Is the AI Rally Over? Navigating Tech Volatility and Geopolitical Risk This Tuesday

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Morning Market Snapshot -February 17, 2026

Traders return from the Presidents’ Day holiday to a landscape defined by caution and complexity. S&P 500 futures have retreated 0.3% while Nasdaq-100 futures fell 0.6% in the early hours of Tuesday. This downward pressure stems from a combination of cooling enthusiasm for artificial intelligence and a sharp escalation in Middle Eastern tensions.

Market participants are primarily focused on the resumption of nuclear talks between the United States and Iran in Geneva today. Sentiment turned fragile after Iran conducted naval drills near the Strait of Hormuz, a critical energy transit point, prompting a rise in WTI crude oil prices to $63.50 per barrel. Investors remain anxious that any breakdown in diplomacy could trigger U.S. military action, a possibility recently suggested by the White House.

Domestically, a cloud of institutional uncertainty hangs over the financial sector. Federal prosecutors have reportedly opened a criminal investigation into the testimony of Federal Reserve Chair Jerome Powell. This development involves allegations regarding building renovations but carries broader implications for central bank independence. Simultaneously, the Department of Justice is investigating these matters, creating a volatile backdrop for a week that also includes the release of FOMC meeting minutes.

Economic data remains a double-edged sword. While recent Core CPI figures came in slightly below expectations, indicating some cooling in inflation, the labor market remains robust. This strength gives the Federal Reserve the latitude to maintain elevated interest rates longer, frustrating those hoping for more aggressive easing. As the opening bell approaches, the focus remains on whether tech giants can find a floor or if the “software eating itself” narrative—driven by AI margin compression—will continue to drag the broader indices lower.

Pre-Market News Catalysts

Leidos Holdings (LDOS): Shares fell 1.54% in pre-market trading after the science and technology firm issued 2026 guidance that merely met analyst expectations. The cautious outlook overshadowed the $0.43 per-share dividend declaration.
InterContinental Hotels Group (IHG): The hotel giant reported a 16% increase in adjusted earnings per share for 2025. Strong growth in Greater China and emerging markets like Saudi Arabia is driving positive sentiment despite broader market weakness.
SoftBank Group (SFTBY): Japanese-listed shares tumbled 5.1% overnight, weighing heavily on tech sentiment. The decline reflects profit-taking following a recent rally and growing skepticism regarding the pace of AI-driven returns.
Goldman Sachs (GS): The bank is under scrutiny as reports surface that its top lawyer will step down following the release of new documents related to the Epstein case. Additionally, the firm announced plans to scrap DEI criteria for its board governance.

The Day’s Debate (The Bull vs. Bear Case)

The Bull Case: Optimistic strategists argue that the current pullback is a necessary consolidation following record highs. The foundational strength of the 2026 rally rests on a transformational technology cycle. Major firms have committed over $600 billion toward AI infrastructure, and bulls believe these investments will soon translate into significant productivity gains. Analysts at firms such as Morgan Stanley and BlackRock remain encouraged by strong earnings in the financial sector, with wealth management and trading revenues exceeding expectations. Furthermore, the “One Big Beautiful Bill” Act’s tax cuts are beginning to provide fiscal support to corporate balance sheets. If the Geneva talks yield even a modest diplomatic breakthrough, a “risk-on” rotation could quickly spark a reversal in equity markets.

The Bear Case: Pessimists point to a market that is increasingly “fragile” due to narrow leadership and extreme valuations. Stephen Innes of SPI Asset Management warns that the software sector is “eating itself,” as AI potentially compresses profit margins that investors once assumed were permanent. The criminal investigation into Fed Chair Powell introduces an unprecedented layer of political and legal risk to monetary policy. Furthermore, the Trump administration’s proposal to impose a 10% cap on credit card interest rates has already begun to penalize lenders such as Capital One and Synchrony Financial. Bears argue that the combination of geopolitical risk in the Strait of Hormuz, a looming tech “amputation” due to multiple contractions, and the erosion of central bank independence creates a toxic environment for equities.

The Strategic Takeaway

The primary theme for today’s session is Institutional Resilience. Investors must distinguish between transitory geopolitical noise and the structural shift occurring within the Federal Reserve and the technology sector. While the US-Iran talks in Geneva will dominate the day’s headlines, the market’s underlying health depends on whether the 10-year Treasury yield remains stable despite the investigation into Chair Powell. If yields spike on fears of lost Fed independence, equity valuations will face immediate downward pressure. Discipline is paramount; the current environment favors defensive positioning in sectors with predictable cash flows, such as consumer staples and healthcare, until the Nasdaq’s technical damage is repaired.

Upcoming Session Outlook with Directional Bias

The market is expected to open with a Slightly Bearish tone. A combination of negative pre-market futures, heightened geopolitical risk in the Middle East, and the overhang of the Fed investigation suggests that sellers will control the early price action. Traders should watch the $4,880 level on Gold for signs of a flight to safety and the $64 mark on WTI crude for indications of further escalation in the Persian Gulf.

Disclaimer: This article is for informational purposes only and does not constitute financial, investment, or legal advice. The information provided is a synthesis of publicly available data and expert analysis and should not be considered a recommendation to buy or sell any security. Investing in the stock market involves risk, including the possible loss of principal. Past performance is not indicative of future results. Readers should consult with a qualified financial advisor to determine an investment strategy that is suitable for their own personal financial situation and risk tolerance.