Market Update - 18 February 2026

The past week delivered a tale of two markets. On one side, a reassuring U.S. inflation print and a surprisingly strong labour market report suggested the American economy remains on solid footing. On the other hand, a punishing rotation out of technology stocks reminded investors that the AI investment boom carries real risks and that concentration in a handful of mega-cap names can cut both ways.

US CPI for January came in at 0.2% month-on-month, below the 0.3% consensus, pulling the headline year-on-year rate down to 2.4% from 2.7% in December. The number was enough to drive two-year Treasury yields to their lowest level since mid-2022, settling around 3.41%, while the ten-year slipped to 4.05%. Markets nudged Fed cut pricing modestly higher, though still only one full cut is priced by mid-year, reflecting lingering caution about whether disinflation can be sustained given still-firm core readings in the high twos.

The labour market added to the mixed picture. January non-farm payrolls surprised to the upside at 130,000, double what was expected, and the unemployment rate ticked down to 4.3%. Underneath, however, strength was concentrated in healthcare, government, and leisure, while manufacturing, construction, and technology shed jobs. Large historical downward revisions - 862,000 fewer jobs through March 2025 than previously estimated - reinforced the narrative that the prior years' labour market was softer than initially reported, even as the most recent data pointed to stabilisation.

The week's defining theme, though, was the ongoing beating of technology stocks. The Nasdaq fell 1.5% on Thursday alone after Cisco's guidance flagged sharply higher chip costs and thinner margins, sending shares down 11%. An ETF tracking software-as-a-service companies dropped over 4% in a single session. Month-to-date US tech stocks have dragged returns by over three percentage points, with names like Amazon, Booking, DoorDash, AMD, and Palantir all suffering double-digit declines. The equal-weighted S&P 500, by contrast, actually posted a small gain on several of those down days, a clear signal that this was a concentrated rotation rather than a broad bear market.

The flipside of that rotation was evident in Asia. Japan's Nikkei surged nearly 4% following Sanae Takichi's landslide election victory, which delivered a rare two-thirds supermajority. Markets welcomed the political certainty, though questions remain about how expansionary fiscal promises will be funded without additional bond issuance. Across Asia Pacific more broadly, month-to-date returns were firmly positive, with Thailand and Macau among the standouts.

Closer to home, Australian data kept the pressure firmly on the RBA. Housing loan commitments surged over 10% in Q4, consumer confidence slipped to an 18-month low, and Deputy Governor Hauser was blunt in his assessment that inflation remains too high. The Australian dollar touched a post-June 2023 high of 71.47 US cents before retreating to around 70.7 cents as the tech selloff weighed on risk sentiment.

Gold pushed back above $5,000, oil remained volatile on Iran tensions, and Bitcoin continued its slide, down 28% over the past month. It was a week that rewarded diversification, punished concentration, and left central banks everywhere still searching for the elusive soft landing.