Free for the summer: every weekly report is free for everyone, with no delay and no account needed, until September 7. Read the latest →

Equities

Equities Rally on Rate Cut Hopes Despite Elevated VIX

Issue 2Week ending February 22, 202612 sources

S&P 5006,861.89+2.1%
S&P/TSX24,850.00+1.8%
Nasdaq22,682.73+2.8%
Russell 20002,285.00+3.2%
VIX20.23-2.1pts
Upgrade to Export

Week Ending February 22, 2026

Equities Rally on Rate Cut Hopes Despite Elevated VIX

§ 01

Key takeaways

Sectors

Cyclicals led the rally with financials +3.4% and small-cap industrials +4.1% on rate cut speculation, while defensives lagged significantly.

Style

Growth outperformed value by 180bps as tech rebounded +2.8%, though small-caps' +3.2% suggests broadening beyond mega-caps.

Hedging

VIX fell to 20.23 but remains elevated, suggesting cautious optimism while put/call ratios show lingering defensive positioning.

§ 02

Executive summary

Equities surged this week on dovish Fed pivot speculation, with S&P 500 +2.1% and small-caps leading at +3.2%. Tech rebounded strongly (+2.8%) while cyclical sectors dominated as rate cut expectations boosted financials and industrials. Despite the rally, VIX remains elevated at 20.23, reflecting underlying uncertainty as institutions debate whether this marks a sustainable trend reversal or bear market bounce.

§ 03

Market data

weekly snapshot

QMR MARKET BRIEF

Market posture

Week ending

Overall postureConstructive

Sectors Risk On · Style Growth · Hedging Neutral

Snapshot compiled Feb 20, 2026 · source dates vary

SectorsRisk On
StyleGrowth
HedgingNeutral

Inputs used

S&P 5006,861.89+2.1% 1W
TSX24,850+1.8% 1W
Nasdaq22,682.73+2.8% 1W
Russell 20002,285+3.2% 1W
VIX20.23-2.1 pts 1W
§ 04

Sectors

15 points

Cyclical

  • **Financials leadership ** Banks +3.4% WoW on steepening yield curve — Goldman Sachs sees 'NIM expansion cycle beginning' with Fed pivot expectations (Goldman Sachs Research, Feb 2026)
  • **Energy momentum ** XLE +2.9% as WTI holds $78; RBC upgrades Canadian E&Ps citing '12% FCF yield at current strip' — best risk-reward since 2022 (RBC Capital Markets, Feb 19)
  • **Industrials breakout ** Small-cap industrials +4.1% leading sector rotation; Morgan Stanley sees 'multi-year capex supercycle' driving 15% earnings growth (Morgan Stanley Research, Feb 2026)
  • **TSX cyclicals outperform ** Financials (32% of TSX) driving index gains; BMO sees Big 6 banks trading 9.8x forward P/E vs 10-year average of 11.2x (BMO Capital Markets, Feb 20)
  • **Materials surge ** Base metals +3.8% on China stimulus hopes; Scotiabank upgrades miners to Overweight citing 'inventory destocking complete' (Scotiabank Global Economics, Feb 18)

Defensive

  • **Utilities lag ** XLU -0.8% as higher rates pressure REITs and dividend proxies — sector at 6-month relative performance low vs S&P 500
  • **Healthcare mixed ** XLV +0.5% held back by biotech weakness; large-cap pharma defensive but trading 14.2x forward vs 13.1x 5-year average
  • **Consumer Staples weak ** XLP -1.2% as investors rotate from defensives; P/E premium to market widest since 2021 at 2.8x vs 1.9x average
  • **REITs under pressure ** VNQ -2.1% on rate sensitivity; Canadian REITs down 1.8% with REIT.TO yielding 5.2% vs 10Y Government at 3.8%
  • **Rotation signal ** Defensive/cyclical ratio at 3-month low — clear risk-on appetite as growth fears fade with dovish Fed expectations

