S&P 500 Records First Back-to-Back Losses of 2026 Amid Sticky Inflation Concerns

The S&P 500’s first back-to-back losses of 2026 on January 14-15, 2026, represent a significant shift from the risk-on sentiment that characterized the year’s opening sessions [1][2]. The benchmark index declined 0.16% on January 14 to close at 6,926.59, following a 0.20% drop on January 13 to 6,963.75, marking the first consecutive daily losses since the start of the year [0][3]. This market rotation reflects growing investor concerns about the durability of economic growth and the path of Federal Reserve monetary policy in an environment of persistent inflationary pressures.

The timing of this market correction is particularly noteworthy given that it occurred ahead of the January 28, 2026 FOMC meeting, where investors were seeking clarity on the Fed’s policy trajectory. The PPI data released during this period served as a catalyst for reassessing expectations, as wholesale inflation metrics proved more resilient than anticipated, challenging the narrative of steadily declining price pressures that had supported equity valuations through late 2025 [5][6].

The Producer Price Index data revealed concerning trends for inflation watchers, with core PPI year-over-year coming in at 3.50%, substantially above the consensus estimate of 2.9% and remaining elevated from the 3.38% reading recorded in October 2025 [5]. Perhaps more troubling from a policy perspective, the three-month annualized core PPI rate stands at 4.7%, representing the strongest inflationary reading since August 2022 [5]. This acceleration in wholesale price pressures raises questions about whether the disinflation trend has stalled or reversed, complicating the Federal Reserve’s decision-making calculus.

Market-implied probabilities for Federal Reserve policy adjustments reflect this uncertainty, with CME FedWatch Tool data indicating just a 16% probability of a January rate cut and approximately 45% priced for April 2026 [6][7]. J.P. Morgan economists have notably revised their forecast, expecting “the Fed to hold rates throughout 2026 with the next move to hike later in 2027” [7]. This projection incorporates concerns that core inflation will remain above 3% and that labor market tightening could resume in the second quarter of 2026. Bond futures markets currently price in approximately 50 basis points of easing for 2026 (two 25-point cuts), though this expectation may prove optimistic given the sticky inflation backdrop [6].

The market selloff was characterized by pronounced sector rotation, with defensive sectors outperforming while growth-oriented segments faced significant pressure [0]. Consumer Defensive stocks advanced 1.01%, Financial Services gained 0.76%, Healthcare rose 0.64%, and Industrials added 0.60%, reflecting investor preference for relatively stable, rate-sensitive businesses in an uncertain policy environment [0]. Conversely, Consumer Cyclical declined 0.89%, Technology fell 0.85%, and Communication Services dropped 0.43%, highlighting the vulnerability of growth-oriented sectors to rising rate expectations and specific industry headwinds [0].

The technology sector’s 0.85% decline warrants particular attention given its outsized contribution to 2025’s equity gains [1]. Reports of China’s latest countermeasures in the AI chip war added pressure to an already challenged sector, raising concerns about potential disruptions to AI hardware supply chains and data center build-out timelines [4]. The Nasdaq 100’s 1.5% decline during the session underscored the concentration of weakness among large-cap technology names [1]. Analysts have noted that “companies like Oracle have borrowed billions to purchase AI chips from NVIDIA. If these chips sit in a warehouse for years waiting for a data center to be powered, they could become obsolete before ever generating a return” [8], highlighting the capital allocation risks inherent in the current AI infrastructure buildout cycle.

Rising geopolitical concerns, particularly U.S.-Iran tensions, contributed to the broader risk-off sentiment that characterized the trading sessions [4]. Reports indicate thousands of deaths in protests in Iran, prompting President Trump to threaten tariffs on countries doing business with Tehran. The U.S. has begun evacuating some personnel from the Al Udeid Air Base in Qatar, signaling elevated geopolitical risk premiums [4]. These tensions supported safe-haven asset flows, with gold futures rising 0.8% to $4,626 per troy ounce and silver settling up 5.8% at $90.87 per troy ounce [4]. West Texas Intermediate crude futures also rose 1.4% to $62.02 per barrel, reflecting concerns about potential supply disruptions in the Middle East [4].

