February 2026 Market Commentary

February 17, 2026

• The Federal Reserve leaves rates unchanged at its January meeting.
• President Trump nominates new Fed Chair.
• Economic data remains constructive.
• January Returns: S&P 500 1.4%. Bloomberg US Aggregate Bond index 0.1%

January was marked by a number of geopolitical and Federal Reserve–related headlines, along with multiple affordability-related announcements from the administration. In another period, some of these headlines may have generated a noticeable market reaction, but in January they caused little more than a stir. The muted response can be attributed in part to the fact that both economic and market fundamentals remain healthy, leaving markets better prepared to absorb headline risk.

From a macroeconomic standpoint, second- and third-quarter 2025 GDP growth was robust, with third-quarter GDP revised in January from 4.3% to 4.4%. Strength was broad-based, with all four components—consumer spending, business investment, government spending, and trade—making positive contributions. Consumer spending remained strong, expanding 3.5%, its fastest pace since 4Q24. Despite concerns that higher, tariff-induced prices might curb demand, consumers have generally continued to demonstrate a willingness to spend.

From a corporate fundamentals perspective, earnings growth remained strong in 2025, even as analysts expressed concern about the potential impact of higher tariffs on revenues, margins, and profits. As of Friday, February 13, 74% of S&P 500 companies had reported fourth-quarter 2025 earnings, with 74% of those companies beating consensus estimates. According to FactSet, consolidated earnings growth for 4Q25 is expected to reach 13.2%, which, if achieved, would mark the fifth consecutive quarter of double-digit earnings growth. Over longer periods, earnings growth remains a key driver of market performance. This underlying strength at both the macroeconomic and corporate levels helped buoy markets amid a steady stream of headlines.

After a months-long buildup of military forces in the Caribbean region, U.S. military and law enforcement officials conducted a raid in Venezuela to apprehend President Nicolás Maduro on drug trafficking charges. Following Maduro’s arrest, President Trump stated that the U.S. would “run” Venezuela, including its oil industry, for the time being. Venezuela holds an estimated 300 billion barrels of oil—approximately 17% of global reserves—but due to mismanagement and aging infrastructure, it currently produces only about 1% of global supply. Trump indicated that U.S. oil companies could invest at least $100 billion to rebuild Venezuela’s energy infrastructure, though some firms have expressed hesitation given the scale, risk, and long timeline for returns. Markets reacted minimally, as Venezuela is a relatively small economy with limited U.S. trade ties, and the operation did not provoke a military response.

Separately, President Trump escalated rhetoric around controlling Greenland, framing the issue as a matter of national security. Denmark, which manages Greenland’s foreign affairs, rejected Trump’s overtures to purchase the island, prompting Trump to threaten military action, stating he would control Greenland “one way or another.” Several European countries publicly admonished the comments, after which Trump threatened to impose a 10% tariff on European nations opposing his plans. European leaders responded by discussing implementation of the EU’s anti-coercion instrument (ACI), which could restrict U.S. companies’ access to European markets and capital. After tensions peaked—raising concerns about NATO’s cohesion—a détente was reached when Trump announced that the U.S. and European leaders had “formed the framework of a future deal” regarding Greenland. Markets were largely unfazed until tariff threats intensified and the EU raised the possibility of deploying the ACI, which briefly increased volatility. At one point, the S&P 500 fell 2.1% in a single day, its largest decline since October, potentially helping to bring both sides toward de-escalation.

The Federal Reserve was firmly in the spotlight during January. The Department of Justice initiated legal action against the central bank, the Supreme Court heard arguments that could affect the Fed’s independence, President Trump announced his nominee to succeed Fed Chair Jay Powell, and policymakers met for the January FOMC meeting.

In a surprise move, the Department of Justice subpoenaed the Federal Reserve for information related to renovations of its Washington, D.C., headquarters. The subpoenas raised the prospect of criminal charges tied to Powell’s prior testimony before the Senate Banking Committee. In an unusually direct response, Powell condemned the action, stating it was “not about my testimony last June or about the renovation of the Federal Reserve buildings,” but rather a consequence of the Fed setting interest rates based on its economic assessment rather than presidential preference. While the move renewed concerns about Fed independence, markets reacted modestly, assuming no immediate impact on policy decisions.

Separately, the Supreme Court heard oral arguments in Trump v. Cook, a case centered on the president’s attempt to remove Fed Governor Lisa Cook over alleged mortgage fraud. The ruling, expected in several months, could influence the degree of political independence afforded to the Fed. Markets have taken a wait-and-see approach, though a decision favoring greater presidential control could trigger heightened equity volatility and upward pressure on long-term interest rates.

With Chair Powell’s term expiring in May, President Trump nominated former Fed Governor Kevin Warsh as his successor. Warsh has historically been viewed as hawkish, particularly following the Global Financial Crisis, when he opposed extended near-zero interest rates. He has also criticized the Fed’s post-COVID balance sheet expansion, arguing it contributed to inflation. More recently, Warsh has signaled openness to lower rates to support growth. Market reaction to his nomination was mixed, reflecting uncertainty around his evolving policy stance.

As expected, after three consecutive rate cuts, the Fed held rates steady at its January meeting, noting that economic activity continued to expand at a “solid pace.” Powell stated that labor markets had shown signs of stabilizing after gradual softening, reinforcing the Fed’s comfort in maintaining current policy.

During the month, the administration announced several affordability-focused initiatives, including:

• Banning institutional investors from purchasing single-family homes
  
• Directing Fannie Mae and Freddie Mac to purchase $200 billion in mortgage-backed securities to lower mortgage rates
  
• Capping credit card interest rates at 10% for up to one year
  
• Ordering defense contractors to halt stock buybacks, dividends, and excessive executive compensation or risk losing government contracts
  

Some of these proposals would require congressional approval, reducing their likelihood of implementation.

Despite the steady flow of headlines, markets posted positive returns. Large-cap stocks (S&P 500) gained 1.4%, while small-cap stocks rose 5.3%, their best month since August, benefiting from strong economic data and investor rotation away from mega-cap technology stocks. International markets extended their strong 2025 performance, aided by valuation-driven rotation and a weaker U.S. dollar. Developed markets (MSCI EAFE) gained 5.2%, their best performance in a year, while emerging markets (MSCI EM) surged 8.8%, their strongest month since November 2022.

Bond markets, as measured by the Bloomberg U.S. Aggregate Bond Index, posted a modest 0.1% gain. The month was characterized by a steepening yield curve and elevated volatility as central bank policy, geopolitical tensions, and domestic uncertainty converged. The Fed held its benchmark rate at 3.5%–3.75%, while Powell emphasized data dependence in balancing price stability and employment.

Geopolitical pressures—including tariff threats tied to Greenland—added strain to global sovereign debt markets. Stress was most evident in Japan, where inflation pushed long-dated yields to multi-decade highs. The 40-year Japanese government bond yield surpassed 4%, and the 30-year yield experienced its largest one-day jump since 1999, sending ripple effects through U.S. and European bond markets.

The month concluded with Kevin Warsh’s nomination as the next Fed Chair, with expectations that he may support further rate cuts alongside a significant reduction in the Fed’s balance sheet—potentially lowering short-term rates while putting upward pressure on long-term yields.

Municipal bond markets performed well in January, supported by lower supply year over year and tight ratios to Treasuries on the short end. Amid broader market volatility, municipals remained comparatively stable, with reinvestment demand helping maintain balance.

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