“Many investors are forced to focus on the next quarter, not the next decade. That short-term pressure pushes prices away from long-run value. When you are willing and able to hold through temporary underperformance, you can earn returns that impatient investors leave behind.” Alpha Architect
February was a mostly positive month of performance for the equity markets, led by the strong performance in both the Developed International (MSCI EAFE) and the Emerging Markets (MSCI Emerging Markets). The US indexes were led by Small Cap and Midcaps, with the Dow Industrials slightly positive, and the S&P 500 slightly negative. Bonds turned higher as yields fell. The Dollar and Commodities were both negative for the month.
All data as of 03/02/2026, Source: Wells Fargo Investment Institute. An index is not managed and not available for direct investment. Past performance is not a guarantee of future results. [Wells Fargo Investment Institute, Inc. is a registered investment advisor and wholly-owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.]
The first few months of 2026 have produced what, in our opinion, appears to be a market looking for new leadership. After a decade of dominance in the technology sector and the largest of the large companies, a broadening out is happening beneath the surface: small- and mid-caps showing signs of life as international markets maintain relative strength vs. the US. From a sector perspective, the rotation away from the narrow mega-cap leadership confirms this trend. Energy, Materials, and Consumer Staples have been leading the way!
There is a logic to what is happening. Periodically, markets change what they “care about” – from liquidity to growth to productivity to innovation. Over the past few years, companies enabling AI (chips, cloud, infrastructure) have been reaping all the rewards. We believe that the markets are entering the next phase in which investors reward companies that use AI to drive productivity, not just those building it out.
We believe that the stock market may be moving from the AI discovery phase – excitement about what could be coming along with the buildout – to the implementation phase of adopting the new technology through real-world applications and cost savings. For some of us, this may feel new and unprecedented. It is not. In fact, there have been two previous transitions that have reshaped the world and market leadership. Historically, we see similarities between the electrification in the 1920s and the internet revolution of the 1990s.
The Big Picture: AI as a Transformational Force
AI matters because it appears to be moving from theoretical to practical application. We’re no longer talking about distant possibilities or academic models—we’re watching companies across sectors begin to deploy tools that change how work gets done. What stands out to us is the speed of this shift: AI is already improving decision‑making, automating routine tasks, and opening the door to meaningful productivity gains. That’s why markets are paying attention. When a technology moves from promise to implementation, it stops being a story about “what might happen someday” and becomes a story about earnings, margins, and competitive advantage. We’re entering that phase now, and it has the potential to reshape not just the tech sector, but the broader economy in ways that matter for long‑term investors.
What are the opportunities created by AI:
- Productivity gains that could support long-term economic growth.
- New industries and business models emerging around automation, data, and decision intelligence.
- Potential for margin expansion as companies streamline operations.
- A broader set of beneficiaries beyond the early AI leaders.
Of course, there are some areas of concern:
- Valuations of certain AI-related companies may be ahead of fundamentals.
- Adoption will be uneven across industries and geographies.
- Regulatory frameworks are still evolving.
- Productivity gains may take longer to materialize than markets expect.
AI and the Future of Work: More Jobs, Not Fewer
Change can be feared or embraced. It’s perfectly natural to feel unsettled when familiar patterns begin to shift, but history shows that progress rarely moves in a straight line—and it never moves by standing still. Each major transformation, from electrification to the internet, created periods of uncertainty before ultimately expanding opportunity and raising living standards. AI is no different. We can view it as a threat to what we know, or we can recognize it as the next chapter in human ingenuity—one that will reshape work, create entirely new categories of jobs, and elevate the value of uniquely human skills. The choice is whether we fear the transition or embrace the possibilities it unlocks.
Past technological booms – electrification in the 1020s and the internet in the 1990s – changed the world for the better, creating new and expanded work opportunities. Economist Joseph Schumpeter, in 1942, described his theory of creative destruction as an “incessant” process in which innovation and new technologies change the market structures to create superior ones. More traditional business models decline while new, more efficient and productive business models lead to higher wealth and living standards.¹
We believe we are currently living through the beginning of a massive change in how the world works because of AI. In our opinion, jobs are likely to be created in:
- AI maintenance, training, oversight, and integration roles.
- Human‑AI collaboration fields (e.g., analysts, designers, educators using AI tools).
- Entirely new categories of work that don’t exist yet, similar to how the internet created digital marketing, cybersecurity, cloud engineering, etc.
For those in the workforce, or heading to the workforce in the coming years, it is important not to be complacent and understand where the job creation (and destruction) is likely to occur, and many of the jobs that stick around will be significantly reshaped. For many, it will be a job evolution. Like in past industrial shifts, keeping up with job skills, education, and reeducation will be necessary.
What Does This Mean for Investors
Record‑breaking investment is reshaping the landscape of both infrastructure and artificial intelligence. American hyperscalers alone are projected to spend $650–$700 billion building out the data centers, power capacity, and specialized hardware required to support next‑generation AI systems.² And this is only part of the story: Gartner estimates that worldwide AI‑related spending will reach roughly $2.5 trillion, driven by rapid growth in AI infrastructure, software, and services.³ What ties all of this together is a broader shift in corporate behavior. Companies aren’t investing in AI for novelty; they’re investing to drive efficiency, reduce costs, and protect or expand profit margins in a competitive environment. As adoption accelerates, AI becomes less of an experimental tool and more of a core operational capability, setting the stage for meaningful productivity gains across the economy.
Up to this point, investing in AI was limited to a handful of the largest technology companies and energy producers. While we believe that it is likely these companies will continue to benefit, the next phase of AI adoption is poised to spread to companies outside of the traditional technology sector.
