February 2026 Market Update

One of February’s clearest developments was the market’s rotation toward real-economy sectors, a shift driven less by traditional recession fears and more by the perception that certain business models may face a faster competitive reset from AI. As investor attention shifted toward who benefits from AI versus who is vulnerable to it, leadership broadened sharply away from AI-sensitive software and services names. The SaaS sector bore the brunt of this repricing, with the iShares Expanded Tech-Software ETFETFExchange-traded fund: a pooled investment fund that trades on a stock exchange like an individual stock. (IGV) falling roughly 20% from the start of the year, posting its worst monthly declines since the 2008 financial crisis. Salesforce and others fell sharply as investors increasingly questioned how well the traditional per?seat licensing model, built on the assumption of steady white?collar seat growth, will translate into an environment where AI agents may increasingly perform the work of individual users. The concern being priced in appears more structural than cyclical: if enterprises deploy fewer human seats and more autonomous agents, the revenue engine underpinning much of the SaaS industry faces a fundamental reset. On the other side of that trade, utilities led all sectors with XLU gaining over 10% on the month, followed by energy, materials, and industrials, collectively reinforcing a ‘defensive growth’ theme built not on hiding in cash, but on owning businesses where capital intensity and physical asset ownership create durable competitive staying power.

This rotation was not just an academic framework, it showed up in the month’s headlines. Perhaps the most symbolic was Block Inc.’s (owner of Square, Cash App, and Tidal) announcement that it was cutting nearly half its workforce, over 4,000 employees, explicitly framing the decision as an AI-driven productivity shift. Jack Dorsey, co-founder/CEO of Block, Inc. and co-founder/former CEO of Twitter (now X), stated that “intelligence tools have changed what it means to build and run a company” 1 and predicted most companies would make similar structural changes within a year. Perhaps equally telling was the market’s response: Block’s stock surged over 20% on the news, crystallizing investor appetite for leaner, AI-augmented business models over those built on headcount growth. While the full picture is

nuanced – some of the cuts reflect pandemic-era over-hiring as much as genuine AI displacement – the market chose to reward the narrative, reinforcing broader skepticism toward business models where cost structures scale with human labor rather than durable unit economics.

The AI uncertainty highlighted by the Block, Inc. episode was accompanied by broader policy uncertainty. Trade policy returned as a meaningful cause of economic fog when, on February 20th, the Supreme Court struck down IEEPA-based tariffs in a 6-3 ruling, a decision that forced an immediate pivot in the administration’s approach but did not entirely remove tariff risk. Shortly after the ruling, a new 10% global tariff was imposed under a separate statutory authority, set to expire in 150 days absent Congressional approval. Markets spent the remainder of the month working through both the legal shift and its practical implications. Inflation expectations, corporate plans, and supply chain strategies remained unsettled, and investors appeared to grow more focused on how the changing tariff framework might shape the next phase of the economic cycle.

Finally, February closed with a geopolitical reminder that physical supply constraints can still dominate the macro narrative. Tensions with Iran escalated sharply through the month, culminating in U.S.–Israeli strikes on the final day of February that immediately heightened risks around the Strait of Hormuz, a corridor through which roughly 20% of global oil consumption and about one?fifth of global LNG (Liquid Natural Gas) trade transit daily, with Qatar accounting for the vast majority of LNG volumes. February’s energy leadership wasn’t random – it was the market looking ahead to the possibility of real supply constraints. Tangible assets, energy infrastructure, and other areas exposed to physical bottlenecks rallied as investors repriced the anticipated contraction in global supply.

February forced investors to hold a few uncomfortable truths at the same time: that AI is both a productivity revolution and a disruptive threat, depending on where a company sits in the value chain and how quickly agentic-style models advance; that policy uncertainty hasn’t peaked and could reshape inflation and corporate planning in hard-to-forecast ways; and that geopolitical risk has re-entered the market narrative as a meaningful driver of prices.