A screen shows a graph that tracks the Dow Jones Industrial Average on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., February 19, 2026. REUTERS/Brendan McDermid
Macro View
February ran on two tracks. The first three weeks were largely a continuation of the January setup; solid earnings, a patient Fed, and equities inching higher with the S&P 500 climbing the ladder to new heights. The Supreme Court delivered a significant ruling mid-month striking down President Trump’s “reciprocal” emergency tariff framework, and stocks initially rallied on the news, but quickly reversed. As a response, the Trump administration pivoted quickly, raising the universal baseline global tariff rate to 15% from 10%. Surprisingly, the markets absorbed the noise and continued to rally.
In February, the January PCE was released which further exacerbated economists and consumers worst fears; inflation was back on the rise. Core PCE rose 0.5% month over month, well above the 0.3% Reuters consensus, and the year-over-year reading jumped to 3.1% from 2.8% in December. Treasury yields spiked, and futures repriced any remaining hope of a March rate cut. Growth and tech names bore the worst of the downward spiral.
Compounding the inflation problem, in the latter part of February, marked the opening shots of the U.S.-Iran conflict, which initially was supposed to last for only a few weeks. Tensions had been escalating since the January tariff move, and by month-end military action was no longer a tail risk but a base case. Oil prices started climbing, the dollar firmed, and gold extended its record run. February’s macro picture, in short, was one of a market that spent three weeks pricing in rising inflation, only to close the month with immense geopolitical concerns.
U.S. Fund Market Summary
Equity
Equity flows jumped to $40.3bn in February, more than double January’s number. The international rotation continued in roughly the same direction. U.S. Large-Cap Funds lost another $16.1bn, still bleeding but at half the January pace. U.S. Mid-Cap Funds gave back $5.7bn. On the inflows side, U.S. Developed International Market Funds led the way with $18.7bn, U.S. Multi-Cap Funds collected $17.4bn, and U.S. Emerging Market Equity Funds added another $12.3bn, while U.S. Equity Income Funds added $3.9bn. U.S. Small-Cap Funds reversed January’s losses with a $1.2bn inflow, it seems as if investors were pivoting into the bottom-end of the market cap spectrum amid Large-Cap uncertainty. Sector Equity Funds remained positive at $6.5bn but well-off January’s $22.9bn pace.
Fixed Income
Fixed Income still gathered $78.1bn in February off the January’s blockbuster pace, but still the second-strongest asset class of the month. U.S. Short/Intermediate Investment-Grade Funds led again at $29.3bn, U.S. General Domestic taxable Fixed Income added $13.9bn, and U.S. Short/Intermediate Government & Treasury Funds collected $11.9bn. The duration extension themes were alive and well, though the appetite was clearly tilting towards the safest, shortest end of the curve as the Iran conflict continued to heat up. Higher-risk sleeves continued to underperform. U.S High Yield Funds lost another $427m, U.S. Alternative Bond Funds added a modest $975m, and Emerging Market Debt collected$1.2bn. Municipal Bond inflows moderated as well, collecting $6.6bn.
Commodities
Commodities added $6.9bn in February, the strongest month of the quarter. The combination of Iran headlines, a softening dollar, and the late-month inflation scare drove investors into commodity exposure as both a portfolio hedge and an inflation-protection tool. Gold, oil, and broad commodity baskets all benefited.
Mixed-Assets
Mixed-Assets narrowed its outflows to $3.1bn in February, the strongest month of the quarter. U.S. Mixed-Assets Target Allocation Funds lost $3.1bn, while plain Mixed-Assets Funds and Target Data Funds were essentially flat.
Money Market
Money Markets Funds saw the most dramatic reversal of the month, swinging from January’s $40bn outflow to a $68.8bn inflow. The driver was almost certainly the February PCE shock: with rate-cut expectations getting pushed out, investors saw cash yielding 4% as a more attractive option.
