WeeklyWatch – The numbers aren’t on AI’s side

10^th February 2026

Key Takeaways

• As AI optimism declined, tech stocks struggled
• Interest rates for the UK and EU remained flat
• It was a landslide victory for Sanae Takaichi in the Japanese election

Stock Take

The AI sugar rush leaves enthusiasm slump

Sweet euphoria was felt by the Seattle Seahawks fans after the team claimed victory in the Super Bowl at the weekend – but the same couldn’t be said for investors, as AI fears resulted in equities being dragged down.

Up until now, AI had been a good opportunity for investors, with anticipation over its disruptive potential boosting tech stocks to historic highs. But in recent weeks, this thrill has faded.

Investors are now concerned with the significantly high level of investment that’s being spent in the unfolding AI arms race. An example includes Amazon: in the past, the company’s plans to spend $200 billion on AI infrastructure might have been warmly welcomed by markets, but instead, it contributed to a significant drop in its share price last week. The Equity Strategist at St. James’s Place, Carlota Estragues Lopez, asks the question: “Is the AI sugar rush over?”

Investor uneasiness is combining with already stretched US valuations to create some sharp swings. There was a 1.2% drop for the S&P 500 on Thursday – although it rebounded on Friday after people bought into the dip, which helped recover some of the losses.

Although big names like Amazon and Microsoft take up headlines, they’re not the only organisations that are feeling the pinch. Estragues Lopez notes:

“It’s not just return on investment that worries investors, but also the risk of narrow market leadership that struggles to broaden beyond a handful of mega-cap names. Software companies, once viewed as prime AI beneficiaries, are increasingly seen as vulnerable to AI disruption. The MSCI World Software Index, a gauge for developed market software companies, is down 21% year to date, with nearly all constituents in negative territory, including several in Europe.”

As well as software, new AI models have created new challenges in the legal and publishing worlds – several companies in these sectors have also dropped.

What’s ironic is that, so far, US results have remained fairly strong, with profit margins reaching their highest levels since 2009. Estragues Lopez adds:

“I would say that this is not a reason to panic. Recent equity market volatility was caused by uncertainty, which is one of the primary reasons that our asset allocation views are over the medium-term – to protect clients against this short-term uncertainty. Our asset allocation views lean towards areas that have a balanced sector exposure in both growth and value sectors (UK, Japan, Europe) and away from regions that are heavily concentrated in technology which makes them more vulnerable to large sentiment swings like the ones we have seen this week (US).”

European central banks hold rates steady

Moving away from the US, the European Central Bank (ECB) and the Bank of England (BoE) both voted to keep interest rates level. The ECB kept their interest rates at 2%. After inflation fell to 1.7% (below the 2% target), there was some hope for an interest rate cut in January. The bank decided, however, that the risks to growth and inflation were broadly balanced. It’s now widely expected that rates will be kept at the current level over the next few months.

There was, in fact, a bigger surprise from the BoE. It was expected that interest rates would be held this month, but it was a closer decision than first thought. When it comes to interest rate decisions, nine members of the Monetary Policy (MPC) – headed by BoE Governor Andrew Bailey – cast their vote. The latest vote ended 5–4 and Bailey cast the deciding vote.

Across the UK, politics took an invasive step into investing with the ongoing fallout of Peter Mandelson and his appearance in the Epstein files. Mandelson’s appointment as US ambassador by Keir Starmer has incurred more questions for Number 10. As a result, the fixed income market became unsettled and gilt yields rose.

Victorious Takaichi

In Asia, Takaichi’s call for a snap Japanese election paid off as she won in a landslide victory in the elections and gained a majority in the Japanese parliament.

Takaichi is popular with the voters and went to the polls trying to garner support for her plans for increased spending, particularly in the defence sector. With a fresh mandate, and a majority in the house, she’s now in a position to take more assertive action.

The Head of Asia and Middle East Investment Advisory and Comms at St. James’s Place, Martin Hennecke, noted that Takaichi’s landslide victory boosted equities while the yen weakened, but he warned:

“There is a possibility that inflation will rise as a result of supportive monetary policies as well, presenting a dilemma for the country’s savers to re-allocate cash holdings to other asset classes or face a rising risk of purchasing power loss through persistent negative real interest rates.
“Global investors might want to watch this carefully if not learn from it, as former Fed Chair and Treasury Secretary Janet Yellen warned last month about the preconditions for ‘fiscal dominance’ (i.e. the size of the debt prompting central banks to keep rates low to minimise debt servicing costs) strengthening in the United States, too.”

Wealth Check

Impact of pension shake-up on workers

Last year’s Autumn Budget saw the government take aim at pensions – and now a government watchdog has warned that upcoming changes could impact more workers than previously thought. The Office for Budget Responsibility (OBR) has assessed the forthcoming cap on pensions via salary sacrifice and suggests that the impact of these measures could go beyond higher earners.

The upcoming changes will see employee pension contributions made via salary sacrifice and above £2,000 a year become subject to employer and employee national insurance contributions (NICs) from the 2029/30 tax year.

A previous policy paper from HMRC indicated that less than half (44%) of employees using salary sacrifice would be impacted by the change. The remaining 56% (4.3 million people) wouldn’t exceed the £2,000 contribution threshold.¹

However, the recent OBR findings indicate that millions more could be impacted, depending on how employers react to the new cap, citing a “highly uncertain” behavioural response to the measures.² This could include switching everyone to a different pension set-up.

Among the possible responses, the OBR considered a potential change to relief at source (RAS) schemes as an alternative. This involves taking pension contributions out of employees’ net pay, not their gross pay. The pension provider will claim basic rate tax relief of 20% for the pension; however, higher rate and additional rate taxpayers must pay income tax and reclaim the additional tax relief from HMRC themselves. NICs are payable on contributions made through these schemes.

Should employers choose to shift entirely from salary sacrifice to RAS schemes, it could result in employers lowering salaries in exchange for higher employer pension contributions. If salary sacrifice is abandoned, it would eliminate NIC savings for all employees, including those not meeting the threshold.

It’s also believed by the OBR that employers may pass on a lot of the additional NIC costs to employees by lowering their wages. This could therefore impact those paying in less than £2,000 a year through salary sacrifice schemes.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Sources

¹ HMRC – December 2025

² OBR – February 2026

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