Monthly Market Commentary - February 2026

The first month of the year saw global stock markets pick up where they left off in 2025 with the MSCI All Country World Index returning +1.1% (all returns total and in sterling, unless otherwise stated). Investors will be hoping the old stock market adage “As goes January, so goes the year” will hold true, although not for all markets. For as with last year, UK and European equities comfortably outperformed the US in January with the MSCI UK up 3.1% and MSCI Europe Ex UK adding +2.2%, while the MSCI North America ended down 0.6%.

It’s the economy stupid

Global markets have been able to push higher in January—even the main US equity index set an all-time high—thanks to positive economic data, particularly gross domestic product (GDP) numbers. UK economic growth rebounded in November by a better-than-expected 0.3%. Eurozone GDP for 2025 came in at 1.5%, above the European Commission’s 1.3% forecast following better-than-expected Q4 GDP growth of 0.3%. In the US, the economy grew at an annualised rate of 4.4% in Q3 2025.

A further pick-up in government spending in 2026 in Europe and Trump’s ‘One Big Beautiful Bill’ in the US should support GDP growth in the year ahead.

New year, same playbook

Any hopes that global trade war fears, geopolitical crises and the unpicking of the international rules-based system would be confined to 2025 were dashed with the US capture of Venezuelan President Maduro in early January. And yet, global stock markets ended the first full week of the year in positive territory.

Then came Greenland, ‘a piece of ice’ long coveted by US President Trump. A weekend social media post from Trump threatening tariffs on eight European allies for taking part in a small exercise in Greenland sent global stock markets into risk-off mode. Just days later, markets had recovered after another TACO (Trump always chickens out) moment, this time at the World Economic Forum in Davos.

Where next for rates and the greenback?

All eyes then on whether Warsh delivers the cuts Trump wants.

The increasing likelihood that any rate cuts will occur in the second half of the year, along with Warsh’s nomination, could support the US dollar. After depreciating 12% in 2025, the US dollar lost further ground in January, falling 1.5% against sterling as the pound hit its highest level against the US dollar since 2021, at US$1.38.

AI spending AIn’t done yet

Private sector spending on artificial intelligence (AI) is driving growth in the US, with AI hyperscalers, such as Meta, Alphabet, Microsoft and Oracle, having announced ambitious plans to build the data centres needed to power the large language models being developed by the likes of OpenAI, Anthropic and Google.

Fears have been growing of an AI bubble but there are growing signs that markets are being discerning when it comes to Big Tech. Witness the stock market reaction to Microsoft and Meta’s latest quarterly results. A further step-up in data centre spending together with slowing growth at its cloud division saw Microsoft’s shares drop 7%. A similar increase in AI capex, combined with positive noises around how AI is improving advertising revenues, saw Meta’s stock marked up 10%.

An inflection point

Bonds had a relatively sedate start to the year with yields on 10-year Gilts at similar levels to where they ended 2025. This reflects in part where we are in the global interest rate cycle — towards the end of 2025, several central banks indicated a pause in cuts with some pointing to future rises to tackle inflation. Despite cutting interest rates by 25 basis points to 3.75% at its December 2025 meeting, the Bank of England (BoE) pointed out that with inflation showing signs of coming down, future rate decisions would be a “closer call”.

In Japan, yields have been anything but sedate. The yield on 40-year government paper moved above 4% for the first time after Prime Minister Sanae Takaichi called a snap election in search of a mandate to loosen fiscal policy further. Yields had been rising on concerns over Japan’s debt levels following November’s US$135bn spending package. 4%+ yields on Japanese government bonds could have wider implications. Higher domestic yields could entice Japanese capital back to the country from overseas markets, notably the US, potentially putting upwards pressure on global bond yields.

Summary

January’s supportive economic data paint a positive picture for global markets. Risks remain, both those carried over from 2025 (geopolitics, tariffs), and new ones (Trump’s willingness to use force, Japanese government bond yields). Further volatility can therefore be expected.

Volatility is not the preserve of stock markets but other asset classes too, including gold and silver. The gold price had been on a tear higher before Warsh’s nomination seemingly pricked the bubble, causing the largest daily decline since 1983, as prices tumbled 12%. Silver plummeted 26%, with the falls seemingly exacerbated by retail investors having to close positions to cover margin calls.

With central banks reducing their gold purchases by around a third in 2025 (World Gold Council), retail investors have been playing a bigger role in the gold trade — evidence that gold has become detached from economic fundamentals and is being driven more by sentiment and speculation, both of which can turn quickly. Against such a backdrop, diversification across sectors, geographies and asset classes, as always, remains key.