Tech Volatility, Policy Shifts and Emerging Opportunities

February 2026 has brought increased volatility to US technology stocks, a welcome broadening of corporate earning and a clear rotation toward traditional “old economy” sectors. As global asset allocations adjust to policy changes, geopolitical fragmentation and shifting investor priorities, markets in emerging economies, Japan, Europe and the UK are drawing renewed attention.

Shifting Global Asset Allocations in 2026

Investor portfolios have been rebalancing since the start of the year, influenced by economic fragmentation, evolving policy landscapes and changing risk appetites. Rising nationalism and geographical decoupling are challenging traditional global diversification, encouraging more country-specific analysis and less dependence on highly interconnected markets.

A softer US dollar, expectations of further Federal Reserve easing and signs of accelerating global growth are supporting cyclical assets, including non-US equities, commodities, and emerging markets, at the expense of heavily US-weighted portfolios. Home-country bias is increasing in several regions, with some investors trimming US exposure amid policy uncertainty. At the same time, alternatives such as gold and precious metals are attracting fresh inflows.

Mixed Performance Across Regions

Global equity markets have delivered varied results so far in 2026. South Korea has led the way, followed by strong showings in Turkey and Brazil. Emerging markets as a group have stood out, supported by recovering commodity prices, policy stimulus and strength in value-oriented sectors such as energy.

In contrast, Wall Street has been more muted: the S&P 500 is slightly down year-to-date, although the Dow Jones Industrial Average has crossed the 50,000 mark for the first time. Notable weakness has appeared in certain software stocks, private credit, wealth management, insurance brokerage, accounting services, real estate, trucking and logistics names.

The Tech Correction: Software Under Pressure

After years of strong gains, the US technology sector, particularly software companies, has experienced a sharp correction. While some volatility was expected, the speed and severity surprised many. The sell-off intensified after questions arose about the massive spending required to develop large language models and the potential disruptive impact of agentic AI on existing software business models.

Even leading hyperscalers and data-center operators faced selling pressure, despite their central role in AI infrastructure. More recently, new model releases and features from Anthropic have further highlighted the rapid pace of change in the AI landscape, pushing the S&P Software Index into bear market territory.

Indiscriminate Selling Creates Selective Opportunities

The broad-based nature of the tech sell-off has been striking, with even high-quality names caught in the downdraft. History suggests that such indiscriminate selling of strong technology companies can eventually create attractive entry points for selective investors.

The long-term macro case for artificial intelligence remains intact: it has the potential to meaningfully lift productivity, and companies that successfully integrate these technologies should see substantial rewards over time. That said, further periods of volatility are likely as newer AI capabilities render earlier generations of technology less relevant.

Many investors are now watching large-cap tech leaders closely, anticipating strong eventual returns on their AI-related investments. New entrants may also emerge as the landscape evolves. Nvidia’s Jensen Huang recently described the current environment, with roughly $660 billion in planned AI capital expenditure, as a potential once-in-a-generation buying opportunity, noting that cash flows from these investments are expected to grow meaningfully in the coming years.

Rotation Toward “Old Economy” Sectors

After an extended period of US technology dominance, capital is rotating toward more traditional sectors and real-asset businesses that had been overlooked for years. Areas such as oil and gas, chemicals, transportation, consumer staples, healthcare, materials and select regional banks have shown resilience and in some cases, have outperformed high-growth tech names.

This shift is supported by three main factors: more attractive valuations, accelerating earnings momentum in these sectors and a desire among investors to reduce exposure to crowded mega-cap growth trades.

The US economic backdrop continues to benefit from several tailwinds, including solid spending by higher-income households, last year’s fiscal measures (including sizable tax refunds), increased business investment and ongoing AI-related capital expenditure. These supports suggest the economy may sustain above-trend growth, lifting revenues across a wider range of industries and reinforcing the broader rotation.

Developments in Europe and the UK

In recent weeks, both the European Central Bank and the Bank of England held their key policy rates steady (at 2.0% and 3.75%, respectively). European policymakers noted resilience in the economy despite a difficult global environment and expressed confidence that inflation would stabilize around the 2% target over the medium term. In the UK, four members of the Monetary Policy Committee unexpectedly voted for a rate cut, raising expectations of easing in the near future.

On the political side, Prime Minister Sir Keir Starmer has weathered recent criticism over his appointment of Peter Mandelson as ambassador to the US. Despite opposition claims of lost control, the FTSE 100 climbed above 10,000 points for the first time, helped by two significant deals: NatWest’s acquisition of Evelyn Partners and Nuveen’s takeover of Schroders.

Japan: Political Clarity Boosts Sentiment

In Asia, Japanese equities surged after Prime Minister Sanae Takaichi’s Liberal Democratic Party secured a strong supermajority in the recent election, winning more than two-thirds of seats. The result reflects broad public support for her agenda of increased fiscal spending, targeted investment, and tax relief.

Following the victory, the yield on Japan’s 10-year government bond stabilized after a period of volatility. The yen strengthened against the US dollar after senior currency officials reaffirmed the government’s commitment to closely monitoring markets and maintaining policy vigilance.

Outlook: Cautious Optimism Amid Volatility

The past month has been eventful, with sharp swings in US tech and a clear rotation into traditional sectors. We remain cautiously optimistic about the overall market environment. Corporate earnings are broadening out, supported by tax measures, expectations of lower interest rates and solid underlying growth. Early 2026 earnings reports have generally been encouraging.

Short-term volatility is likely to persist. Nevertheless, the ongoing rotation away from concentrated US tech leadership should continue, with potential beneficiaries including emerging markets, Japan, Europe and the UK. Gold and other precious metals, along with short-duration bonds and defensive equity sectors, may also remain in focus as safe-haven options.

Despite the rotations and periodic turbulence, we stay constructive on global equities. Solid economic growth and healthy corporate profit trends provide a supportive fundamental backdrop for patient, well-diversified investors.