February 2026: Markets, Geopolitics, and a War in Iran
February 2026 was marked by significant geopolitical tensions and market shifts, culminating in military conflict between the United States, Israel, and Iran. The month began with diplomatic brinkmanship and ended with a dramatic escalation in the Middle East.
Market Overview
Global equity markets showed mixed results, with a notable rotation away from US equities. The S&P 500 index fell by 0.8%, while developed market equities outside the US performed well, particularly in Europe, which saw solid gains despite ongoing global uncertainties. The weakening US dollar provided a boost to internationally diversified investors.
The 'Ex-America' Trade
The trend of moving away from US equities continued, with European and emerging market stocks trading at significant discounts compared to their US counterparts. Fiscal stimulus in Europe, especially in defense and infrastructure, began to positively impact corporate earnings. Value stocks outperformed growth stocks in the US, and momentum returned across various regions.
FTSE 100 Performance
The FTSE 100 index remained strong, nearing record levels after breaking the 10,000 mark in January. The index benefited from its defensive characteristics and international revenue exposure, with notable earnings growth from companies like Rolls-Royce, which reported a 40% increase in year-on-year earnings.
US-Iran Conflict
The most significant event of February was the outbreak of military conflict between the US and Israel against Iran. On February 28, coordinated strikes targeted Iranian leadership and military facilities, leading to Iranian retaliation against US bases and other Middle Eastern nations. This conflict caused Brent crude oil prices to surge from around $70 to over $80 per barrel, as markets reacted to the potential disruption of oil supplies through the Strait of Hormuz.
US Trade Policy Developments
On February 20, the US Supreme Court ruled that the President could not impose tariffs under the International Emergency Economic Powers Act, effectively nullifying previous tariffs on several trading partners. In response, President Trump announced a new 10% global tariff, adding to the uncertainty in trade relations, particularly in light of the ongoing Iran conflict.
UK Economic Outlook
The Bank of England held interest rates steady at 3.75% during its February meeting, with indications of potential cuts later in the year. UK inflation showed signs of easing, with the consumer price index dropping to 3.0% in January. The Bank projected a return to its 2% inflation target by June 2026, earlier than previously expected.
Gold Market Performance
February was an extraordinary month for gold, which rose from approximately $4737 to $5278 per ounce, marking an 11.4% increase. The surge was driven by heightened geopolitical risks and a weakening US dollar, reinforcing gold's status as a safe-haven asset.
Benefits of Diversified Portfolio Management
The month highlighted the importance of diversification in investment portfolios. While US equities faced challenges, portfolios with exposure to global equities and gold achieved strong returns. The ongoing shift away from US mega-cap technology stocks towards broader global exposure was evident, with diversified portfolios benefiting from the late-month surge in gold prices.
Conclusion
February 2026 served as a reminder of the complexities of global markets, where geopolitical events can significantly impact economic conditions and investment strategies. The importance of maintaining a diversified portfolio was underscored by the contrasting performances of US and non-US equities, as well as the safe-haven appeal of gold amidst rising tensions.