Treasuries Rally in February While Stocks Post Losses: Feb. 27, 2026

Doubts about the return prospects of enormous AI capital expenditures paired with the potential for the modern technology to significantly disrupt industries throughout corporate America dealt losses to stocks in February. And as equities are poised to suffer their worst monthly performance since March, Treasures are set for their strongest gains in a year, as safe-haven demand bolstered interest in fixed-income assets. Not even today’s stronger-than-expected PPI was able to stand in the way of plunging yields, with the curve descending in bull-flattening motion, as the longer-tenors fall faster than the closer-dated maturities. The rally in duration is emblematic of rising slowdown concerns stemming from slipping investor sentiment, as wealthier households have been powering cyclical buoyancy on the back of terrific portfolio expansions for three consecutive years. The appreciation has kept them spending heavily while lower- to middle earning individuals dependent on jobs have generally struggled with managing inflation, heavier financing charges and decelerating hiring. The risk driving the strong bid in US government debt is that a weak annum for share prices would lead to consumers curtailing their expenses in consideration of an increasingly turbulent landscape. The vulnerability is especially pronounced when considering that shareholders have been conditioned to seeing their aggregate holdings rise in value consistently since the beginning of 2023. Despite the bearish day consisting of all indices deep in the red, participants are buying the defensive utilities, staples and healthcare sectors while also adding to real estate in light of cheapening mortgages possibly propelling housing transactions and construction. Elsewhere, cryptocurrencies are getting creamed again on a lack of animal spirits, commodities are green across the board, the greenback is nearly flat, volatility levels are climbing and forecast contracts are experiencing engagement.

Gate Stickers Up More than Expected

Wholesale inflation expanded at its fastest pace since September as strong consumer demand and tariff pressures lifted cost forces. The January Producer Price Index (PPI) increased 0.5% month over month (m/m) and 2.9% year over year (y/y), much higher than the median estimates of 0.3% and 2.6%. The gauge was up 0.4% and 3% in December. Total services rose 0.8% m/m, driven by the trade and transportation/warehousing components, which climbed 2.5% and 1% while the other category served as an offsetting factor, coming in unchanged. In goods, core products ascended 0.7% m/m while energy and food costs dropped 2.7% and 1.5%. At the granular level, equipment, portfolio management, airfare, and physicians all saw fast increases.

December Groundbreaking Was Strongest Since August

Construction spending rose 0.3% m/m in December as a strong 1.5% increase in housing projects offset a 0.6% decline in the nonresidential category. New single-families outperformed multis, meanwhile, rising 1.6% versus the latter’s 0.1%. This report was delayed due to last year’s government shutdown, but nonetheless, it was the best performance since August.

K-Shaped Consumers Mean Stocks Are the Economy

The K-shaped bifurcation we’ve seen amongst consumers means that stocks are the economy, with shareholders increasingly responsible for a heavier share of household expenditures. Today’s underperformance from the cyclically oriented areas of the market adds further credence to this development, as doubts about AI prospects signal risk for the fundamentals of the Dow Jones and the Russell 2000 constituents. Those benchmarks are up 1.7% and 5.4% year-to-date on stronger odds of a reacceleration in activity, but with weakening tech sentiment potentially leading to shoppers pulling back, the indices are falling much harder than their Nasdaq 100 and S&P 500 counterparts today despite those two taking losses in 2026 so far. Meanwhile, with the American public heavily exposed to the Magnificent Seven, disappointing trends from that basket are poised to weigh on GDP possibilities overall, denting the argument that momentum will quicken as sluggish action offsets the traditional positive benefits provided by lighter taxation, milder regulations and the capital expenditure incentive measures from 2025’s passage of the Big Beautiful Bill.

International Roundup

Hong Kong Trade Deficit Falls

Hong Kong trimmed its merchandise trade balance last month from HK$63.3 billion in December to HK$14.1 billion with the timing of the Chinese New Year contributing to a y/y gain in exports. Merchandise shipped abroad was up 33.8% relative to the year-ago period, an acceleration from December’s 26.1% y/y gain. Last year, the two-week Chinese New Year celebration, which curtails exports because factories close and supply chains are disrupted, was in January, unlike this year, when the event occurred earlier this month. The difference created a lower base comparison, helping push up y/y exports. Notwithstanding that factor, exports are growing, according to a press release from Census and Statistics Department. Shipments to Asia climbed 37.3%. Taiwan, Malaysia and Chinese Mainland led with growth of 88.8%, 81.1% and 40.6%. Outside of Asia, demand from Switzerland, the Netherlands and the US grew the most with increases of 105.1%, 39.5% and 23.3%.

Also in January, imports climbed 38.1% y/y following December’s 30.6% gain. Vietnam, India, Korea, the Chinese Mainland and Singapore experienced the largest increases in products shipped to Hong Kong with gains of 129.8%, 125.1%, 75%, 46% and 42.8%.

While Sales Turn Positive

Retail sales in Japan climbed 1.8% y/y in January, exceeding the economist consensus estimate for a 0.1% advancement and reversing from December’s 0.9% decline, according to the Ministry of Economy, Trade and Industry.

Sales were even more encouraging among large retailers with y/y and m/m gains of 3% and 4.1%. The y/y result was only 1% in December while the metric’s m/m counterpart sank 2%.

Industrial Production Also Turns Positive

Japanese factory production ascended 2.2% m/m in January, according to a preliminary estimate. While the print missed the 5.5% economist consensus estimate, it was a notable improvement from December’s 0.1% slip.

Canada’s Annual GDP Growth Hits Slowest Pace Since 2020

Canada’s gross domestic product (GDP) was up 1.7% last year, the slowest growth since the contraction in 2020, according to Statistics Canada. The sluggish GDP performance appears to have continued last month with no economic growth in January, according to a flash estimate. In comparison, GDP was up 0.2% in December.

The disappointing print for 2025 resulted, in large part, from declining exports to the US following the country’s southern neighbor imposing import taxes. The final quarter, furthermore, suffered from a 0.2% quarter over quarter (q/q) decline after a 0.6% expansion in the July through September period.