Economic Backdrop

Global equities, as measured by the MSCI ACWI Index, finished in positive territory in February 2026 amid periods of volatility. Optimism regarding relatively strong corporate earnings offset worries about the impact of artificial intelligence (AI) on software services companies, as well as ongoing concerns about U.S. trade policy. Emerging markets outperformed developed markets during the month.

The technology sector lagged the broader global equity market, as measured by the MSCI World Index, in February. New advances in AI systems have the capabilities to write software, create apps, and analyze data, raising investors’ fears that they are threatening the viability of traditional software and data services providers. These worries led to a market rotation away from tech stocks with relatively high price-to-earnings multiples, even as corporate earnings generally remained robust.

The Far East and Asia were the strongest performers among the emerging markets in February as both regions benefited from strength in Korea and Taiwan. In contrast, Chinese stocks listed on the Hong Kong Stock Exchange recorded negative returns for the month. The Gulf Cooperation Council (GCC) countries also lagged due mainly to weakness in Saudi Arabia and Qatar. Japan was the top-performing developed-market country within both the Far East and Pacific regions in February; Australia also contributed to the outperformance of the Pacific region. The underperformance of the Nordic countries in February was attributable entirely to a sharp market downturn in Denmark.

Global fixed-income assets, as measured by the Bloomberg Global Aggregate Bond Index, returned 1.1% (in U.S. dollars) in February. Canadian bonds posted strong gains as well. U.S. Treasury securities led the U.S. fixed-income market, followed by mortgage-backed securities (MBS), investment-grade corporate bonds, and high-yield bonds. U.S. Treasury yields declined for all maturities greater than three months. (Bond prices move inversely to yields.) Yields on 2-, 3-, 5-, and 10-year Treasury notes fell by corresponding margins of 0.14%, 0.21%, 0.28%, and 0.29%, ending the month at 3.52%, 3.60%, 3.79%, and 4.26%, respectively. The 10-year to 3-month yield curve narrowed by 29 basis points (0.29%) to +0.30% as of the end of February.

Global commodity prices, as represented by the Bloomberg Commodity Index, increased 1.1% in February. The spot prices for West Texas Intermediate (WTI) and Brent crude oil climbed 2.8% and 5.1%, respectively, during the month, driven primarily by escalating U.S.–Iran geopolitical tensions and renewed concerns over the security of flows through the Strait of Hormuz, a key shipping channel in the Middle East. The gold price rose 10.6% for the month as investors sought safe-haven assets amid the tensions in the Middle East. The 34.3% decline in the New York Mercantile Exchange (NYMEX) natural gas price in February was in response to warmer weather in much of the U.S., dampening expectations for heating demand. The wheat price jumped 9.9% due to a prolonged period of dry and cold weather, high winds, and wildfire damage in the U.S. Great Plains, particularly Kansas, Oklahoma, and Texas.

On the geopolitical front, in the early morning of February 28, President Donald Trump announced that the U.S. and Israel had launched strikes against several military and government targets in Iran after the Iranian government failed to accept an agreement to end its nuclear enrichment program. The Trump administration warned that Iran could use the enrichment program to develop nuclear weapons. The Iranian government confirmed that the bombing killed Ayatollah Ali Khamenei, Iran’s Supreme Leader. Prior to the military strikes, the U.S. had deployed two aircraft carriers and advanced fighter jets to Israel and evacuated nonessential diplomatic personnel from the region. There has been some collateral damage as Iran has lashed out with strikes not only of U.S. bases but on infrastructure, including oil facilities, and residential areas in the region. The Strait of Hormuz has been effectively closed (at this point more out of fears among commercial interests in response to the still-low number of attacks that have actually occurred), shutting in a significant amount of global oil capacity. The bombing of Iran marks a significant escalation in an already tense regional dynamic. This action is likely to continue reverberating across diplomatic, security, and economic spheres and raises questions about near-term stability in the region.

U.S. trade policy took center stage again during the month. In a 6-3 decision on February 20, the U.S. Supreme Court ruled that President Trump had exceeded his powers by imposing tariffs without clear authorization from Congress. Chief Justice John Roberts, writing for the majority, said that if Congress had intended to grant a president the extraordinary power to impose tariffs, it would have done so explicitly. The ruling invalidates two major sets of tariffs: a broad levy applied to nearly all U.S. trading partners to address trade deficits, and separate tariffs on Mexico, Canada, and China justified by the administration as a response to fentanyl trafficking. The Supreme Court rejected the administration’s argument that the International Emergency Economic Powers Act (IEEPA), enacted in 1977, implicitly allowed such tariffs. The ruling leaves unresolved whether the government must refund tariff revenue already collected, a question likely to be litigated in lower courts. In a dissenting opinion, Justice Brett Kavanaugh commented that tariff refunds could create major complications for the U.S. Department of the Treasury. On February 21, Trump announced the assessment of a 10% global tariff on imports under Section 122 of the Trade Act of 1974, which authorizes the president to impose temporary tariffs (up to 15% for 150 days) only to “deal with large and serious United States balance-of-payments deficits” or “to cooperate with other countries in correcting an international balance-of-payments disequilibrium.”

