Market Analysis Summary - February 13, 2026

Key Highlights

• The US Consumer Price Index (CPI) report indicates a moderation in inflation, with headline CPI rising by 2.4%, below the expected 2.5% and down from December's 2.7%.
• Core CPI also moderated to 2.5%, aligning with expectations.
• US equity futures are showing signs of recovery following the CPI report, which has led to a drop in bond yields.

Market Reactions

The immediate market reaction to the CPI report included a decline in bond yields, particularly the 2-year yield, which is sensitive to CPI changes and Federal Reserve rate cut expectations. The dollar index fell, gold prices retreated from earlier highs, and US equity index futures recovered from previous losses.

Inflation Insights

The CPI report suggests that tariffs imposed by the previous administration are not currently contributing to inflation. The annualized rates of price growth for core services, core goods, energy, and food all decreased in January compared to December. Notably, the shelter index, which has been a significant contributor to CPI, rose at a slower rate, indicating potential moderation in shelter price growth.

Labor Market and Economic Outlook

The labor market remains stable, with job growth at 130,000 for January. This, combined with the favorable CPI data, supports expectations for further rate cuts by the Federal Reserve, with the market now pricing in approximately 2.4 cuts this year. The anticipated first cut is expected in June or July, with year-end interest rates projected at 3.01%.

Stock Market Dynamics

Despite the positive economic indicators, the stock market has experienced year-to-date losses, particularly following a significant sell-off on Thursday. The Nasdaq and S&P 500 indices are recovering, although European indices remain lower. The sell-off was largely attributed to fears surrounding AI, which have led to market dislocation.

Valuation Comparisons

In the context of stock valuations, Walmart is noted to be more expensive than Amazon, with Walmart's price-to-earnings (P/E) ratio in the 40s, reflecting its growth stock-like trading behavior despite being a traditional retailer.

Investor Sentiment and VIX Analysis

Interestingly, the VIX index, which measures market volatility, has not reached panic levels despite the AI-related fears. It remains below previous peaks, suggesting that if the CPI report calms investor concerns, stocks may finish the week positively.

Conclusion

The CPI report presents a favorable outlook for the US economy, indicating a potential recovery for equities after recent sell-offs. The combination of moderating inflation and a stable labor market could lead to a more optimistic market environment moving forward.