Technology

  • **Magnificent 7 rebound ** Mega-cap tech +2.8% led by NVDA +4.2% and META +3.8% — sector concentration remains at 32% of S&P 500 weight
  • **AI momentum continues ** Semiconductor equipment +5.1% on data center capex acceleration; TSMC guidance suggests 'strongest demand visibility in 2 years'
  • **Valuation compression ** Tech forward P/E fell to 24.8x from 27.1x peak, vs 5-year average of 22.4x — still expensive but improving on earnings growth
  • **Earnings acceleration ** Tech sector Q4 earnings growth of 18% vs S&P 500 average of 4.2% — revenue growth re-accelerating to 12% from 8% last quarter
  • **Canadian tech weakness ** TSX Tech index -0.4% underperforming US peers; Shopify +1.1% lagging NASDAQ as multiple compression continues
§ 05

Style

10 points

Growth vs value

  • **Growth dominance ** IWF +2.4% vs IWD +0.6% — 180bp weekly outperformance as rate cut hopes favor duration-sensitive growth stocks
  • **Valuation spread ** Growth P/E premium at 8.2x vs value, down from 9.1x peak but above 6.8x long-term average — compression stalling
  • **Earnings differential ** Growth companies showing 14% forward earnings growth vs value at 6% — widest gap since Q3 2024 supporting premium
  • **Canadian context ** TSX inherent value bias (energy 18%, financials 32%) underperformed S&P growth tilt by 30bp this week
  • **Factor rotation stalling ** UBS downgrades value to Underweight citing 'premature reflation trade' — expects growth leadership to resume (UBS Research, Feb 19)

Size & quality

  • **Small-cap leadership ** Russell 2000 +3.2% vs Russell 1000 +2.0% — best weekly relative performance since December 2024 on rate sensitivity
  • **Quality factor lagging ** High-ROE stocks +1.8% vs market +2.1% as investors chase cyclical leverage plays over defensive quality
  • **Credit sensitivity ** Small-cap banks +4.8% leading size factor as lower rates reduce funding stress and credit risk concerns
  • **Canadian mid-caps ** S&P/TSX Completion +2.4% outpacing TSX 60 +1.6% — broadening beyond large-cap concentration for first time in 6 weeks
  • **Positioning shift ** Wellington Management reducing quality tilt, adding small-cap exposure on 'Fed pivot inflection point' (Wellington Insights, Feb 21)
§ 06

Hedging

10 points

Volatility

  • **VIX elevated regime ** VIX at 20.23 down from 22.4 but holding above 20 — still in 'elevated' regime despite equity rally suggesting caution
  • **Term structure normalizing ** VIX futures curve in mild contango with 2M-1M spread at +0.8 — backwardation stress from last week fading
  • **Put protection persistent ** CBOE put/call ratio at 0.94 vs 0.85 average — defensive positioning remains despite rally suggesting institutional skepticism
  • **Skew elevated ** 25-delta skew at 4.2% vs 3.1% average — tail risk hedging expensive but institutions maintaining crash protection
  • **Volatility outlook ** BlackRock expects VIX to remain 'structurally higher' in 18-25 range vs pre-2024 average of 16 (BlackRock Investment Institute, Feb 20)

Tactical

  • **Cash deployment cautious ** Fidelity recommends maintaining 8-12% cash vs normal 5% — 'rally suspect until sustained below VIX 18' (Fidelity Institutional, Feb 19)
  • **Collar strategies ** Cost of 3-month 95/105 collar fell to 0.8% of notional from 1.2% — protection becoming more affordable for concentrated positions
  • **Stock-bond correlation ** 60-day correlation at +0.31 vs -0.15 average — diversification benefit limited as both assets move on rate expectations
  • **Credit spreads tight ** IG spreads at 95bp vs 110bp average suggesting low tail risk, but HY at 285bp still above 250bp comfort zone
  • **Rebalancing signal ** T. Rowe Price suggests trimming equity overweights above 65% allocation — 'take profits into strength' (T. Rowe Price Insights, Feb 18)
§ 07

