February 2026 Key Takeaways
The Starting Point
- Markets entered January with three dominant assumptions: rate cuts were coming, AI would continue to lead, and safe-haven assets remained in favor.
- January tested how durable those assumptions were when confronted with stronger economic data, shifting policy expectations, and crowded positioning.
Market Performance Snapshot
- Canadian and U.S. markets finished 2025 with strong returns.
- Early 2026 performance reflects a more mixed and selective environment.
- Leadership is no longer broad-based, particularly within technology.
Rates: Expectations Were Repriced
- The most important driver in January wasn’t an actual policy move — it was expectations.
- Economic resilience pushed out the timing and pace of rate cuts.
- Policy remains data-dependent, not automatic.
- Rates are moving lower over time, but the path matters.
Federal Reserve Leadership: Why It Matters
- Markets reacted to the focus on Federal Reserve leadership.
- Kevin Warsh is viewed as less inclined toward prolonged accommodative policy.
- The U.S. dollar firmed and rate-cut probabilities were pushed out.
- Markets move as much on who may set policy as on the policy itself.
Equity Markets: Rotation, Not Breakdown
- Despite macro headlines, equity markets remained mostly resilient.
- January was characterized by sector rotation.
- Investors focused on owning leaders rather than entire sectors.
- Leadership is rotating internally, not collapsing.
AI: Demand Is Real, Discipline Is Being Tested
- The AI theme remained intact.
- Markets became more selective.
- Investors differentiated between companies monetizing AI today and those investing for longer-dated payoffs.
- This reflects a shift toward earnings and balance-sheet discipline.
Precious Metals: From Outperformance to Reversal
- Gold and silver were among the strongest performers in 2025.
- By late January, positioning had become crowded.
- Gold pulled back from record highs but remains positive year to date.
- The reversal was driven by profit-taking, rate and dollar repricing, and technical pressures.
The Role of Precious Metals
- The pullback does not invalidate their role in a diversified portfolio.
- It reinforces the need for discipline and rebalancing after extreme moves.
- Crowded trades can unwind quickly, even when the long-term thesis remains intact.
Why Markets Held Up Overall
- Broader markets held their footing despite volatility.
- Earnings growth remains solid.
- Central banks are cautious but not restrictive.
- Pullbacks are being absorbed rather than cascading.
- This is characteristic of a late-cycle expansion.
How We’re Positioned
- Equities: Fully invested, but selective — emphasizing quality and balance-sheet strength.
- Fixed income: Defensive tilt, adding selectively where yields are compelling.
- Diversification remains central as leadership rotates.
- Participating in upside while managing concentration risk.
What We’re Watching Looking Ahead
- Inflation trends and central bank messaging.
- Earnings quality, particularly in AI-exposed sectors.
- Market breadth and participation.
- Commodity trends and their inflation impact.
- Signs of stress in crowded trades.
- The environment favors selectivity over speculation.
Closing Summary
- Markets are transitioning from broad optimism to more selective
- The backdrop remains supportive.
- Returns will increasingly be driven by positioning, discipline, and fundamentals rather than themes alone.