Investor confidence or risk appetite improved slightly in February to move back into positive territory having been balanced in January, according to the State Street Risk Appetite Index.

Despite this, allocations to equities did decline marginally during the month in favour of a small shift to fixed income assets, cash allocations were largely unchanged, and fresh concerns about valuations and the impact of artificial intelligence ( AI ) on a number of stocks largely explain these moves, notes State Street Markets, the securities business of US-based global asset manager State Street.

However, overall equity allocations, State Street Markets points out, remain extremely high compared with historical norms; and in foreign exchange ( FX ), the persistent selling of the dollar mostly continued through the month.

“Thus far, 2026 has been fairly hard going for financial markets generally, with stocks largely sideways, longer-end yields virtually unchanged and central banks broadly on hold,” Lee Ferridge, the company’s macro strategy head for the Americas. “FX markets have been similarly moribund, with the DXY USD index closing in February at pretty much where it started the year.

“That being the case, it is hardly a surprise that our risk appetite index has spent recent months bouncing between neutral and slightly positive. As if to further illustrate the point, within the month, the asset allocation weight to equities, the riskiest class of assets, was virtually unchanged; while the same is true for allocations to cash and fixed income assets.

An unchanged allocation to equities, however, means that investors are still overweight risk as the prevailing portfolio share invested in equities is close to its highest level in 20 years, Ferridge adds. Again, real money investors are happy to remain overweight risk, he shares, but, more recently, are reluctant to add significantly to these positions.

“While the overall allocation to equities remained largely unchanged in the month, we are seeing considerable rotation within sectors,” he shares. “As the market has increasingly focused on the potential winners and losers from AI, we have seen a sharp move out of software stocks, with positioning in software now at its biggest underweight since the dotcom crash.

“We have also seen a move out of semiconductor stocks in favour of a move to tech hardware. This is not a generalized move out of technology related equities, but rather a rotation within technology related stocks.

“Positioning in Japanese equities continues to show a significant overweight, and February saw continued strong buying of Japanese stocks.

“In Australia, in contrast, real money investors have a long-held underweight position, but February saw extremely strong buying as investors begin to pare back their Australian dollar stock shorts.

“In emerging market countries, we generally saw selling of Asian equities last month, with China a notable exception.”