02.03.202610:07 Forex Analysis & Reviews: Market seeks deeper pockets

Sell first, ask questions later. That has been the motto in the US equity market in 2026. As a result, in February, the S&P 500 posted its worst monthly performance since March last year, and the armed conflict in the Middle East is heightening fears that the consolidation will end in a correction rather than a resumed uptrend.

Monthly S&P 500 performance

In 2025, investors believed in the AI story and bought every dip. Then, after their thesis was validated, they started to sell US stocks. Despite impressive corporate earnings, the US equity market is hard to call exceptional.

In the fourth quarter, S&P 500 companies' earnings rose by 13% and beat Wall Street estimates by 5 percentage points. European issuers' profits gained 4.5%, three times the expected figure. 75% of US corporates beat estimates — the lowest share in three years and down from 82% in the third quarter. In Europe, that figure was 47%, below the five-year average of 54%.

Nevertheless, unlike the S&P 500, the EuroStoxx 600 rose by almost 4% in February and extended its winning streak to eight months.

European equity market performance

There is clearly rotation from the US into Europe. And that's not the only region attracting inflows from American investors. According to Citigroup, global asset managers overseeing $20 trillion prefer Asia, Latin America, the Middle East, and even Africa. Strong performance in South Korean and Taiwanese indices is accelerating capital outflows from the United States.

The S&P 500 is not supported by the economy either. US GDP slowing to 1.4% was the first warning sign. Things get worse from there. Rising producer prices and the armed conflict in the Middle East increase the risk of a prolonged pause in the Fed's easing cycle. Even if Donald Trump appoints Kevin Warsh as chair, one person cannot change the institution — the central bank is not a one-man show; FOMC decisions are made collectively.

If in 2025 a Fed funds cut was viewed as a kind of safety cushion for the S&P 500, that cushion no longer exists for the broad index. And Donald Trump himself does not seem overly concerned about the tightest trading range for equities at the start of the year since the 1960s. Trump's put is not working, which makes the bears bolder. Add to that a deterioration in global risk appetite due to geopolitics, and it is clear that buyers are in a tough spot.

Technically, the daily chart shows that the S&P 500 remains in a mid-term consolidation between 6,800–7,000. The risk of a break of the lower boundary is rising. Triggers for selling would be tests of support levels at 6,835, 6,815, and 6,800.