To The Moon

$Dow Jones(.DJI)$ $S&P 500(.SPX)$ $NASDAQ(.IXIC)$ $iShares 20+ Year Treasury Bond ETF(TLT)$ $Gold - main 2604(GCmain)$ $WTI Crude Oil - main 2604(CLmain)$

Overview

February 2026 delivered an important message to investors. The narrow, AI-driven momentum trade that defined much of the prior bull run is no longer reliable as the market’s primary engine. The S&P 500 declined 1.3% for the month, opening March 2nd  at 6824.

Volatility rose, the VIX breaching 20 by month’s end, but the selling was methodical, concentrated in software and large-cap technology, and largely offset by defensive rotations into consumer staples, energy, utilities, and healthcare. More than anything, February 2026 felt like the beginning of a rotation toward safer options under shrinking hype.

AI Disruption Trade Turns Inward

Earnings results for AI reporters did not disappoint; however, software stocks still routed on new concerns. Early in the year, the concern was straightforward that the market had perhaps overpriced AI’s earnings contribution. By February, that anxiety had evolved into a more complicated view. If AI tools become genuinely capable of automating significant portions of software development and enterprise workflows. This culminated in Block’s (formerly Square) announcement that it was laying off over 4,000 employees, attributing much of the restructuring to AI-driven productivity gains, crystallized this shift.

The AI infrastructure play remained more resilient. NVIDIA reported another record quarter, with year-over-year earnings growth near 70. Yet even this came with a caveat, investor skepticism about long-term valuation has tempered the share price reaction to what would, in prior cycles, have been euphoric earnings beats.

Eight out of eleven S&P 500 sectors had reached all-time highs at some point during January–February, and the equal-weighted S&P 500 has meaningfully outperformed its cap-weighted counterpart over the trailing three months. Corporate buyback authorizations surged to $233.3 billion in February, the third-largest month ever. However, it has not been enough to boost performance of stocks that emphasize shareholder returns.

However, we view this broadening is healthy. The S&P 500 had become extraordinarily concentrated, with the top ten companies account for nearly 40% of the index’s total weight, the most concentrated it has ever been. A market that can advance across a wider range of contributors is structurally more resilient than one dependent on a handful of mega-cap names.

Fixed Income Still Biding Time

The Federal Reserve held the federal funds rate steady at 3.5–3.75% at its January meeting and provided little indication of near-term movement. The central bank’s stance is increasingly shaped by two competing forces: a labor market that remains resilient but moderating, and inflation that, while trending lower, continues to run above the 2% target. Most forecasters now expect the Fed to remain on hold through at least mid-year, with one or two cuts possible in the second half of 2026 if disinflation resumes.

One notable development was the nomination of Kevin Warsh as the next Federal Reserve Chair. Warsh is viewed as more hawkish than his predecessor, with a preference for a smaller Fed balance sheet and greater fiscal discipline. Markets have interpreted his nomination with measured concern, particularly around how a hawkish Chair will navigate pressure from an administration publicly calling for rates as low as 1%. Longer-term, his emphasis on credibility and independence has been received as net positive.

Oil Rallies on Geopolitical Tensions

For most of February, crude oil was the quietest major asset in the room. WTI traded in a tight band, OPEC+ supply discipline offset tepid demand signals, and rising US inventory levels kept a lid on prices. February 28th, President Trump released an eight-minute video statement announcing the launch of Operation Epic Fury — a coordinated U.S.–Israeli military campaign targeting Iran’s leadership, nuclear facilities, missile sites, and command-and-control infrastructure.

Brent crude surged roughly 6–7% when markets reopened Sunday night, settling near $78 per barrel by March 2nd the largest single-session gain since June 2025. That same day, an IRGC general declared the Strait of Hormuz “closed,” warning that any vessel attempting transit would be sunk. Four tankers were struck in Gulf waters in the opening days of conflict. At least six of the world’s leading cargo shipping companies announced halts or diversions. Insurance premiums, already at six-year highs before the strikes, became prohibitive.

Roughly 20% of the world’s daily oil consumption — approximately 15 million barrels per day — transits the Strait of Hormuz, along with roughly 20% of global LNG supply. RBC Capital Markets’ assessment that oil is currently “a lagging rather than a leading indicator” of the potential supply shock. The real pricing event comes if flows remain disrupted beyond a week or two with RBC and Pickering Energy Partners estimating $100/bbl oil on the table in a prolonged conflict scenario.

US gasoline prices are expected to rise 10–30 cents at the pump within days, potentially more if the disruption extends. Higher energy costs compound the inflation stickiness that was already the central policy concern heading into March. European gas markets are most acutely exposed, given depleted winter stockpiles and LNG import dependency.

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