Asset Management
02/17/2026 Market Strategy
February 17, 2026
The Sky Is Not Falling
Fears of a Software Shakeout from AI Roils Markets
Key Takeaways
- Investors rotated and rebalanced portfolios again last week, continuing the broadening in S&P 500 sector gains from the tech-centric rallies of last year. Small and mid-caps continue to gain investor interest as the Russell data shows value stocks outperforming growth stocks over 2026 to date.
- The S&P 500 earnings season continues to show better -than - forecast results. With 74 % of companies having reported, earnings growth has reached 12.2% on back of revenue gains of 8.9 %. Ten of the 11 sectors are showing earnings growth, with four at double -digit rates. Just one sector (consumer discretionary) , is seeing a small earnings decline from a year earlier.
- This week 57 companies are scheduled to report followed by 55 firms over the week of Feb. 23.
- Last week’s nonfarm payrolls report showed a gain of 130,000 in January, twice the consensus estimate. The gain helped shave a tenth off of the unemployment rate, which slid to 4.3%.
- Meanwhile, consumer prices moderated toward the Fed’s 2% target, with the headline and core rates at 2.4% and 2.5% from a year earlier, down from their 3% rates recorded in September.
The emergence of the disruption thematic tied to AI that has gained much attention and caused more than a few stocks to bounce between gains and losses of late roiled markets for another week.
For now, investors appear to be distancing themselves from the over concentration in areas of technology and other sectors favoring rebalancing and rotation across asset classes and among stocks – across sectors, market capitalizations, or style.
In our view, the perceived risk that current and near generations of artificial intelligence pose or could pose to business, employment, society in general and a broad range of the stuff in the day -to -day life of Main Street and Wall Street has begun to disrupt markets.
The first “tranche of appraisal” of the situation roiling segments of tech and other sectors at this time suggests to us that the big money in software (“the giants”) will likely morph to adapt and maintain and perhaps even exceed the importance they have in their customers businesses and lives.
AI fear mongers presently hold software and several other sub sectors hostage as traders, ponderers, and “negative pitchbook” purveyors, along with fundamental investors assess the breadth and depth of the disruption current generations of AI and those to follow might present on the economic, political, and geopolitical landscape.
The Good News
For now, investors appear to be distancing themselves from the over concentration in areas of technology and other sub sectors favoring rebalancing and rotation across asset classes and among stocks – whether in sectors, market capitalizations, or style.
Leveraged and aggressive traders appear to have unwound positions that have broadly lost favor while intermediate - to long-term investors have been reminded of the importance of diversification in markets that reflect transitions taking place in monetary policy, business, the workplace and at home.
We’re all on the upgrade cycle whether we like it or not
One thing about AI at this point in the timeline of technology is that like its predecessors —the other “genies” of tech and industrial progress — it is unlikely to go back in the proverbial bottle it came from.
It may become regulated, certified, “guard railed” or whatever else, but it is likely here to stay and more than likely to morph to accommodate itself as modern technology does in our lives to become deeply embedded in the lives the consumer.
While the performance of the S&P 500 so far this year reflects the diversification away from what has been for many market participants — overconcentration in the two sectors focused on technology (information technology and communications services) — other sectors have gained the attention and fund flow that has exited the tech space.
The Signal persists stronger than the Noise
Consider that on a year-to-date basis, the S&P 500 is off 0.14% or essentially flat with a negative bias.
Seven sectors as of last Friday are outperforming the index in the year to date: energy +21.3%, materials +16.6%, consumer staples +15.6%, industrials +12.3%, utilities +8.4% and healthcare +1.7%.
Four sectors year to date are down: communications services -2.5%, information technology -4.95%, consumer discretionary - 4.99% and financials -5.9%.
At a glance this summary of sector performance shows sectors that were among the worst performers last year are among the best performers this year while three of the worst performing sectors this year were among the top performing sectors last year providing evidence that indeed rotation and rebalancing has occurred and an effort to reduce sectoral over - concentration has indeed taken place. We believe this contributes to a heathy market.
The Broadening of Market Gains Continued Last Week
Last week saw for yet another week an assortment of asset classes and particularly some individual stocks “running the gauntlet” as institutional repositioning tied to selling of software stocks continued.
In what some have called the “AI Armageddon trade” selling extended to private credit, real estate brokerage, data analytics, legal services, logistics, and even insurance brokerage stocks according to Barron’s and other news services.
Traders, skeptics, and nervous investors could likely continue this week looking for any catalysts that surface that could be seen as opportunity to take profits on equity positions without FOMO (fear of missing out) in the near term.
We remain positive in our outlook for the markets this year and favor diversification across asset classes, sectors, market capitalizations, and style.
We continue to overweight equities and see fixed income as complementary to equities and useful for current income and diversification.
Name:
John Stoltzfus
Title:Chief Investment Strategist, Oppenheimer Asset Management Inc.
John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.
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