February 2026 index market overview: US momentum stalls as sector rotation takes hold

US markets face a critical crossroads 

The dominant theme in US equities remains the evolving generative AI narrative. While the bull market that began in late 2022 remains intact for now, the S&P 500 has spent the last three months gyrating in a narrow 6,800–7,000 range. 

Key US performance metrics (12 Feb 26) 

• S&P 500: The index ended at 6,941, down 0.3% for the month but up 14.7% year over-year. 
• Nasdaq: Closing at 25,201, this index saw a monthly decline of 2.1% while maintaining a 16.0% annual gain. 
• Dow Jones: Outperforming the tech-heavy indices, the Dow rose 1.1% to 50,121, marking a 12.5% increase over the past year. 

The great sector rotation: From Silicon Valley to Main Street 

Investor sentiment is shifting as the "Magnificent Seven" experience mixed fortunes. While Nvidia (+2.9%) and Apple (+5.9%) strengthened this month, heavyweights like Amazon (-17.2%) and Microsoft (-15.3%) dragged the top ten companies lower. This has fueled a rotation toward smaller-cap stocks, evidenced by the equal-weighted S&P 500 rising 2.9% and the Russell 2000 up 1.4%. 

Software shunned while hardware holds steady 

The software sector is currently under extreme duress as investors question the viability of current business models in the face of generative AI. 

• Software applications: S&P 500 software application firms slumped 24.3% MoM. 
• Hardware demand: In contrast, semiconductor makers dominate the Nasdaq 100 gains. Robust demand for AI-focused memory chips has led to soaring prices for firms like SK Hynix (+345% YoY). 
• The debt dilemma: Concerns are rising over "hyper-scalers" issuing massive debt to fund capital expenditure. Debt issuance by major tech firms reached USD 121bn in 2025, raising questions about the sustainability of share buyback programs. 

International bourses: The FTSE 100 shines 

Global markets considerably outperformed the US this month, aided by a weakening US dollar. The FTSE 100 has been a standout, posting a series of all-time highs and peaking at 10,481 in early February. 

• FTSE 100 momentum: Up 3.3% MoM and 18.9% YoY, supported by M&A activity and attractive valuations. 
• Asian markets: Performance was robust in Asia, led by a 15.8% surge in the Korean Kospi and an 11% gain for the Nikkei 225. 
• European mixed bag: Germany's DAX40 rose 1.4%, though it remains constrained by weakness in software giant SAP SE, which fell 16.9% over the month. 

Looking ahead: Economic calendar and key dates 

The market’s direction in the coming weeks will likely hinge on inflation data and corporate earnings reports. 

• Feb 25: NVIDIA earnings – Focus will be on the durability of the forward order book. 
• Feb 26: US PCE Inflation (Dec) – Federal Reserve Chairman Powell indicated an expected rise of around 3% YoY. 
• March 6: US Employment Report (Feb) – Following faster-than-expected non-farm payroll growth in January. 

For the S&P 500 to sustain its bull run, the index needs to break above the 7,000 mark. Failure to do so, combined with a forward P/E of 22.2x (well above the post-millennium average), increases the odds of a correction. 

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