February was the first negative month for SPX in 9 months.  Small caps outperformed once again.

SPX finished February in negative territory, on a total return basis, for the first month since last April.  Some of the key drivers during February were heightened geopolitical risks in South America and the Middle East, the AI-theme under pressure, and continued volatility in the crypto space.  Tech lagged once again in February.  Following a return of 1.44% in January (total return), SPX (the S&P 500) returned -0.76% (total return) in February.  After returning 1.23% (total return) in January, NDX (the Nasdaq-100) returned -2.26% (total return) in February.  The Russell 2000 returned 0.80% in February after a return of 5.39% in January.  SPX & NDX held their 200-day moving averages in February, which we will illustrate later in this note. 

High Yield, International and Real Estate were higher in February, while Bitcoin was negative.  Following a return of 0.51% in January (total return), High Yield (Bloomberg US Corporate High Yield Total Return Index) returned 0.19% (total return) in February.  Following a return of 5.24% in January (total return), the MSCI EAFE Index returned 4.65% (total return) in February.  Following a return of 2.59% in January (total return), Real Estate (Dow Jones US Real Estate Capped Index) returned 5.17% (total return) in February.  Bitcoin returned -21.73% in February (Bloomberg Bitcoin Index) after returning -4.15% in January.

In February, fixed income markets were mostly driven by inflation data, employment data, and expectations of future rate cuts.  Treasuries rallied across the curve for the month, and the short-end outperformed.  The 10-yr closed near 3.94% to end February, down from 4.23% at the end of January, and below 4.00% for the first time since November 2025.  The 30-year Treasury yield ended February at roughly 4.61%, down from 4.87% at the end of January.  Credit spreads widened in February due to AI concerns.  Over the past several months and years, the correlation between equities and fixed income has been notably high – and likely will remain so.  Additionally, the 2/10 Treasury yield spread narrowed in February after steepening in January.  The 2/10’s record-long inversion came to an end in the second half of 2024.

There was no FOMC meeting in February.  In January, the FOMC kept rates unchanged after lowering its policy rate to a range of 3.50% – 3.75% in December.  The next Fed meeting will take place on 3/17-3/18, and there is no cut expected.  Looking ahead, and as of the end of February, the market is pricing in roughly 25bps for 2026 (one cut).  The Fed continues to target 2% inflation as its goal, and incoming inflation reports will likely continue to drive the dot plot.  However, the Fed has cut rates multiple times despite inflation remaining above the 2% target.  Furthermore, the weaking employment picture will play a role in future cuts.

Another notable datapoint from February was the release of January’s inflation data: CPI printed 0.2% M/M, below the 0.3% consensus.  Core CPI printed 0.3% M/M, matching the consensus.  PPI printed 0.5% M/M, above the 0.3% consensus.  PCE printed 0.4%, above 0.3% the consensus.  Core PCE also printed 0.4%, above the 0.3% consensus.  Additionally, and according to FactSet, the trailing 12-month P/E ratio for SPX is 27.8 which is above the 5-year average (24.9), and above the 10-year average (23.1).  The forward 12-month P/E ratio for SPX is 21.6, which is above the 5-year average (20.0), and above the 10-year average (18.8).  Additionally, per FactSet, SPX is expected to report Y/Y earnings growth of 11.5% for Q1 2026, which is below the estimate of 12.7% on December 31.  Finally, per FactSet, SPX is expected to report Y/Y revenue growth of 9.2% for Q1 2026, which is above the estimate of 8.2% on December 31.

Within commodities and currencies: WTI Crude Oil rose in February by roughly 2.50% to close near $67/bl.  Gold rose by roughly 7.90% in February and closed out the month near $5250/oz.  Finally, the USD/DXY rallied M/M and closed out February near 97.75.  2025 was one of the weakest years for the USD in several decades, and the first two months of 2026 have been roughly flat overall.

VOLATILITY UPDATE

After closing out January near 17.50, the VIX Index finished February near 19.85 as volatility rose M/M for the second straight month.  The 12-month high of the VIX Index was registered on 4/7/25 at 60.13.  In 2022, the VIX averaged over 25.  In 2023, the VIX averaged near 17.  In 2024, the VIX averaged near 15.50.  And in 2025, the VIX averaged near 19.

The MOVE Index calculates the future volatility of US Treasury yields implied by current prices of options on Treasuries of various maturities.  It is thought of as “The VIX Index of the Bond Market.“  After closing out January near 59, the MOVE Index closed out February near 73.50.  Even with the significant uptick M/M, the MOVE Index continues to print very low numbers.  The 12-month high of the MOVE Index was registered on 4/8/25 at 139.88.  Traders will continue to monitor this index to gauge potential future bond and equity volatility.  Equities tend to favor a subdued MOVE Index – and a low MOVE Index has been the case over the past 7 months.

LOOKING AHEAD

Among other factors, the market will be adjusting to and watching recently flared geopolitical risks, US trade policy headlines, employment data, inflation, earnings, yields, and fiscal policy. On the inflation front, February’s CPI will be released on 3/11, and February’s PPI will be released on 3/18. Finally, the next FOMC meeting will take place on 3/17-3/18, and the market is expecting no cut.