Market and economic commentary
February 2026

Resilience amidst a sector shift

A strong earnings cycle laid the foundation for how a series of volatile events were received by the market. The Compass Portfolios and all but two ATBIS Pools closed the month in solid positive territory. The two in red were ATBIS US Equity Pool and ATB Global Equity Pool.¹ Up-to-date performance data for ATB Funds can be found on the ATB Investment Management website here.

Below are index one-month total returns in Canadian dollar (CAD) terms for February:

Divergent equity markets: TSX leads, US lags

All major indices closed in strong positive territory in February—most notably the TSX (+7.7%) on the back of strength in banks and gold miners. International and Emerging Market equities also saw strong performance during the month. US equities were the odd one out with a flat finish. The market saw some bouts of volatility, which we expect to continue and may even increase in scale. Certain activity under the surface also deserves some examination. 

The "SaaS Apocalypse"

The software sector saw its worst quarter since 2008. Some estimate that over $2 trillion in total market capitalization globally was wiped out in this sector during a period. With the majority of these names domiciled in the US, that was naturally where the pain was most acutely felt. 

Software-as-a-service (SaaS) business models saw a major reset as many of these names plunged 10-30% in price, fueled by fears that generative AI tools—such as Anthropic’s “Cowork”—may replace traditional software products wholesale. Compounding the pain were “science fiction” thought pieces published by research boutiques that reimagine a near future when AI replaces human jobs and decimates today’s household software names. 

Rather than diving too deeply into it play-by-play, let’s put this into context. SaaS businesses have historically enjoyed high margins and persistent revenue growth almost like clockwork. How many of us remember exactly what we pay for our Netflix or Amazon Prime subscriptions each month? Or for the AI-inclined, do we really pay that close attention whenever OpenAI or Google hikes their prices? Begrudgingly, most of us just accept it as a “cost of living” and move on. 

These traits—predictably low churn rates, annual price increases, defensible margins with moats, fixed cost structure, etc.—are what made these businesses so attractive to investors. The recurring business models were essentially a license to print money. It is what propped up software valuations for decades. However, the sudden arrival of generative AI represents a "left-field" disruption. Because the SaaS market was previously so stable, the mere threat of AI replacing these products caused a massive, swift repricing—what the media has dubbed the “SaaS Apocalypse.”

Earnings euphoria provides a safety net

The good news is that this reset happened during a period of earnings euphoria in the S&P 500 (+14% YoY). We have enjoyed five consecutive quarters of double-digit year-over-year earnings growth. Notably, Nvidia—the last of the “Magnificent 7 (Mag7)”² to report— smashed expectations in the latest Q4 reporting cycle (EPS $1.62 actual vs $1.54 expected; Revenue $68.13B actual vs $66.23B expected). All that is to say, investors can likely absorb some soft spots in specific areas when the broader fundamentals remain this strong. 

These reset moments are helping market leadership broaden. The earnings growth gap between the Mag7 and S&P 493 are steadily closing quarter after quarter. This is great news for market health and investors—it puts more winners on the board and adds market structure diversification. After the recent price action, the Mag7 are collectively trading at their most attractive levels since 2020 relative to the overall index. Moreover, robust earnings growth and muted price action have led to the S&P 500 12-month forward price-to-earnings ratio to come down to 21.2 as of March 6, 2026. For investors looking for entry points in an earnings-rich market, it is hard to see this as anything but an opportunity to enter at more reasonable valuation levels. 

Fixed income and central bank policy

Bond markets saw another positive month as interest rates were held steady by the Federal Reserve and Bank of Canada. Aside from Australia, the other G10 central bankers followed suit and put policy on pause. The recent kinetic conflict in Iran may put upward pressure on inflation in the short term. However, with inflation rates still holding onto a 2-handle in Canada in the latest CPI print (January 2026 2.3% YoY), the Bank of Canada has maintained its “wait and see” policy approach. 

Compass Portfolios Series F1 - Returns net of fees (%)

ATBIS Pools Series F1 - Returns net of fees (%)

¹ Using F series returns
² Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla