AI disruption fears triggered targeted sell-offs across software and several AI-exposed service industries in a clear “sell first, ask questions later” move.
While major indexes appeared relatively calm, underlying volatility was significant, with large daily industry-level moves and emerging stress in private credit—highlighted by the wind down of a small lending fund.
Rotation from Growth to Value accelerated, with capital shifting toward industrials, energy, and other less AI-exposed sectors—reinforcing the importance of avoiding overconcentration in any single theme as market leadership evolves.
S. fixed income yields moved notably lower this month, with the 10-year U.S. Treasury declining from 4.27% at the start of the period to the 4.00% support level by month-end
A February 20th ruling by the Supreme Court on tariffs injected added trade-policy uncertainty, though markets largely absorbed the news without significant disruption.
We are closely monitoring the recent U.S. and Israeli strikes on Iranian targets; historically, markets have proven resilient to geopolitical shocks as focus returns to economic fundamentals.
Equity Market Overview
The defining theme for equity markets in February has been the growing focus on AI-driven disruption and the market’s rapid attempt to reprice perceived winners and losers. What initially showed up as sharp weakness in software stocks broadened meaningfully as the month progressed, spilling into insurance brokers, financial services firms, legal and accounting companies, real estate services, trucking and logistics providers, and even drug distribution businesses. In each case, the narrative was similar: concerns that AI could compress margins, automate core functions, or upend long-standing business models. On the surface, major equity indexes have not appeared especially volatile, but beneath that calm has been a steady drumbeat of large, single-day moves at the industry and stock level.
While we fully believe that AI will have significant impacts on various businesses, labor and ultimately productivity, this has felt like a “sell first, ask questions later” environment, where the speed of the reaction has often outpaced the underlying fundamentals.
While some of these declines may ultimately prove overdone, February has highlighted how quickly markets are willing to reassess valuations as they grapple with the longer-term implications of AI.
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Equity Market Overview
The defining theme for equity markets in February has been the growing focus on AI-driven disruption and the market’s rapid attempt to reprice perceived winners and losers. What initially showed up as sharp weakness in software stocks broadened meaningfully as the month progressed, spilling into insurance brokers, financial services firms, legal and accounting companies, real estate services, trucking and logistics providers, and even drug distribution businesses. In each case, the narrative was similar: concerns that AI could compress margins, automate core functions, or upend long-standing business models. On the surface, major equity indexes have not appeared especially volatile, but beneath that calm has been a steady drumbeat of large, single-day moves at the industry and stock level.
While we fully believe that AI will have significant impacts on various businesses, labor and ultimately productivity, this has felt like a “sell first, ask questions later” environment, where the speed of the reaction has often outpaced the underlying fundamentals.
While some of these declines may ultimately prove overdone, February has highlighted how quickly markets are willing to reassess valuations as they grapple with the longer-term implications of AI.
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