Economic Data (unless otherwise noted, data sourced to Bloomberg)

• According to Statistics Canada, consumer prices (as measured by the change in the Consumer Price Index (CPI)) increased 0.1% in January. Year-over-year consumer prices were up 2.3% as prices accelerated for restaurant meals and to a lesser extent for alcoholic beverages, toys, and children’s clothing. Producer prices have begun to reaccelerate in January, as the Industrial Product Price Index (IPPI) jumped 2.7%, while the Raw Materials Price Index (RMPI) rose 7.7%. Year-over-year prices increased 5.4% and 8.0%, respectively, for the IPPI and RMPI. Input prices for metals have sharply increased over the past 12 months; meanwhile, crude oil prices—previously a weaker component of inflation—have begun to rise.
• The U.S. Department of Labor reported that the consumer-price index (CPI) rose 0.2% in January. Costs for utility gas service climbed 1.0% during the month, while fuel oil and gasoline prices fell by corresponding margins of 5.7% and 3.2%. The CPI advanced 2.4% year-over-year in January—down from the 2.7% rise in December and slightly below expectations. Utility gas service and electricity prices climbed 9.8% and 6.3%, respectively, over the previous 12-month period, while gasoline and fuel oil prices posted corresponding declines of 7.5% and 4.2%. Core inflation, as measured by the CPI for all items less food and energy, increased 2.5% year-over-year in January, down marginally lower than the 2.6% upturn in December and in line with expectations. Costs for medical care services rose 3.9% over the previous 12-month period, while prices for used cars and trucks decreased 2.0%. According to the advance estimate from the Department of Commerce, U.S. gross domestic product (GDP) expanded at an annual rate of 1.4% for the fourth quarter of 2025—down sharply from the 4.4% gain in the third quarter and well below expectations. The economy expanded 2.2% for the 2025 calendar year, a decrease from the 2.8% growth rate in 2024. The increase in GDP for the fourth quarter was attributable primarily to upturns in consumer spending and nonresidential fixed investment (purchases of equipment and software, and nonresidential structures). Conversely, federal government spending and exports fell during the quarter. There was speculation that the 43-day U.S. government shutdown that ended in mid-November contributed significantly to the quarter-over-quarter drop in GDP. However, in its news release, the Department of Commerce commented, “The full effects of the partial federal government shutdown on the fourth-quarter estimates cannot be quantified…” 
• According to the Office for National Statistics (ONS), inflation in the U.K., as measured by the CPI, fell 0.5% in January, a significant drop from the 0.4% increase in December. Costs for clothing and footwear, furniture and household goods, and transportation posted the largest declines for the month, while healthcare and alcohol and tobacco prices rose sharply. The CPI advanced at an annual rate of 3.0% in January, down from the 3.4% year-over-year upturn in December. Education, alcohol and tobacco, and communication costs were up 5.1%, 4.6%, and 4.6%, respectively, over the previous 12-month period. Conversely, prices for furniture and household goods dipped 0.5% year-over-year, and clothing and footwear prices were flat. Core inflation, as represented by the CPI excluding energy, food, alcohol, and tobacco, increased 3.1% over the previous 12 months, edging down from the 3.2% annual increase in December. The ONS also announced that U.K. GDP ticked up 0.1% for the fourth quarter of 2025), matching the growth rate for the third quarter. Output in the production sector increased 1.2% for the quarter, while the construction sector output decreased 2.1% and the services sector was flat.
• Eurostat pegged inflation for the eurozone at 1.7% for the 12-month period ending in January, lower than the 2.0% annual increase in December. Costs in the services sector rose 3.2% year-over-year in January, down slightly from the 12-month advance of 3.4% in December. Prices for food, alcohol and tobacco posted an annual increase of 2.6% year-over-year in January versus the 2.5% year-over-year upturn in December, while energy prices declined 4.0% over the previous 12-month period. Core inflation, which excludes volatile energy, food, and alcohol and tobacco prices, rose at an annual rate of 2.2% in January, marginally lower than the 2.3% year-over-year advance in December. According to Eurostat’s flash estimate (an early estimate for key economic indicators over the most recent reporting period), eurozone GDP rose 0.3% in the fourth quarter of 2025—unchanged from the growth rate for the third quarter of this year—and increased 1.5% for the 2025 calendar year, down marginally from the 1.6% year-over-year increase in the third quarter. The economies of Ireland, Cyprus, and Poland were the strongest performers for the fourth quarter, expanding 6.7%, 4.5%, and 3.6%, respectively. In contrast, GDP for Romania contracted by 1.6% during the quarter.

Index Data (February 2026)

• The S&P/TSX Composite Index gained 7.72%.
• The FTSE Canada Universe Bond Index was up 1.66%.
• The S&P 500 Index, which measures the performance of U.S. equities, fell 0.05%.
• The MSCI ACWI (Net) Index, used to gauge global equity performance, gained 2.01%.
• The ICE BofA U.S. High Yield Constrained Index, representing U.S. high-yield bond markets, returned 0.05% (currency hedged) and 0.88% (unhedged).
• The Chicago Board Options Exchange Volatility Index (VIX)—which tracks implied volatility in the S&P 500 Index and is often referred to as the “fear index”—ended February at 19.86, as volatility increased leading into the start of hostilities between the U.S. and Israel versus Iran.
• The WTI Cushing crude oil price—a key indicator of movements in the oil market—increased from US$65.21 to US$67.02 a barrel during February but soared higher in early March as Iran has effectively shut down the Strait of Hormuz, a major oil shipping channel, in response to attacks from the U.S. and Israel.
• The Canadian dollar weakened to C$1.36 per U.S. dollar. The U.S. dollar was mostly stronger against the world’s other major currencies, ending February at US$1.18 versus the euro, US$1.34 against sterling, and at 156.13 yen.

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