Financial sector stocks continued to face pressure following the latest batch of big bank earnings, contributing to mixed performance within Financial Services [1]. Despite this headwind, the sector managed a modest 0.76% gain on January 15, outperforming the broader market [0]. Bank earnings season provides critical insight into lending conditions, credit quality, and economic expectations, and any signs of deterioration in these areas could further pressure financial sector valuations. The tension between net interest margin compression and credit loss provisioning remains a key monitoring focus for financial sector analysts.

The convergence of sticky wholesale inflation, uncertainty regarding Federal Reserve policy, geopolitical tensions, and technology sector headwinds creates a complex market environment that challenges the risk-on narrative that prevailed through late 2025. The divergence between defensive and growth sectors suggests investors are reallocating toward assets perceived as more resilient in a higher-for-longer interest rate environment. The three-month annualized core PPI rate of 4.7% represents a significant data point that may require market participants to recalibrate their expectations for the pace and timing of Federal Reserve easing, potentially impacting equity valuations across multiple sectors.

The technology sector’s vulnerability to both AI chip war escalation and data center power constraints raises questions about the sustainability of the AI-driven capital expenditure cycle that has been a primary driver of market returns. The fact that companies have accumulated substantial inventories of AI chips while data center infrastructure lags behind creates both operational and financial risks that market participants are increasingly factoring into valuations. Copper trading at all-time highs and silver’s surge to $90.87 per troy ounce further indicate commodity-driven inflationary pressures that may not be fully reflected in traditional headline inflation measures [8].

: The core PPI running at 4.7% annualized on a three-month basis indicates that inflationary pressures remain entrenched at levels above the Federal Reserve’s 2% target [5]. Should this persistence be confirmed in upcoming CPI data, market expectations for 2026 rate cuts may need significant downward revision, potentially triggering further equity market corrections.

: The divergence between market-implied rate cut expectations and the Fed’s indicated policy stance creates uncertainty that typically results in elevated market volatility. If inflation remains sticky above 3%, the market’s current pricing of two 2026 rate cuts may prove optimistic, with implications for growth stock valuations [7].

: Escalating tensions in the Middle East could trigger additional safe-haven flows, commodity price spikes, and broader market volatility. The evacuation of personnel from Al Udeid Air Base signals that policymakers view the situation as potentially escalating [4].

: AI chip war developments and data center power constraints may pressure the market’s leading growth sector, with implications for indices heavily weighted toward technology names [8].

: Consumer defensive, healthcare, and utility sectors demonstrated resilience during the selloff, potentially offering relative value for investors seeking portfolio protection.

: Rising precious metals and industrial metal prices may present opportunities for inflation-hedged portfolios, though timing and allocation considerations remain critical.

: Companies with strong balance sheets, consistent cash flows, and pricing power may outperform in an environment of elevated uncertainty regarding inflation and interest rates.

The S&P 500’s first back-to-back losses of 2026 reflect a market environment characterized by converging concerns around persistent inflation, Federal Reserve policy uncertainty, geopolitical tensions, and technology sector headwinds. Key data points indicate core PPI year-over-year at 3.50% (consensus 2.9%), three-month annualized core PPI at 4.7% (highest since August 2022), and Fed rate cut odds at 16% for January and 45% for April [5][6]. Technology sector weakness, with the Nasdaq Composite declining 0.39% on January 14 and the Nasdaq 100 falling 1.5%, highlights concentration risk in growth-oriented indices [1]. The upcoming December CPI release on January 30, 2026, and January labor market data represent critical catalysts that may clarify the Fed’s policy path and influence near-term market direction [5]. Market participants should monitor these data points along with developments in U.S.-Iran tensions as key indicators of near-term market volatility and sector allocation opportunities.

---

Note: This analysis is based on market data and news reports from January 14-15, 2026. The December CPI data release scheduled for January 30, 2026, and upcoming employment figures may provide additional context for Federal Reserve policy decisions.