Your February 2026 market update: conflict in the Middle East, the US market lags, and positive signs elsewhere

This is part of our monthly series. Catch up on last month’s summary here: Your January 2026 market update: gold reached an all-time high and Trump tariffs briefly spooked investors

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It’s difficult to write a market update for February without starting at the end.

Last month was already mixed for markets across the world. That was before the joint US-Israel military action in Iran on 28 February, the very last day of the month. The ramifications of this conflict for economies around the world are yet to be fully understood, but there’ll likely be ripples across markets.

Looking back to before the start of the conflict in the Middle East, we’d seen patchy performance in the US. Tech stocks slipped over concerns around Artificial Intelligence (AI). Meanwhile, trade uncertainty returned as US President Donald Trump introduced new tariffs. That came in the wake of the Supreme Court ruling his previous taxes illegal.

Otherwise, markets around the world remained buoyant, particularly in the UK and Asia.

Find out what happened in markets last month, including what the Middle East conflict could mean moving forwards, uncertainty in the US over AI and tariffs, and why performance was brighter elsewhere.

The headlines: mixed market performance around the world in February

Dips in Silicon Valley companies and political turmoil created uncertainty in the US. Markets often react to such events, offering an explanation for why performance on the S&P 500 (an index of the 500 largest public companies in the US) was so uneven.

Fortunately, it wasn’t all bad news. Positive data in the UK bolstered the FTSE 100, an index of the UK’s 100 largest public companies, which reached yet another record-high. These companies drove growth on the FTSE 350 too.

Elsewhere, Japan’s Prime Minister, Sanae Takaichi, secured a landslide win after calling a snap election in January. That drove the Nikkei 225 index up by more than 5%. Asian stocks performed well as a whole, particularly in South Korea.

This varied performance is another example of why diversification can be useful. Investing across industries and geographies can see short-term dips offset by gains elsewhere.

The PensionBee plans are well-diversified and contain investments from a range of sectors and regions.

This graph doesn’t reflect the impact of the military action in Iran and the escalating conflict across the Middle East - find out more below.

Conflict across the Middle East sets market volatility in motion

When looking back at February market performance, the arguably most important day of the month to consider is the final one.

Following the collapse of diplomatic talks, the US and Israel carried out joint military strikes across Iran on Saturday 28 February. These killed the country’s Supreme Leader, Ayatollah Ali Khamenei, and other high-ranking officials. 

The move sparked unrest throughout the Middle East. In response, Iran launched strikes against US bases in countries across the region, including Bahrain, Kuwait, Qatar, the United Arab Emirates, and Saudi Arabia. Conflict also spilled into Lebanon, reigniting warfare between Israel and Hezbollah, an organisation with close ties to Iran.

Markets reacted with increased volatility over the following days. Many global markets recorded swings in value, influenced by uncertainty over what might happen next.

It also caused a rise in oil and gas prices, with many of the biggest exporters in the world affected by the conflict. Many economies depend on these resources, so this will likely affect a range of countries.

However, as markets were closed over the weekend until Monday 2 March, these movements weren’t included in the February data.

We’ll explain the impact of the conflict in next month’s update. In the meantime, read our explainer of the Middle East conflict and what it might mean for your investments.

The Supreme Court rules President Trump’s tariffs to be illegal 

February was very mixed in the US. Early on, the Labor Department announced that job growth was better than expected in January.

2025 was the weakest year for US job growth since the Covid-19 pandemic. So, the 130,000 jobs added to the economy and a fall in the unemployment rate to 4.3% was very welcome.

However, this early optimism was somewhat dampened by tariff uncertainty.

On 20 February, the Supreme Court ruled that US President Trump’s trade tariffs announced in April 2025 were illegal. 

The Supreme Court said that the US President needed congressional approval to put the tariffs in place.

In response, he announced 10% tariffs on all imports under a never-used trade law, effective for six months. He also announced plans to increase this to 15%, the maximum allowed under the law. 

However, when these came into effect on 24 February, it was at a flat 10% global rate, with no directive to increase it.

Markets were jittery over these developments. In the wake of the Supreme Court’s ruling, markets rose. But these gains were quickly wiped off after President Trump announced the new tariffs.

AI uncertainty and wobbles in tech stocks

There was also uncertainty in the technology sector in the US, especially around AI.

The so-called ‘AI bubble’ - which suggests that AI companies are overvalued - hasn’t exactly burst. But markets were nervous around tech and AI stocks:

• IBM shares fell by 13% as Anthropic said its AI bot, Claude Code AI, could replace certain coding languages;
• Californian technology giant, Nvidia, had its worst day since April 2025, despite announcing strong Q4 earnings; and
• the tech-heavy Nasdaq stock market index had its worst month since March 2025.

All these developments contributed to flat performance in the US.

There was positive market news from around the world

Despite uncertainty in the US and geopolitical conflict late in the month, there was still good news for global markets.

In the UK, the FTSE 100 reached another all-time high on 26 February, boosted by a rally in Rolls-Royce shares. And, the UK market felt the positive impacts of year-on-year inflation falling from 3.4% to 3.0%, marking a slight slowdown in rising prices. 

The UK government also posted a record budget surplus of £30 billion. That was most welcome news for Chancellor Rachel Reeves, ahead of presenting her Spring Statement on Tuesday 3 March.

Elsewhere, the landslide election victory for Prime Minister Sanae Taikachi drove a rally in the Japanese market. For a country with an economy that’s in desperate need of revival, this was a positive development. Taikachi will now need to follow through on promises to get the economy moving.

Asian stocks also performed well as a whole. With expanding AI infrastructure in the region, investors looked to get in on the growth. In particular, South Korea drove this performance. Its national index gained around 18% this month, taking it to 46% year-to-date.

Of course, with the implications of the conflict in the Middle East, markets may find March to be harder. But for now, February will be recorded as a positive month for these nations.

Risk warning

As always with investments, your capital is at risk. Past performance is not an indicator of future performance. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.