By Panos Mourdoukoutas
Stocks closed the week higher on bargain hunting despite lingering concerns that artificial intelligence (AI) could shift from a market tailwind to a headwind, alongside mixed signals on the state of monetary policy and the economy.
For the week, the Dow Jones Industrial Average rose by 0.35 percent to 49,625, remaining below its Feb. 18 high. The S&P 500 advanced by 1.12 percent to 6,909, while the Nasdaq Composite gained 1.28 percent. The Russell 2000 outperformed, climbing by 1.83 percent.
Volatility spiked early in the shortened trading week before easing. The Chicago Board Options Exchange Volatility Index briefly moved above 22 on Feb. 17, fluctuated midweek, and settled at 19.06 on Feb. 20, down by 7.13 percent for the week.
Stocks opened the shortened week on Feb. 17 searching for direction as investors weighed AI’s potential impact on Big Tech earnings and cash flows. Shares of Microsoft, Alphabet, and Amazon declined in morning trading before stabilizing later in the day.
Enterprise software stocks extended recent losses amid uncertainty over AI’s disruptive effects. Adobe, Salesforce, and Intuit were among the decliners.
General Mills added to market unease after reporting weaker-than-expected earnings, pressuring consumer staples.
Some companies bucked the trend. Nvidia rose by 1.20 percent, lifting semiconductor shares, while Apple gained by 3.17 percent. Their advances helped the S&P 500 and Nasdaq finish slightly higher, while the Dow and Russell 2000 ended flat.
Markets turned decisively positive on Feb. 18, led by a 0.78 percent gain in the Nasdaq. The S&P 500 and Russell 2000 each rose by roughly half a percentage point, while the Dow added 0.26 percent.
Bargain hunting in digital services, particularly software stocks that had sold off on AI concerns, supported the rally.
“We believe the software stock selloff is overdone, as this is a largely knee-jerk reaction as investors are trying to figure out the winners and losers from AI,” Paul Stanley, chief investment officer at Portsmouth, New Hampshire-based Granite Bay Wealth Management, told The Epoch Times.
Investor enthusiasm was tempered by minutes from the Federal Reserve’s January meeting, which showed policymakers divided on the path of monetary policy.
Heather Long, chief economist at Navy Federal Credit Union, said the minutes suggested the Federal Reserve is likely to continue to put interest rate cuts on hold until at least June.
She noted that most officials see no urgency to adjust rates, citing a stabilizing labor market and moderating inflation.
“While no Fed official wants to talk politics, the reality is waiting until the next Fed chair is in place to cut rates in June would also help relations between the White House and the Fed,” Long told The Epoch Times.
Uncertainty over rates persisted on Feb. 19, with the 10-year Treasury bond yield rising for a third straight session to top 4.1 percent, its highest level in a week.
Higher yields weighed on rate-sensitive sectors such as homebuilders and high-valuation technology stocks. The Nasdaq fell by 0.31 percent, and the S&P 500 declined by 0.28 percent.
Financial shares also came under pressure amid renewed concerns in private equity markets, contributing to losses in the Dow.
Escalating tensions between the United States and Iran pushed oil prices and energy stocks higher, helping limit the Dow’s decline to 0.54 percent, as gains in Chevron supported the index.
Feb. 20 saw a wave of economic data. Gross domestic product (GDP) expanded at an annualized 1.4 percent in the fourth quarter of 2025, the slowest pace since the first quarter and below expectations of 3 percent, largely due to the government shutdown.
Consumer spending growth slowed to 2.4 percent from 3.5 percent, reflecting a 0.1 percent drop in goods purchases, while services spending rose by 3.4 percent.
The Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures price index, rose by 2.9 percent year over year in December, up from 2 percent in November and slightly above market expectations of 2.8 percent.
The University of Michigan’s five-year inflation expectations reading held at 3.3 percent in February, matching January’s number.
The combination of slower growth and persistent inflation revived stagflation concerns, a scenario that complicates the Federal Reserve’s ability to support growth while containing price pressures, adding to the prospect of a divided Federal Open Market Committee over the direction of monetary policy.
An eToro U.S. investment analyst told The Epoch Times that markets were digesting softer growth alongside firmer inflation during a busy session that also included February options expiration, describing the data mix as less than ideal for investors.
Markets also reacted to the Supreme Court’s decision to strike down President Donald Trump’s global tariffs.
Despite the heavy news flow, equities responded in an orderly manner. The Dow, S&P 500, and Nasdaq closed solidly higher on Feb. 20, while the Russell 2000 finished slightly lower.
Rick Gardner, president at Raleigh, North Carolina-based RGA Investments, said the fourth quarter GDP reading was weaker than expected but still signaled continued expansion.
He anticipates strong economic growth in 2026, driven by business investment, consumer spending, and easing trade pressures.
“The stock market has been extremely resilient so far in 2026, even amid continued geopolitical concerns and worries about AI overextension,” Gardner said.
