February 2026 Market Review

Fidelity Bank – Wealth Management

February 2026

William J. Fennie III, CFA

Market Recap – February 2026

February saw markets navigate a more balanced mix of optimism and caution, as investors assessed moderating inflation trends against shifting expectations for monetary policy. U.S. equities were mixed, with large caps edging lower while small caps posted modest gains, reflecting a continued broadening in market participation. By contrast, international developed and emerging markets delivered notably stronger results, supported by improving economic momentum abroad and a softer U.S. dollar environment. Within fixed income, declining yields provided a favorable backdrop, contributing to solid gains across core bond sectors. Commodities, meanwhile, produced varied performance, with precious metals sharply higher even as energy markets consolidated following January’s jump.

In the U.S., major benchmarks reflected divergent sector and style leadership, as earnings results, valuation resets, and evolving macro signals drove rotation beneath the surface. Large‑cap performance was weighed down by weakness in several growth‑oriented segments, while value‑oriented and defensive categories outperformed. Small‑cap equities held up relatively well, supported by steady credit conditions and improving breadth. Abroad, international markets showed broader strength, with developed markets benefiting from stabilizing industrial activity and emerging markets advancing on renewed capital flows. In fixed income, lower rates supported gains across Treasuries, TIPS, and investment‑grade corporates.

Equity

U.S. equities were choppy with notable style and sector dispersion. The S&P 500 declined 0.76%, while small caps outperformed, with the Russell 2000 up 0.80%. Style leadership rotated: Russell 1000 Value gained 2.59%, outpacing Russell 1000 Growth at −3.36%. Factor tilts favored defensiveness and earnings quality—Minimum Volatility rose 2.93%, and Quality advanced 1.10%.

Sector performance bifurcated. Leadership came from defensives and cyclicals beyond mega‑cap tech: Utilities +10.35%, Energy +9.61%, Materials +8.36%, Consumer Staples +7.83%, Industrials +7.12%, Real Estate +5.81%, and Health Care +3.54%. Prior leaders lagged as valuations reset and investors took profits: Technology −3.56%, Consumer Discretionary −3.53%, Financials −3.72%, and Communication Services −1.68%. Drilling down, software makers were the hit particularly hard (-9.09%) as worries that AI could render many SAAS products and companies obsolete.

International equities continued a strong start to 2026. MSCI EAFE returned 4.63% (with EAFE Value +5.93% and EAFE Growth +3.22%), while MSCI Emerging Markets advanced 5.50%. Japan stood out on continued earnings strength and domestic support, with MSCI Japan +8.58%

Fixed Income

Fixed income delivered solid gains as Treasury yields drifted lower and income contributed meaningfully across sectors. The Bloomberg U.S. Aggregate Index rose 1.64% in February, with broad participation across components. U.S. Treasuries gained 1.82% and TIPS advanced 1.31%, reflecting lower real and nominal yields. Credit markets remained constructive, with investment‑grade corporates up 1.29% and high yield up 0.19% as spreads held steady. Short‑term instruments delivered modest positive returns, with 1–3M Treasury bills up 0.28%.

Municipal bonds strengthened, with the Bloomberg Municipal Bond Index rising 1.25% for the month—supported by favorable technicals, improving tax‑exempt demand, and a supportive rate environment. Emerging‑market local‑currency debt also contributed, gaining 1.08% amid supportive currency and rate dynamics.

Real Assets

Real assets produced mixed results in February. Broad commodities posted a modest gain, with the Bloomberg Commodity Index up 1.10%, but sector performance diverged sharply. Gold surged 10.60%, and the broader precious metals complex gained 12.39%, supported by lower real‑rate expectations and heightened geopolitical interest. Energy markets consolidated, with the energy sub‑index down 5.75% as Natural Gas fell 33% from $4.35 to $2.85/MMBtu. Interestingly, Energy equities rose 9.61% on strong free‑cash‑flow outlooks and shareholder‑return initiatives. Soft commodities declined, while industrial metals were roughly flat.

Macroeconomics & Policy

Macroeconomic data through February continued to reflect a cooling but resilient backdrop. Labor-market conditions softened gradually, with wage pressures easing, while inflation indicators showed further progress toward price‑stability objectives. Policymakers maintained a cautious, data‑dependent stance, emphasizing the need for additional confirmation that inflation is durably moving lower before easing policy further.

Geopolitical developments and fiscal considerations contributed to intermittent volatility early in the month, but by month‑end, market sentiment stabilized as investors focused on improved market breadth, solid income opportunities in fixed income, and ongoing signs of global economic stabilization.

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February  2026 Market Review is intended solely to report on various investment views held by Fidelity Deposit & Discount Bank and is distributed for informational and educational purposes only and is not intended to constitute legal, tax, accounting, or investment advice. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. Fidelity Deposit & Discount Bank does not have any obligation to provide revised opinions in the event of changed circumstances. All data is provided by Bloomberg Finance, LP and Morningstar Direct. We believe the information provided here is reliable but should not be assumed to be accurate or complete. Data, if not otherwise noted, is as of 2/28/2026. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer or recommendation to purchase or sell a security. Past performance is no guarantee of future results. All investment strategies and investments involve risk of loss and nothing within this report should be construed as a guarantee of any specific outcome or profit. Investors should make their own investment decisions based on their specific investment objectives and financial circumstances and are encouraged to seek professional advice before making any decisions. Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index.