strike a balance between supporting a domestic economy in a deflationary spiral and maintaining stability in the country’s currency.
With the new earnings season in full-swing, investors were provided with the latest update on how company profits have held up amid shifting market dynamics. In the U.S., 74% of the companies in the S&P 500 Index that reported results topped consensus estimates, which was above the long-term average of 67%. The fourth-quarter earnings growth rate is estimated to have increased 14.0% from a year earlier. In Europe, 43% of the companies in the STOXX 600 Index that reported results posted better-than-expected earnings, below the 54% that do so in a typical quarter. The year-over-year fourth-quarter earnings growth rate is expected to have expanded 2.5%. In Japan, 61% of the companies in the TOPIX that reported results posted positive earnings surprises, surpassing the 54% beat rate over the past four quarters. The fourth-quarter earnings growth rate is estimated to have increased 1.0% from a year earlier. In Hong Kong, 60% of the companies in the Hang Seng Index that reported results registered better-than-expected earnings, exceeding the 58% beat rate over the past four quarters. The fourth-quarter earnings growth rate decreased 12.4% from a year earlier.
Against this backdrop, equity markets in the developed and developing world both gained in February, with the latter outperforming the former by a wide margin. The S&P 500 recorded a modest loss, as investors rotated away from index-heavyweight Big Tech stocks and toward defensive stocks. In Europe, the STOXX 600 outperformed, as the attractive valuations of European stocks lured U.S. investors looking to diversify their portfolios. European stock markets also benefited from the Continent’s limited exposure to companies leveraged to AI, which mitigated the impact of the market sell-off of AI stocks. In Japan, the TOPIX outperformed, as risk appetites were bolstered by optimism that the country’s prime minister will have a freer hand to enact her expansionary fiscal policies in the wake of her political party’s landslide election in parliamentary elections. In China, the Hong Kong-based Hang Seng Index, whose constituents include several prominent Chinese technology companies, retreated and underperformed as a result of the sell-off of AI-linked stocks.
Materials was the best-performing sector in the month, as shares of gold miners gained in sympathy with the rise in the price of the precious metal, which was sparked by investors seeking safe-haven assets. Communication services was the worst-performing sector, as the stock prices of U.S. Big Tech companies fell sharply on concerns about the lavish spending of these companies to build-out AI infrastructure.
Outlook
The prior year was marked by great uncertainty – in terms of taming of inflation, prospects for achieving an economic soft-landing, dizzying policy pivots, geopolitical conflict, and transformative technological innovation. It’s worth underscoring that not only did broad market averages enjoy exceptionally strong performance in 2025 amid the uncertainty, but traditionally defensive Infrastructure securities held their own against the growthier equity benchmarks with similarly punchy performance.
Our outlook for 2026 anticipated continued elevated uncertainty and this posture has been re-affirmed in the early days of March with the outbreak of war in Iran, which has already had a profound effect on the price of oil, other commodities, interest rates and a wide range of financial instruments. It remains early days in assessing the implications of the conflict and much will depend on its duration and outcome.
While this is an even higher level of uncertainty than we had anticipated, we expect Infrastructure to continue to exhibit critical defensive qualities and remain an invaluable diversification component for investment portfolios given the essential nature and real asset characteristics of the asset class.
From a sectoral standpoint, we see a number of multi-year critical infrastructure investment trends likely to continue largely undeterred by near-term uncertainty. Electrification and the growing demand for power to accommodate the Artificial Intelligence (AI) / Data Centre development surge serves as an example, in our view. Utilities were a key positive contributor to performance during 2025 and we expect they will remain so in 2026. We maintain a favourable sector outlook for Utilities and foresee scope for continued upward earnings revision, particularly in the U.S. where the demand for power is materialising at a faster pace and there is a higher degree of energy security.
Outside of the utilities sector, we believe U.S. midstream energy, namely oil & gas storage and transportation, continues to offer a compelling combination of attractive valuation and improved capital allocation discipline. The sector outlook has shifted dramatically in the first few days of the month with a previously slack demand vs. supply environment giving way to an unprecedented disruption to the global supply of oil & gas from the Persian Gulf and resulting surge in energy commodity prices. Nonetheless, while these developments increase the demand for energy from North America, the vast majority of the cash flows associated with the portfolio’s midstream holdings are also fee-based and limited by physical capacity, meaning a sober case-by-case assessment if the implications is warranted.
Elsewhere within the portfolio, we continue to see opportunities stemming from large-scale investment in transportation infrastructure, information technology and energy development & security, leading to increased demand for materials, capital goods and industrial equipment.
We believe the portfolio remains well-positioned to take advantage of these opportunities in real asset infrastructure businesses as well as key enablers, including materials, services, and technologies, that will both facilitate and benefit from increased investment in infrastructure.
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Equity securities will fluctuate in price; the value of your investment will thus fluctuate, and this may result in a loss. Securities in certain non-domestic countries may be less liquid, more volatile, and less subject to governmental supervision than in one’s home market. The values of these securities may be affected by changes in currency rates, application of a country’s specific tax laws, changes in government administration, and economic and monetary policy. Emerging markets securities carry special risks, such as less developed or less efficient trading markets, a lack of company information, and differing auditing and legal standards. The securities markets of emerging markets countries can be extremely volatile; performance can also be influenced by political, social, and economic factors affecting companies in these countries.
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Published on March 18, 2026.