Institutional views

12 institutions

Institutional Perspectives

Goldman Sachs

David Kostin

bullish
S&P 500 Target: 7,200
Key Call: Raises target from 6900 on Fed pivot - expects 15% EPS growth

RBC Capital Markets

Lori Calvasina

neutral
S&P 500 Target: 6,800
Key Call: Cautious on rally sustainability - prefers Canadian financials

Morgan Stanley

Mike Wilson

bearish
S&P 500 Target: 6,300
Key Call: Bear market rally - earnings recession not over despite Fed hopes

BMO Capital Markets

Brian Belski

bullish
S&P 500 Target: 7,100
Key Call: US equity outperformance to continue - upgrades industrials

JPMorgan

Marko Kolanovic

neutral
S&P 500 Target: 6,750
Key Call: Tactical rally possible but structural headwinds remain

Bank of America

Savita Subramanian

bearish
S&P 500 Target: 6,200
Key Call: Sell the rally - corporate margins under pressure from wages

TD Securities

Andrew Kelvin

neutral
S&P 500 Target: 6,900
Key Call: Rate cut optimism premature - prefers TSX value over US growth

Scotiabank

Hugo Ste-Marie

bullish
S&P 500 Target: 7,000
Key Call: Commodity supercycle supports TSX - overweight Canadian energy

UBS

Keith Parker

neutral
S&P 500 Target: 6,850
Key Call: Prefer growth over value - defensive positioning until clarity

Wellington Management

Portfolio Strategy

bullish
S&P 500 Target: 7,250
Key Call: Adding small-cap exposure on Fed pivot - most attractive since 2020

Vanguard

Investment Strategy

neutral
S&P 500 Target: 6,700
Key Call: Long-term constructive but near-term volatility expected

BlackRock

Investment Institute

neutral
S&P 500 Target: 6,900
Key Call: Tactical overweight equities but maintain defensive tilts
§ 08

Portfolio implications

Portfolio Implications

Conservative

  • **Sector allocation:** Maintain defensive overweight in healthcare and utilities despite underperformance - rotation may reverse quickly
  • **Quality emphasis:** Focus on high-dividend Canadian banks and utilities yielding 4-6% with strong balance sheets
  • **Hedging strategy:** Maintain 10-15% cash, consider protective puts on concentrated positions as VIX remains elevated
  • **Canadian bias:** Overweight TSX 40/60 vs normal 30/70 - dividend yield advantage and lower volatility

Balanced

  • **Sector rotation:** Cautious cyclical tilt - overweight financials and industrials but avoid speculative growth names
  • **Factor balance:** Mix of growth and value with quality overlay - avoid extreme factor bets given uncertainty
  • **Tactical hedging:** 5-8% cash position with quarterly collar strategies on large positions
  • **Geographic allocation:** Market weight TSX 25/75 with currency hedging on 50% of US exposure

Growth

  • **Cyclical positioning:** Full overweight in financials, industrials, and tech - participate in rate cut rally themes
  • **Growth factor:** Maintain tech and small-cap tilts but take profits on positions up >20% year-to-date
  • **Risk management:** Use volatility spikes to add exposure - VIX above 22 as buying opportunity
  • **Global allocation:** Standard TSX 20/80 split with unhedged currency exposure for US dollar strength
§ 09

Key dates

5 events

Key Dates Ahead

DateEventRelevance
February 25NVIDIA Q4 EarningsAI capex guidance could drive tech sector direction
February 26Core PCE InflationFed's preferred inflation measure - impacts rate cut timeline
February 27Canadian GDPBoC rate decision implications for TSX financial sector
February 28Month-end RebalancingPension fund flows could amplify sector rotation trends
March 3ISM Manufacturing PMIIndustrial sector earnings revision catalyst
§ 10

Sources

12 sources

Sources & References