After a relatively positive and calm start to the year in January, February proved to be much more eventful across markets and the economy.

The month in the stock market was marked by a meaningful rotation, away from the technology and growth segments of the market that had come to dominate markets so consistently in recent times, toward lower-growth businesses with more tangible assets.

This trade took on the “HALO” moniker, for “high assets, low obsolescence”, as the defining sentiment underlying this market reversal was one of concern for wide-ranging industries and companies that may be at risk of serious disruption at the hands of quickly evolving AI capabilities.

Interestingly, as so much credit was being given to the future ability and power of these AI tools, perhaps rightfully so, there was a simultaneous tightening of sentiment toward the massive hyperscalers spending hundreds of billions of dollars to build out computing capacity to support future AI needs.

On the surface, this seems quite contradictory. For the market to panic over large-scale disruption to entire businesses while also worrying about over-investment in the disrupting technology. Ultimately, the market behavior throughout the month reflects an overarching reassessment of what investors are willing to pay for growth in various businesses that are potentially undergoing massive change, either through disruption or massive spending commitments, all related to a developing technology of unpredictable scale and capabilities.

Largely because of these dynamics during the month, non-US stocks were positive and handily outperformed the US market. In a continuation of broader stock market participation and as accelerated by the fading of the tech sector in February, global markets were led by sectors that are representative of the physical economy and tangible assets, like Energy, Utilities, and Materials, while Technology and Financials stocks tumbled.

As if this all wasn’t enough for markets to digest for one month, February concluded with the US and Israel launching a joint military strike against Iran, killing Supreme Leader Ayatollah Ali Khamenei and several more high-ranking officials.

The situation remains extremely fluid, with the risk of a protracted conflict and broader regional escalation still very much in play. The immediate market impact – to say nothing of the humanitarian concern – has been a jump in oil prices in response to realized and potential disruption in supply throughout the region. The recent spike is in addition to a preemptive increase during the month as markets began to price in the likelihood of such an attack. While only a sustained and severe oil shock would be likely to inflict deep, long-term damage on the global economy, significant market volatility can persist as the situation develops.

Our Perspective

February has offered yet another stark reminder that markets and economic events are often frustratingly unpredictable, but also that maintaining a long-term view is often the most prudent approach in a world where successful market timing is next to impossible.

That’s where our focus lies now: on portfolio construction and prudent risk management with a long-term view that avoids reacting too strongly in any direction during periods of short-term volatility or turmoil. We remain well-suited as an experienced investment manager with time-tested disciplines to navigate such evolving conditions with a singular focus on delivering successful outcomes for clients.

Our View

Economic Cycle		The economy continues to give off mixed signals, with growth remaining relatively resilient but the labor market remaining tight with very few new hirings. Both fiscal and monetary policy remain generally accommodative to growth, though inflation concurrently remains above-target and poses potential risk for reacceleration, especially if geopolitical turmoil wreaks havoc with oil prices.
Stock Market		The US stock market has hit a bit of turbulence in the form of a swift rotation this month, but despite this it has continued its upward trajectory. The sustainability of the rotation into the physical economy and non-US stocks will remain to be seen, but in the possible absence of further multiple expansion, earnings growth will be a key determinant regardless of market leadership.
Bond Market		While stubbornly elevated inflation and resilient economic growth could continue to push longer-term yields higher, a sudden slowdown in growth could see a restarting of the cutting cycle priced into the market and see yields fall. Corporate spreads remain near historical lows.
Key Issues on the Radar		Geopolitical Conflict: This risk has gone from simmering on the radar to front and center. Trade policy uncertainty and simmering conflict around the world has given way to a serious risk event that is affecting markets and the global economy. Just as these types of risks can often not be handicapped ahead of time, prudent risk management and patience is crucial during the event as well.
		AI Optimism & Capital Spending: AI optimism has begun to morph into pessimism for companies deemed vulnerable to disruption and skepticism for the companies leading the spending boom that is sustaining investment in expanding capacity. The bar is being raised for what investors demand for return on this spending, and the timing of that return will be key to monitor as well.
		Stock Market Rotation: Historic levels of US equity market concentration that had built over the past several years has begun to unwind in the early innings of 2026. To the extent this broadening continues out of the AI-dominated “big tech” world, diversified investing will be crucial for mitigating risk and participating in upside

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All investments contain risk and may lose value. This material contains the opinions of Manning & Napier, which are subject to change based on evolving market and economic conditions. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but not guaranteed.