Market Update

Here is our latest Market Update.
As always, if you’d like to discuss this—or anything regarding current market conditions or your portfolio—please feel free to contact us at any time. 

Presented by Andrew Harris, Michael Kolb, CFP®, James Dinsmore, CFP®, Ed Barone, Todd Rishel, CFP® & Martin Wildy, CFA

Executive Summary

• The rotation in equity markets continued during February, as non-US and dividend-oriented
  stocks advanced while the S&P 500 and Nasdaq Composite (a proxy for large US technology related
  stocks) declined.
• A series of artificial intelligence (AI) related releases from Anthropic and OpenAI triggered a
  sell-off in enterprise software, cybersecurity, and legacy technology service companies as the
  market wrestled with how AI may impact different sectors of the market.
• The US Supreme Court decision to strike down the use of President Trump’s IEEPA tariffs was
  the biggest headline, which overshadowed mixed economic data releases during the month.
• As the month came to a close, US and Israeli strikes on Iran and the Pentagon’s battle with AI
  firm, Anthropic, introduced additional uncertainty into markets.

Market Divergence Continues

The S&P 500, a proxy for large US companies, retreated slightly during February (-0.9%). However,
that relatively unremarkable return masked a headline-filled month for markets. The Nasdaq
Composite index, a proxy for large US technology-related stocks, fell 3.4% for the month,
representing the biggest monthly decline since the tariff-induced drawdown in March of
last year.[1]

The negative return was driven in large part by a decline in technology service providers (commonly
referred to as SaaS companies – software as a service) and cybersecurity firms. A series of product
announcements by AI firms Anthropic and OpenAI sent shockwaves through the sectors in
February, leaving investors wondering if advancements in AI may permanently disrupt some of
those business models.[2] Even legacy tech firms, such as IBM, were caught up in the indiscriminate
selling (IBM fell 13% in one day, the steepest daily loss in more than 25 years).[3]

On a positive note, many of the stocks affected did bounce back somewhat late in the month on
announcements of agreements between several technology firms and leading AI providers. The
narrative reframe of AI as a complement to, rather than a replacement of, these services appeared
to ease concern somewhat. Whether this attempt to reframe the discussion ultimately proves
correct long-term remains to be seen. What is becoming clear is that AI is moving from theoretical
to practical in some industries and that may lead to continued disruption and multiple compression
as the technology progresses.

The rotational trade discussed in previous Dashboards continued in February. Despite declines in
the S&P 500 and Nasdaq Composite indexes mentioned above, emerging markets (MSCI Emerging
Markets index) and international stocks (MSCI EAFE index) posted strong monthly returns during
the month (up 5.4% and 4.5%, respectively). In addition, dividend-oriented stocks proved resilient
once again, advancing 4.8% for the month (S&P High Yield Dividend Aristocrats Index). Lastly, bonds
(Bloomberg Aggregate Bond index) and gold (S&P GSCI Gold index) acted as safe havens during the
volatile month, up 1.6% and 10.6%, respectively. As a result, diversified portfolios that include
meaningful exposure to non-US stocks and diversifiers were once again rewarded in February.[5]

Tariff Announcement & Mixed Economic Data

Perhaps the most consequential economic development for the month was the US Supreme Court
ruling that the International Emergency Economic Powers Act (IEEPA) does not authorize the
president to impose tariffs. On February 20, the Court ruled 6-3 that the tariffs exceeded the
president’s authority to regulate commerce during national emergencies. While President Trump
immediately pivoted to Section 122 of the Trade Act of 1974 to reimpose broad-based tariffs, this
statute requires Congressional ratification after 150 days.

The Supreme Court decision did not address what happens with the approximately $160 billion in
tariff revenue already collected, however, leaving it to lower courts to determine. The unknowns
created by the decision, including what will happen to those funds and how this will impact the US
deficit, add to the uncertainty around inflation and may reduce the likelihood of the Federal Reserve
(Fed) reducing interest rates near-term.

Speaking of inflation, the December Core Personal Consumption Expenditures (Core PCE), which is
the Fed’s preferred inflation measurement, came in at 3%, well above desired levels. The sideways
path of inflation is another factor that may lead to the Fed exercising patience absent deterioration
in the labor market or economy.

