By Rick Schwerd | February 27, 2026
Our investment team remains committed to sharing updates and market insights to keep you informed. Please look for our next update on March 6.
Volatility Continues
Major indexes have shown resilience so far this year, but there has been significant volatility beneath the surface. Concerns over artificial intelligence (AI)-related disruptions, potential overinvestment in technology and geopolitical tensions (including U.S.-Iran issues) contributed to pullbacks. The Nasdaq underperforming due to its tech-heavy composition, falling 3.5 percent over the last month and now down 2 percent year-to-date. The S&P 500 had fared better, declining by about 1 percent over the past month but remaining up 0.6 percent for the year.
Software-related stocks continue to face pressure as fears that AI will disrupt their business models and reduce demand for their services. The S&P Software Index is down 20 percent so far this year. In contrast, the S&P 500 Semiconductor & Semiconductor Equipment Index is up nearly 4 percent in 2026 as demand for semiconductor chips continues to outstrip demand.
This volatility highlights why diversified portfolios remain a sound strategy. Early in the bull market, performance was generated by a few large-cap tech stocks, characterized by the Magnificent Seven (Nvidia, Microsoft, Apple, Meta, Google, Tesla and Amazon). However, over the last six to nine months, these stocks have generally underperformed the broader market while other sectors gained momentum.
Intermediate and long term, we remain positive on large-cap technology. These companies have generally reported strong earnings and have increased forward estimates, much like Nvidia did this week. Still, markets can be fickle at times and ignore strong performance when sentiment is negative.
Government Shutdown Weighs on Fourth-Quarter GDP
Fourth quarter GDP was released last week at a disappointing 1.4 percent, below expectations of roughly 2 percent. The prolonged government shutdown shaved about 1 percent from growth due to reduced federal spending. Despite weak headlines, markets largely viewed the impact as temporary, with a likely rebound in the current quarter. Consumer spending held up reasonably well at approximately 2.4 percent growth.
Estimates call for a rebound in GDP this quarter to the 2.5 percent to 3 percent range. The Federal Reserve's recent minutes suggested optimism for above-trend growth through 2028, driven partly by productivity gains from AI, though with some caution on inflation and policy paths.
Looking Ahead
With fourth-quarter earnings season essentially complete, markets will now focus on upcoming economic releases. Next Friday brings the January labor market report and retail sales data. Markets will watch whether the labor market can build on last month's strong report. Retail sales may have been weighed down by winter storms and extreme cold weather during January. The following week, several January inflation data reports will be released.
Have a great weekend and as always, if you have any questions or concerns regarding markets or your financial planning needs, please reach out to us at (518) 415-4401.
About the Author: With almost three decades of financial industry experience, Rick serves as a Senior Investment Officer at Arrow Bank. He oversees individual and corporate retirement plans, personal trusts, investment management accounts, foundations and not-for-profit relationships.