Insights
Market Review for February 2026
AI speculation: US software stocks left reeling
Nvidia: Bumper revenue but investors play it cool
US trade tariffs: Trump lashes out again
NZ and Australian interest rates: The only way is up?
Iranian leader killed: Oil prices rise as war erupts
A spiky month
February was a spiky month for investors. AI-driven speculation, new US trade tariffs, and the outbreak of war in the Middle East all played a role.
In equity markets, it was the AI story that captured most attention. US software stocks, including household names like IBM, were left reeling as investors started to question whether AI could up-end their entire business models.
Why? It’s because the ‘knowledge premium’ that many of these firms have historically charged good money for, suddenly looked vulnerable. New claims that AI can enable people to do technical work that was previously too difficult – for example, in coding – took a toll. (In case you missed it, Pathfinder recently divested IBM for ethical reasons, you can read more about that here).
By the time the month ended, the S&P 500 index – on which a number of large tech stocks are listed – was marginally up 0.79% across February (in US dollar terms[1]).
In the hunt for safety, some investors turned to gold and there was a renewed appetite for stocks linked to energy (largely oil and gas), as well as sectors like utilities and infrastructure [2] – in other words, companies focused on tangible assets that potentially offer more peace-of-mind than tech and software stocks.
At Pathfinder, we avoid fossil fuel extraction and production. Our funds’ benchmarks, however, can include these type of holdings, such as ExxonMobil, BP and Shell. As such, this becomes a headwind for our funds during market conditions such as we see today, and specifically the soaring price of oil.
As a result, we may see some relative (to benchmark) underperformance in our reported performance numbers for February. Over the longer term, however, we are confident that, by investing in energy sources of the future (i.e. renewables), and by avoiding fossil fuel companies, this should support our fund returns.
A time for clear heads
From our perspective, some of February’s stock market trading resembled ‘panic selling’ in the face of alarmist news headlines. As long-term investors, this is exactly the type of behaviour that we seek to avoid.
While the potential of AI to disrupt entire industries shouldn’t be ignored, we need to remember that it is still a nascent, relatively unproven technology. It is also proving to be eye-wateringly expensive to grow at scale. Many of the early players are heavily reliant on huge piles of debt to fund their expansion, and the infrastructure is often energy-intensive to run. Investors who have piled into the AI trade are increasingly starting to want more certainty that their faith will be rewarded.
The current degree of uncertainty was on display when Nvidia announced its latest quarterly earnings last month. Despite coming in at $6 billion USD over forecast, the market reaction was pretty benign [3]. It was a sign that investors in the AI space are becoming harder to impress.
Trump throws his toys
In other news, the US Supreme Court last month ruled against Donald Trump’s claim that emergency powers gave him a licence to roll-out global trade tariffs in April 2025 [4].
You may recall that this event became known as ‘Liberation Day’ and triggered a market frenzy as investors scrambled to make sense of the aggressive disruption to global trade.
Not surprisingly, Trump wasn’t happy with the Supreme Court ruling. He lashed out with the announcement that he was applying a new 10% tariff on the US’ trade partners.
Given his fondness for using trade policy as a blunt weapon, it was a relatively predictable move. Unfortunately, it chucks another small spanner in the cogs of the global economy. And with each spanner comes a further dent to the US’ reputation as a reliable trade partner.
Interest rates in our region
Back home, the Reserve Bank of New Zealand held its first Monetary Policy Committee session with new governor, Dr Anna Breman (the first female RBNZ governor we have had), at the helm.
Following two consecutive rate cuts at the end of 2025, the first session of 2026 saw the OCR being held at 2.25% [5].
Given that domestic inflation is currently sticky – i.e. unlikely to fall significantly in the months ahead – markets are now pricing in NZ interest rate rises towards the end of 2026. This would, in theory, keep a lid on consumer spending (by making borrowing more expensive), which in turn helps to keep a lid on inflation (by lowering consumer demand).
Meanwhile in Australia, a fresh data release showed inflationary pressures to be even more acute - annual headline inflation stayed at +3.8% in January [6]. As a result, markets are pricing in Australian rate rises sooner rather than later.
