By Case Eichenberger, CIMA® | Chief Investment Officer, RetirePath Advisors Published: March 2026
February delivered a clear message to investors: diversification is working.* While the S&P 500 retreated modestly — down roughly three-quarters of one percent for the month — virtually every other major asset class posted meaningful gains. For clients at RetirePath Advisors who hold diversified portfolios spanning U.S. small and mid-cap stocks, international equities, and fixed income, February was an encouraging continuation of a trend building since the start of the year.
Source: Morningstar Direct, as of 2/28/2026
February Performance at a Glance
Small and mid-cap stocks led the way in February, gaining approximately 2.5%, while international stocks surged more than 5% for the month alone. Bonds also had a notably strong February, rising roughly 1.5% — providing exactly the kind of ballast we'd hope to see during a period of equity volatility. Cash returned about 0.25%.
Year-to-date through the end of February, the picture is even more striking. Small and mid-cap stocks are up 7–12%, and international stocks have climbed over 11% in just two months. For many years, these categories sat in the shadow of the S&P 500 and U.S. growth stocks. That is changing in a meaningful way in 2026.
A Note on the U.S.-Israel Strike on Iran
To end the month of February, a joint U.S.-Israel strike on Iran's nuclear infrastructure destroyed several sites and removed the country's leader. Markets opened down roughly 1% on the news before recovering to finish essentially flat — a resilient response.
History offers useful perspective here. Looking back at geopolitical conflicts and wars from 1928 to the present, markets have consistently experienced short-term volatility around such events before resuming their longer-term upward trajectory. What ultimately drives stock prices over time — GDP growth, corporate earnings, and consumer spending — has continued to improve through past conflicts, and the current earnings picture, both domestically and internationally, remains constructive. Historically, geopolitical-driven pullbacks may have represented entry points rather than permanent impairment to portfolios.
Source: First Trust
The Great Rotation: Yesterday's Leaders Are Today's Laggards
One of the most important themes defining 2026 is a rotation in market leadership. Last year, growth stocks surged over 22% and the S&P 500 gained roughly 18%, while small caps, mid-caps, and value stocks lagged significantly. So far in 2026, that script has flipped. Growth stocks are flat to slightly negative. Value stocks are outperforming. Small and mid-cap companies have already exceeded their full-year 2025 returns in just two months.
This kind of broadening leadership is a healthy sign. It is a hallmark of a maturing bull market — one that is expanding its base rather than becoming increasingly dependent on a narrow group of mega-cap names.
The AI Spending Surge and Its Impact on the S&P 500
A significant undercurrent weighing on the S&P 500 this year has been the dramatic ramp-up in AI infrastructure spending among the largest technology companies — the so-called "hyperscalers." Google, Microsoft, Meta, Amazon, and others are collectively on pace to spend somewhere between $500 billion and $700 billion on AI data centers and infrastructure in the years ahead — a staggering increase from prior expectations in the $70–100 billion range.
The consequence for investors is reduced free cash flow — the lifeblood of these companies' valuations. Amazon is down roughly 8% year-to-date, Meta and Microsoft are off around 20%, and Oracle — which takes on more debt than its peers to fund these buildouts — is down nearly 37% over the last six months (all data as of 2/25/2026). The S&P 500, while still up approximately 8.5% over the past six months, has seen its near-term momentum dampened as markets hold these companies accountable for returns on their AI investments.
Source: Morningstar Direct, JP Morgan. Note: Forecasts begin 2025. Sources: Company filings, analyst estimates.
Software Stocks: Disruption Beneath the Surface
Underneath the headline index numbers, software companies are facing their own AI reckoning. Household names like Salesforce and Adobe have come under pressure as the market questions whether AI will compress their profit margins — or render some of their core offerings obsolete entirely. While the NASDAQ has stayed relatively flat to start the year, software stocks as a sector have rolled over noticeably.
Source: Morningstar Direct, Bloomberg, based on earnings call transcript analysis
One piece of data offers a reassuring counterpoint: software job postings on platforms like Indeed are up over 12% year-over-year, even as overall job postings remain flat or slightly negative. The market for skilled software talent remains robust — a signal that companies are still investing in human expertise even as they navigate the AI transition.
Source: Federal Reserve Economic Data
Fed Policy and What Comes Next
As we look toward mid-2026, Federal Reserve Chair Jerome Powell is expected to depart, with Kevin Warsh — the president's stated nominee — set to take the helm. Markets have priced in approximately two rate cuts this year, likely beginning around the June or July meeting and continuing toward year-end. This gradual easing path, combined with resilient corporate earnings and broadening market leadership, has historically been a supportive backdrop for equities.
Source: CME Group, as of 2/25/2026
Bottom Line
February reinforced the value of staying diversified. The areas of your portfolio that may have felt like dead weight in 2024 and 2025 — international stocks, small-caps, value — are now the engines of return. The bull market is maturing and broadening, and the data supports that assessment. As always, discipline and a long-term perspective remain your greatest advantages. Please don't hesitate to reach out with any questions about how these developments affect your personal financial plan.
*Diversification does not guarantee a profit or protect against loss in a declining market. Past performance is not indicative of future results. This communication may contain forward-looking statements subject to risks and uncertainties. It is not possible to invest directly in an index.
This communication may include forward looking statements. Specific forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and include, without limitation, words such as “may,” “will,” “expects,” “believes,” “anticipates,” “plans,” “estimates,” “projects,” “targets,” “forecasts,” “seeks,” “could’” or the negative of such terms or other variations on such terms or comparable terminology. These statements are not guarantees of future performance and involve risks, uncertainties, assumptions and other factors that are difficult to predict and that could cause actual results to differ materially.
This material is provided for informational purposes only and is not solely intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy
Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country’s economic health.
Index Benchmarks presented within this report may not reflect factors relevant for your portfolio or your unique risks, goals or investment objectives. Past performance of an index is not an indication or guarantee of future results. It is not possible to invest directly in an index.
The S&P 500® Index, or the Standard & Poor's 500® Index, is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies.
The MSCI ACWI (Morgan Stanley Capital International All Country World Index) Ex-U.S.® Index is a stock market index comprising of non-U.S. stocks from 22 developed markets and 24 emerging markets.
The Bloomberg Aggregate Bond® Index broadly tracks the performance of the U.S. investment-grade bond market. The index is composed of investment-grade government and corporate bonds.
Russell 2500 Index - The Russell 2500™ Index measures the performance of the small to midcap
segment of the US equity universe, commonly referred to as "smid" cap. The Russell 2500 Index is a subset of the Russell 3000® Index. It includes approximately 2500 of the smallest securities based on a combination of their market cap and current index membership.
The NASDAQ (National Association of Securities Dealers Automated Quotations) Composite Index is the market capitalization-weighted index of over 2,500 common equities listed on the NASDAQ stock exchange.