Looking ahead, diversification beyond the initial AI winners has become much more important. Market leadership could rotate away from mega-cap growth into areas that many investors have overlooked. Small- and mid-caps, international markets, and some individual market sectors may participate in a more meaningful way.
Staying disciplined in this environment means keeping focus on fundamentals rather than getting swept up in hype cycles or short‑term speculation. The companies best positioned to benefit from AI are not necessarily the loudest or the most talked‑about — they’re the ones with strong balance sheets, durable cash flows, and adaptable business models that can integrate new technologies without disrupting their core operations. AI is ultimately a long‑duration investment theme, one that will unfold over years and decades, not weeks or months. Maintaining that perspective can help you separate genuine structural change from temporary excitement and stay aligned with opportunities that compound over time.
While AI is accelerating change across industries, we believe the real advantage comes from approaching this moment with patience, clarity, and long-term orientation. The most durable opportunities tend to emerge not from chasing what’s moving today, but from understanding how innovation reshapes productivity, profitability, and economic growth over time. As AI becomes more deeply embedded in business models and daily life, the landscape will continue to evolve—sometimes quickly, sometimes unevenly. That’s why staying grounded in fundamentals, disciplined in allocation, and focused on multi‑year outcomes can allow you to benefit from the structural shifts underway.
Final Thoughts: What should you be doing?
We do not see the world heading toward mass unemployment or economic decline due to AI. Instead, a period of transition and reinvention that will lead to greater productivity and prosperity is just getting started. We believe AI is likely to reshape the economy while creating new opportunities. In the coming years, we expect to see markets start to reflect this shift, rewarding the companies that show the ability to adapt and innovate.
This is not something that happens often. When it does, it requires investors to remain disciplined and focused on the long-term as progress is never linear. Put another way, don’t let the next quarter’s performance cloud your perspective and get in the way of the next decade.
As always, we’re here to help you navigate the path ahead—whether it’s updating your plan, rebalancing your portfolio, or thinking through the next chapter of your financial journey. If you have questions or want to explore your options, don’t hesitate to reach out.
If you would like to discuss your current strategy, or how to build such a strategy, Contact Our Team Of Financial Advisors Today!
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Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.
Asset allocation and diversification are investment methods used to help manage risk. They do not guarantee investment returns or eliminate risk of loss including in a declining market.All investing involves risks including the possible loss of principal invested. Past performance is not a guarantee of future results.
Index returns are not fund returns. An index is unmanaged and not available for investment.
Dow Jones Industrial Average: The Dow Jones Industrial Average is a price-weighted index of 30 “blue-chip” industrial U.S. stocks.
S&P 500 Index: The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index with each stock’s weight in the Index proportionate to its market value.
S&P Midcap 400 Index: The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between the S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.
S&P Small-Cap 600 Index: The S&P SmallCap 600 Index consists of 600 domestic stocks chosen for market size, liquidity (bid-asked spread, ownership, share turnover and number of no trade days) and industry group representation. It is a market value-weighted index (stock price times the number of shares outstanding), with each stock’s weight in the index proportionate to its market value.
MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.
MSCI World Index: The MSCI World Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance.
MSCI EAFE® Index: The MSCI EAFE Index is designed to represent the performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the U.S. and Canada.
MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
The CRB (Commodity Research Bureau) Index measures the overall direction of commodity sectors. The CRB was designed to isolate and reveal the directional movement of prices in overall commodities trades.
Bloomberg Barclays U.S. Aggregate Bond Index: Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based measure of the investment grade, US dollar-denominated, fixed-rate taxable bond market.
NASDAQ Composite Index: The NASDAQ Composite Index measures the market value of all domestic and foreign common stocks, representing a wide array of more than 5,000 companies, listed on the NASDAQ Stock Market.
Russell 2000® Index: The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents.
U.S. Dollar Index (USDX) measures the value of the U.S. dollar relative to majority of its most significant trading partners. The index is similar to other trade-weighted indexes, which also use the exchange rates from the same major currencies.
Technical analysis is only one form of analysis. Investors should also consider the merits of Fundamental and Quantitative analysis when making investment decision. Technical analysis is based on the study of historical price movements and past trend patterns. There is no assurance that these movements or trends can or will be duplicated in the future.
Stocks offer long-term growth potential, but may fluctuate more and provide less current income than other investments. An investment in the stock market should be made with an understanding of the risks associated with common stocks, including market fluctuations.
Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility.
Investments in fixed-income securities are subject to market, interest rate, credit and other risks. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the bond’s price. Credit risk is the risk that the issuer will default on payments of interest and/or principal. The risk is heightened in lower rate bonds. If sold prior to maturity, fixed income securities are subject to market risk. All fixed income investments may be worth less than their original cost upon redemption or maturity.
Investing in commodities is not suitable for all investors. The commodities markets are considered speculative, carry substantial risks, and have experienced periods of extreme volatility. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. The prices of various commodities may fluctuate based on numerous factors including changes in supply and demand relationships, weather and acts of nature, agricultural conditions, international trade conditions, fiscal monetary and exchange control programs, domestic and foreign political and economic events and policies, and changes in interest rates or sectors affecting a particular industry or commodity. Products that invest in commodities may employ more complex strategies which may expose investors to additional risks, including futures roll yield risk.
Robert I. Cahill, Partner
Rob.Cahill@wfafinet.com
Jonathan D. Soden, Managing Partner
Jon.Soden@wfafinet.com
Cassandra Queen, CFP®,ChFC®, Senior Wealth Planner
Cassandra.Queen@wfafinet.com
Susan C Schupp, MBA, Senior Wealth Planner
Susan.Shupp@wfafinet.com