Investment environment overview 02/2026

February will probably be remembered by explosive geopolitical events following the launch of the U.S. special military operation “Epic Fury”. Aimed at destroying Iran’s missile infrastructure and achieving ultimately regime change, the conflict reached a its culmination on February 28 with the assassination of Supreme Leader Ayatollah Khamenei in an airstrike, driving Brent crude north of USD 80 per barrel on fears of a protracted blockade of the Strait of Hormuz. Gas prices soared in Europe as QatarEnergy halted LNG production, while precious metals saw wild trading sessions in the first days of March. Bitcoin’s reaction to the military operation was rather weak, as it continued its downward spiral and fell 17% in February to around BTC/USD 66,000. The U.S. dollar had good trading days reaching EUR/USD 1.1600 on March 3. While the full weight of the “decapitation strike” was not priced in until the gap-down at the March open, equities rebounded and March 2 essentially closed flat for U.S. Equities; however no rebound occurred in Europeane equities.

U.S. equity markets delivered a fractured performance during the month, characterized by a steep divergence between growth and value sectors. The Nasdaq Composite dropped 3.4%, its worst monthly performance since March 2025, impacted by AI-related margin concerns and hotter-than-expected inflation data, while the S&P 500 retreated by 0.9%. In contrast, the DJIA rose 0.2%, briefly breaching the 50,00-point milestone to mark its tenth consecutive monthly gain, supported by a rotation into resilient industrial and energy sectors. European equities continued to outpace their U.S. counterparts, with the STOXX 600 advancing 3.7%, as investors sought refuge in the region’s favorable valuations and lower exposure to U.S.-centric tech and tariff risks.

Supreme Court strikes down Trump’s tariffs

Following a landmark February 20 Supreme Court ruling that stripped the White House of its broad International Emergency Economic Powers Act (IEEPA) authority for unilateral tariffs, Trump terminated prior measures that had generated over USD 160b in tariff revenue and invoked Section 122 of the Trade Act to impose a temporary 10% across-the-board tariff, later increased to 15%.

While the shift ignited international backlash and fresh WTO challenges, it has also fast-tracked various bilateral negotiations. Markets initially interpreted the episode as a net positive for U.S. manufacturing positioning, but volatility rose on supply chain repricing risks.

LDP takes the lead in Japan

The largely expected Japanese LDP’s parliamentary supermajority won on 8 February under PM Sanae Takaichi has effectively institutionalized “Sanaenomics”, an expansionary fiscal policy centered on massive defense and semiconductor subsidies. This political “clean sweep” provides a rare stability premium, signaling a decisive shift toward a stronger and self-reliant Japan. The supermajority largely removes legislative hurdles for aggressive and deficit funded industrial policy.

As we mentioned previously, this fiscal policy has fundamentally reset the Japanese rates environment, pushing 10-year JGB yields over the 2% threshold as markets price in increased bond issuance. The resulting upward pressure on the JGB curve is forcing unwinding of the yen carry trade. While the JPY remains caught between reflationary pressure and its traditional “safe haven” status, the rising yield floor suggests the era of cheap JPY funded leverage is ending.

Another great earnings season, but the bar for tech keeps rising

The Q4 2025 earnings season concluded with the S&P 500 delivering a robust YoY earnings growth rate of 14.2%, marking the fifth consecutive quarter of double-digit expansion for the index. This performance was underpinned by a 9.4% increase in revenue, the strongest top line growth since late 2022, reflecting resilient consumer demand and corporate pricing power. While all eleven sectors posted positive YoY gains, the Mag7 continued to act as the primary engine of market growth, recording an aggregate earnings increase of 27.2% compared to a more modest 9.8% for the remaining 493 companies, although post-earnings some Mag7 stocks, including Nvidia, declined sharply in a classic “sell the news” fashion (Nvidia sank more than 5% in its worst session since April 2025) despite data center revenue beating at USD 62b and upbeat USD 78b Q1 guidance, as investors pivoted to risks around AI CapEx spending, OpenAI deal uncertainty, narrowing competitive moats, and of course the elevated valuation bar.

Despite a forward P/E ratio of 21.6x for the S&P 500, which remains elevated relative to historical averages, the fundamental outlook remains constructive as consensus estimates project sustained 14.6% earnings growth for 2026 financial year.