Investment Update March 2026

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In February, the S&P 500 fell 0.87%, even as the equal‑weighted equivalent index rose 3.4%, highlighting the continued importance of market rotation. The ongoing shift between value and growth stocks appears fundamentally supported, and despite recent volatility, there remain several compelling reasons for optimism. Other global markets delivered a solid performance, with commodities and metals doing especially well. At month end, the build-up of U.S. warships in the Mediterranean and the Gulf ultimately led to conflict in Iran. There is far more important detail beneath the surface, which we explore in the Investment Update that follows.

U.S. equities delivered a choppy February, with the S&P 500 finishing the month essentially flat as volatility increased due to renewed concerns about the sustainability of the AI‑driven rally. Technology weakness persisted throughout the month as several major stocks declined, led by software. Sectors considered to be beneficiaries of AI improved or held up well.  Market breadth improved as investors shifted toward more defensive and cyclical sectors in a clear rotation to more defensive and better value stocks. U.S. Treasuries strengthened over the same period, with the 10‑year yield falling below 4 percent to its lowest level in several months as safe‑haven demand rose amid geopolitical tensions and signs of slowing economic momentum, as GDP came in at 1.4%, notably slower than quarter 4 2025.

The Trump administration have a packed agenda and some challenging goals, some of which we summarise below in the schematic.

Figure 1. Strategic Economic Framework. Source: Alpha Beta Partners.

The US earnings season has been solid, with about 59% of S&P 500 companies reporting so far and circa 76% delivering earnings above expectations, helping drive the index’s fifth consecutive quarter of double‑digit profit growth. However, we note results are a little less favourable than last quarter and some firms have issued weaker forward guidance.

AI is pressuring sectors like software and financial services by accelerating automation and challenging long‑established business models. Fears that autonomous AI systems could replace or reduce the need for traditional enterprise software led to sharp global sell‑offs, with major software stocks falling as much as 7% to 30% in early February as investors reassessed long‑term revenue assumptions. Data and analytics firms in financial services also saw share price declines after new AI tools signalled potential disruption to their core offerings.

Inflation offers a confusing picture. At one level data suggests inflation is too strong, yet other data looking slightly further out suggests a benign outcome with adequate scope for rate cuts. We watch with interest but do believe U.S. rates will head lower for technical and political reasons.

Geopolitical tensions, including rising Middle East concerns and speculation about conflict involving the U.S. and Iran, pushed investors toward safe haven assets later in February. At the point of writing conflict has begun. The most challenging scenario for markets is prolonged uncertainty arising from a protracted or widening conflict. Our central scenario is for a short and not a protracted conflict. So far, markets have moved very much as we would expect – stronger dollar, lower Treasury yields and defensive equity sectors responding well. Of course we remain vigilant.

The Strait of Hormuz is a global energy choke point impacting Asia more than the West.

Figure 2. Strait of Hormuz Maritime Chokepoint. Source: Daniel Lacalle. A Shutdown of the Strait of Hormuz Would Primarily Affect China. And That Is Why It Is Unlikely to Happen. Oil Exports via the Strait of Hormuz by Country Also Show How One of the Largest Negative Impacts Would Be on Iran. X (formerly Twitter), March 1, 2026.

UK equities delivered a strong performance in February, with the FTSE 100 reaching fresh record highs. This performance was supported by globally inspired gains in energy, pharmaceuticals, mining, and AI-linked companies, with little correlation to the struggling domestic economy. Investor sentiment remained positive as valuations continued to look attractive relative to global peers, especially among mid cap stocks where pricing disconnects persisted. In fixed income markets, gilt yields moved lower following expectations of Bank of England rate cuts later in the year, and shorter dated gilts saw notable yield declines as traders increased their bets on earlier policy easing. Inflation printed lower than many expected at 3.0%.

European equities performed strongly in February, as the STOXX Europe 600 reached new record highs, supported by broad sector gains and improved risk appetite driven by resilient corporate earnings. Banking, mining and cyclicals contributed meaningfully to the advance, helped by stable yield curves and easing concerns about AI‑related disruption. Despite occasional mixed sessions, European markets were on track for an eighth consecutive month of gains, buoyed by better‑than‑expected corporate updates and strength in commodity‑linked sectors.

Japan’s equity market remained resilient in February, supported by a normalising domestic economy, modest inflation and rising wages that continued to underpin a structural bull‑market backdrop. Corporate governance reforms and stronger domestic investment further lifted sentiment, helping Japanese stocks push toward new highs despite global uncertainty.

China’s equity market showed improving momentum as several positive developments supported sentiment. A stabilising trade relationship with the United States, reinforced by a constructive presidential call and a planned diplomatic visit, helped reduce geopolitical uncertainty. At the same time, China’s AI‑led industrial upgrade accelerated, with progress across semiconductors, cloud infrastructure, data centres, robotics and automation, supported by funded demand and favourable policy tailwinds. Valuations remained undemanding and global investor flows continued to improve, contributing to a firmer outlook for Chinese equities during the month.

Commodities and metals performed well in February 2026, as investors shifted toward hard assets amid rising geopolitical tensions and a softer economic outlook. Oil prices rose more than 7 percent over the month, supported by supply concerns and heightened risk aversion. Precious metals also strengthened, with gold edging higher, while silver gained more than 6 percent over the month. Industrial metals and mining‑linked equities benefited from robust demand signals and elevated prices, helping lift related sectors across global markets.

Year-to-date performance across the range of Alpha Beta portfolios has been credible in absolute and relative terms. A decent start to the year. With an unfolding conflict in the Middle East as we write this update, we will remain vigilant and make any necessary changes that are required to protect capital values. However, if an opportunity emerges to take advantage of market declines during a strong recovery, we will act accordingly for suitable portfolios. As ever, we thank clients for reading this update and we encourage any questions during periods of market volatility.

Written by the Alpha Beta Partners Investment Team.

All sources Bloomberg unless otherwise stated.