Market Review 16th February 2026

Everything you need to know, Simplified!

Summary

• Global equity indices moved only modestly lower, but beneath the surface markets saw a sharp rotation as investors reassessed AI winners and losers, with financial services replacing enterprise software as the latest focus of disruption fears

• Wealth management, insurance and broader financial stocks sold off as markets adopted a ‘shoot first, ask questions later’ stance toward businesses seen as exposed to automation, leaving the financial sector down around 2.5% for the week

• The ‘Magnificent Seven’ tech stocks – NVIDIA, Alphabet, Apple, Microsoft, Amazon, Tesla, Meta – also remained under pressure as investors questioned whether the scale of AI‑related capital expenditure, projected to reach roughly US$650 billion across major US technology firms in 2026, will translate into future returns or echo past technology excesses

• Capital rotated into safe havens and ‘old economy’ assets, with utilities, materials, energy, government bonds and investment‑grade credit outperforming as softer US inflation and declining bond yields supported defensive positioning

• The ‘old economy’ continues to benefit not just from defensive flows but from the infrastructure demands of the AI build‑out, highlighting how technological change is creating beneficiaries well beyond the technology sector itself

• UK economic growth remained weak at 0.1% in Q4, yet UK equities outperformed as investors favoured the market’s ‘old economy’ composition and internationally diversified earnings profile in an environment defined by uncertainty around AI disruption

• This week’s focus turns to UK CPI and US GDP data, with softer inflation potentially supporting a more dovish Bank of England (BoE) while US growth and inflation readings will test whether markets can maintain confidence in a ‘goldilocks’ backdrop of resilient activity and easing price pressures.

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Market Review

AI scare trade continues

Global equities finished only marginally lower last week, but headline index moves masked significant internal rotation as investors reassessed which business models stand to win or lose from rapid advances in AI. The previous week’s pressure centred on enterprise software. Last week, the market’s attention shifted towards financial services.

Banks and financial stocks were pulled into the sell-off as new AI software triggered concerns that parts of wealth management and insurance could become increasingly automated. Tools launched by software companies Altruist and Insurify acted as the immediate catalyst, but the reaction quickly broadened into a wider derating of firms perceived to have even modest exposure to disruption risk. By Thursday, the move had spread to major banks as markets embraced a familiar ‘shoot first, ask questions later’ mentality, leaving financials down 2.5% for the week.

The ‘Magnificent Seven’ also remained under pressure, falling 3.2% and taking year-to-date losses to 7.2%. Notably, the companies driving the AI revolution are facing investor scepticism as much as those potentially disrupted by it. Markets are increasingly focused on the scale of investment required to sustain the AI build-out, with concerns that aggressive capital expenditure plans could weigh on free cash flow for years to come.

Collectively, four of the largest US technology firms are expected to spend around US$650 billion on capital investment in 2026 alone. Such a dramatic expansion raises difficult questions around funding, shareholder returns and the timeline for monetisation. For management teams, this is less a pursuit of near-term profits and more an infrastructure arms race with a ‘winner-takes-most’ mentality. For investors, the question is whether this spending cycle represents durable productivity gains or excesses like those during the dot com era.

Safe havens and the resurgence of the ‘old economy’

As the AI narrative unsettled growth sectors, capital rotated decisively toward defensives and assets perceived as more insulated from technological disruption (many segments of the ‘old economy’). Utilities, energy, materials, real estate equities, government bonds and high-quality investment-grade credit all outperformed.

Utilities led sector performance, rising more than 5%, while US treasuries rallied as the ten-year yield fell 0.16% toward 4%, supported by a softer inflation print that showed CPI slowing more than expected to 2.4% from 2.7%. Investment-grade bonds also outperformed high yield as risk appetite moderated.

The ‘old economy’ is not merely benefiting from a rotation away from perceived AI losers. Many of these sectors stand to gain directly from the physical infrastructure required to power AI, from energy demand to materials input and industrial build-out. Hyperscalers are struggling to meet the growing demand for AI and racing to build capacity and capture market share. Materials shares, for example, rose more than 3% over the week, highlighting how technological change often creates winners far beyond the technology sector itself. This has been the trend so far in 2026.

UK economy limps across the line in 2025

The UK economy expanded by just 0.1% in the fourth quarter, undershooting expectations and reinforcing the picture of subdued domestic momentum. Weak business investment and sluggish economic activity point to lingering caution among consumers and corporates alike. Labour market data raised fresh concerns too as youth unemployment climbed to 15.7% - above European counterparts.

BoE Monetary Policy Committee member Catherine Mann described the economy as “sluggish” and “tepid,” highlighting that productivity growth, investment and labour market dynamics remain key missing ingredients for expansion.

This should not take away from the strength of UK equities which continue to perform well, particularly large caps. UK equities gained 0.6% over the week as global investors continued to favour the UK market’s defensive characteristics and internationally diversified earnings base. In an environment defined by uncertainty around AI winners and losers, the UK’s ‘old economy’ bias has become a source of relative strength rather than a weakness.

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The week ahead

Wednesday: UK CPI inflation

Our thoughts: UK inflation is expected to slow sharply in January to 3.0% year-on-year from 3.4%, reinforcing the view that price pressures are easing more quickly than previously feared. Lower food and energy costs should continue to provide disinflationary momentum, although the annual CPI basket rebasing adds a degree of statistical noise. Overall, the direction of travel remains clear. Softer inflation through the first half of the year would strengthen the case for a more dovish BoE and could support duration-sensitive assets.

Friday: US GDP

Our thoughts: The US economy is expected to have ended the year on firm footing, with growth around 2.9% supported by resilient consumer spending. A narrower trade deficit may also provide a modest boost to the headline figure. Alongside GDP, the release of Federal Open Market Committee minutes and the latest PCE inflation data will help shape expectations for the policy path ahead. The key question for markets remains whether strong growth can coexist with continued disinflation, a ‘goldilocks’ combination that would sustain the constructive backdrop for risk assets. This was the investor consensus at the start of this year.

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