Fourth quarter economic activity, as measured by Gross Domestic Product (GDP), grew at just 1.4%,
well below consensus estimates and much lower than the 4.4% pace in the third quarter.
Additionally, the economy grew at a modest 2.2% for the full year in 2025, down from 2.8% in
2024. However, the Commerce Department and others noted that the government shutdown
adversely impacted economic data in the fourth quarter. As a result, economic activity appears to
be relatively solid despite the somewhat disappointing headline data.

The Path Forward

As February comes to a close, market and economic data remain mixed and nuanced. As we
discussed previously, there are positive and negative aspects of each as we enter March, and the
Supreme Court’s decision on tariffs only adds to the uncertainty.

Furthermore, two events occurring at the end of the month add to the complexity. On Saturday,
February 28, the US and Israel began striking targets in Iran after negotiations regarding Iran’s
nuclear program and other issues ended without a compromise. The strikes killed Ali Khamenei Iranian Supreme Leader, and other high-profile leaders within the country. Iran has retaliated with strikes across the region and shipping through the Strait of Hormuz has effectively halted. Unsurprisingly, oil prices have risen, with Brent Crude above $81 per barrel. A situation of this magnitude bears watching as it has the potential to escalate and expand to involve other countries.

Separately, another disagreement, this one between the Defense Department and Anthropic, also
grabbed headlines late in the month. The disagreement centered on whether the government can
use Anthropic’s Claude, an advanced AI system, without any restrictions, which is the Defense
Department’s demand. However, Anthropic insists that its systems not be used for fully lethal
autonomous weapons or for domestic surveillance. As this piece goes to publication, Defense
officials have threatened to cancel a recent contract with the firm, invoke the Defense Production
Act, and designate Anthropic a supply-chain risk (an unprecedented step as the designation is
typically reserved for firms based in U.S. adversary nations). We will be watching for developments
in this story, as it has the potential to impact markets and the economy given AI’s importance to
both.

Given the events of the past month – including AI disruption, the Supreme Court’s tariff decision,
and the conflict in the Middle East – we continue to advocate for diversification now as much as
ever. Both risks and opportunities exist, however, the range of potential outcomes is even wider
than normal in our opinion. We appreciate your continued trust and welcome the opportunity to
speak with you in greater detail regarding your specific situation.

[1]Source: YCharts, February 28, 2026
[2]Source: CNN, “AI nerves are fraying. Anthropic keeps doubling down,” February 25, 2026. https://edition.cnn.com/2026/02/24/tech/anthropicclaude-plugins-office-jobs
[3]Source: Forbes, “IBM Shares Plummet 13%,” February 23, 2026. https://www.forbes.com/sites/tylerroush/2026/02/23/ibm-shares-plummet-13-worst-day-since-2000-after-anthropic-launches-programming-ai-tool/
[4]Source: CNBC, “Software stocks rebound as Anthropic announces new partnerships,” February 24, 2026.
https://www.cnbc.com/2026/02/24/software-stocks-anthropic-ai.html
[5]Source: YCharts, February 28, 2026
[6]Source: Tax Foundation, “Supreme Court Trump Tariffs Ruling: Analysis,” February 20, 2026. https://taxfoundation.org/blog/supreme court-trumptariffs-ruling/
[7]Source: CNBC, “Fourth-quarter U.S. GDP up just 1.4%, badly missing estimate; inflation firms at 3%,” February 20, 2026.
https://www.cnbc.com/2026/02/20/pce-inflation-december-2025.html
[8]Source: Bloomberg, “Iran War Ripples Across Region as Trump Vows ‘Whatever It Takes,’” March 3, 2026.
https://www.bloomberg.com/news/articles/2026-03-03/trump-pledges-whatever-it-takes-on-iran-as-war-widens
[9]Source: Bloomberg, Anthropic Sees Support From Other Tech Workers in Feud With Pentagon,” February 27, 2026.
https://www.bloomberg.com/news/articles/2026-02-27/anthropic-s-feud-with-pentagon-mushrooms-into-broader-battle

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