Both countries’ currencies strengthened in February [7]. The prospect of rate rises makes them more attractive for currency traders who bank on being able to sell them for a higher price once the interest rate rises have kicked in.
War in the Middle East
All of which brings us to the final topic of the February update – the joint American and Israeli attack on Iran.
Within days they had assassinated Ayatollah Ali Khamenei, the long-term leader of Iran. In response to the attack, Iran launched missiles and drones across the region, targeting American bases in neighbouring countries like Saudi Arabia and Iraq. It also closed the Strait of Hormuz, a major trade route.
Whenever there is a war in the Middle East, investor attention turns to the price of oil - the region’s major commodity. If supply is suddenly constrained, then prices typically go up. And any sustained rise in oil price has the potential to fuel inflation.
When war breaks out defence stocks also become a major focus, however defence shares only represent between 2 -3% of broad equity markets [8]. There are many larger sectors with more sway on overall performance in a diversified fund, for example banks (7%), semiconductors (chips) (10%), tech hardware (5%) and tech overall (26%)*.
Through the lens of ethical investing
Investors are faced with a choice; you get to decide if you have hard lines about what you profit from.
For investors seeking the promise of profit without concern for the wider impact of how that's generated, a war like this could mean opportunity.
For example, after Israel and America attacked Iran’s nuclear facilities in June 2025 the stock price of Raytheon (now called RTX - maker of the tomahawk missile) trended higher [9].
For people seeking to generate profit from investments in companies whose products aren't designed to harm people or our planet, now is the time to review the holdings in your KiwiSaver and/or Managed Fund. Now's also a good time to have another read of your investment provider’s position on the Energy and Weapons Sectors.
From Mindful Money's analysis of fund investments at end September 2025, $415 million of KiwiSaver money and $519 million of retail investments was invested in companies involved in the manufacture of weapons [10].
Headlines shouldn’t be the primary driver of your investment decisions, particularly around your tolerance for investment risk (for example whether you select a Growth or Conservative fund). Markets can move quickly and create periods of uncertainty and volatility but having a clear long‑term plan allows you to ride out short‑term market movements. Reacting abruptly to headlines by impulsively changing your fund type can lead to poor outcomes.
Also note that short term gains by oil or defence stocks is not always reflected in long term returns. For example, if you only invested in US oil, gas and defence stocks a decade ago, you would have slightly underperformed the wider US market.
Some final thoughts
February was messy, noisy, and occasionally painful for investors – especially those who have built up large positions in tech stocks in recent times.
The irony of last month’s AI story is that innovation took a toll on the tech sector. Normally, it is other sectors who feel the impact of innovation from the tech sector.
From our perspective, it is crucial for investors not to react to every piece of news that they see. This is especially true in the AI space – nascent technology has a habit of reeling investors in, before expectations undergo a re-set.
The challenge lies in identifying where the genuine benefits of AI can be found, and where the investor reward can be secured.
In this environment, the need for diversification is as important as ever. Investors who are overly exposed to any particular sector, asset, or geography, risk getting their fingers burnt.
In contrast, diversified holdings can offer a form of insurance in bad times and can widen the net for potential returns in good times.
Sources & further reading
[1] https://www.spglobal.com/spdji/en/indices/equity/sp-500/#overview
[2] https://finance.yahoo.com/news/sector-unexpectedly-crushing-rest-market-180500760.html
[5] https://www.rbnz.govt.nz/monetary-policy/monetary-policy-decisions
[6] https://www.abs.gov.au/media-centre/media-releases/cpi-rose-38-year-january-2026
[7] https://www.ft.com/content/92101fcd-84b8-4485-ab4a-ac4eed81635c
[10] https://mindfulmoney.nz/learn/revealed-huge-increase-in-weapons-in-your-kiwisaver-fund/
* Percentages taken from the ‘Solactive GBS Developed Markets Large & Mid Cap USD Index’ as a representation of broad equity markets
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Pathfinder recommends all investors receive financial advice before making an investment decision. Pathfinder Asset Management Limited is the issuer of the Pathfinder KiwiSaver Plan and Pathfinder Investment Funds. Product Disclosure Statements for the offers are available at pathfinder.kiwi. Learn more about how we invest ethically by reading our Ethical Investment Policy & Exceptions Register.
