February 2026 – Markets show resilience despite a geopolitical shock

Sources: Bank of Canada, Bloomberg Finance L.P.

The Canadian market had an exceptional month, with the S&P/TSX Composite Index up 7.7%. The advance was due mainly to a solid performance by the mining sector, as well as the strong earnings reported by several major Canadian banks. 

The fine performance by gold mining and metals companies supported the market, as the price of gold rose on continuing safe-haven demand. Financial institutions also did their part with earnings that exceeded analysts’ expectations.  

The macroeconomic data were more mixed, however. The Canadian economy contracted in the fourth quarter of 2025, when gross domestic product shrank at an annualized rate of 0.6%.  

The Canadian bond market also delivered a solid performance. The FTSE Canada Universe Bond Index returned 1.7% on lower government bond yields in a context of subdued inflation and economic slowdown.

The equity markets had a tougher month in the United States. The S&P 500 Index fell 0.8% in U.S. currency and 0.1% in Canadian currency, posting its biggest monthly decline in almost a year. 

Concerns about the potential impact of artificial intelligence on a number of industries dominated financial news during the month. Investors were especially preoccupied by the impact on sectors such as software, real estate and wealth management, whose business models could be transformed by the new technology. 

The tech sector was especially sensitive to such concerns. Nvidia’s highly anticipated quarterly results failed to reassure markets, and the company’s stock was down after the earnings announcement. Investors remained cautious about hyperscalers’ massive capital expenditures.   

Despite these difficulties, some sectors helped limit the losses on the U.S. market. The consumer staples and industrials sectors provided support with a more stable performance. 

As for monetary policy, investors continued to assess when the Federal Reserve might resume its interest rate cutting cycle. Markets were pricing in the next cut at mid-year, possibly after the current Fed Chair’s term ends. Recent developments involving Iran have tempered such expectations, however. 

International equities rose 5.5% in local currencies and 5.4% in Canadian currency, as measured by the MSCI EAFE Index. 

Europe’s equity markets advanced to new highs on their eighth consecutive month of gains. Their performance was due mainly to corporate earnings that exceeded expectations and a gradual improvement in the economic outlook. 

A number of major European companies, including HSBC, Nestlé and Capgemini, provided encouraging guidance that helped support investor sentiment. 

In the United Kingdom, the FTSE 100 Index stood out, rising 6.7% in local currency on the month. Optimism about a possible rate cut by the Bank of England as well as the strength of mining companies buoyed the U.K. market. 

Concerns persisted, however. Germany’s labour market remained fragile, with unemployment rising slightly in February as the German economy continued to be stuck in a prolonged phase of meagre growth. 

Emerging markets had a solid month, rising 5.0% in local currencies and 6.3% in Canadian dollars. 

Their performance continued the upward trend that began at the end of 2025, as international investors rotated further into emerging markets, seeking to diversify their geographical exposure and take advantage of superior growth prospects. 

Moreover, companies in Asia that play leading roles in the global supply chain required for the development of AI infrastructure rose on investor interest. 

South Korea was especially noteworthy. Its KOSPI Index soared by 20% in February on optimism surrounding Korean manufacturers of semiconductors and advanced technology equipment.