Stocks Steady as Treasury Yields Slip After CPI - February 13, 2026 Market Close

The Consumer Price Index (CPI) report for January 2026 revealed that overall inflation rose 2.4% year-over-year, down from 2.7% in December 2025 and below economist expectations [1]. Core CPI, which excludes volatile food and energy prices, rose 2.5% year-over-year, matching expectations [1]. This cooling inflation data marked the lowest inflation rate since April 2025, shortly after President Donald Trump announced aggressive tariffs on U.S. imports.

The bond market responded enthusiastically to the CPI data, with the 10-year Treasury yield falling to 4.06%—its lowest closing level since November 28, 2025 [2]. The 2-year Treasury yield slid 4 basis points to 3.42% [3]. This significant bond market rally, described by analysts as an “everything rally,” indicates heightened market expectations for Federal Reserve rate cuts later in 2026 as inflation moves closer to the Fed’s 2% target [4].

However, equity markets showed a markedly muted response compared to the bond market. The S&P 500 closed essentially flat at +0.03%, while the Nasdaq Composite slipped 0.07% and the Dow Jones Industrial Average gained 0.12% [0]. The Russell 2000 small-cap index outperformed with a +1.01% gain, suggesting rotation toward smaller capitalization stocks.

The market demonstrated a notable rotation away from growth-oriented sectors and toward defensive industries. Utilities led with a 3.55% gain—the strongest single-day performance in months—followed by Energy (+1.64%) and Basic Materials (+1.56%) [0]. Consumer Defensive (+1.43%), Healthcare (+1.35%), and Communication Services (+0.98%) also posted solid gains.

Conversely, Technology emerged as the worst-performing sector at -0.68%, while Real Estate declined 0.41% [0]. This defensive posturing suggests investors remain cautious about the economic outlook despite the encouraging inflation data. The rotation toward smaller-cap stocks (Russell 2000 +1.01%) may signal increased risk appetite, but could also reflect short-covering or speculative trading following the week’s significant volatility.

The February 13 close represented a recovery from what had been the S&P 500’s worst weekly decline in months. Prior to the CPI release, the index had fallen over 4% from its recent highs, and the modest post-CPI gain helped trim this week’s losses [3]. The disconnect between aggressive bond market pricing of rate cut expectations and the relatively restrained equity market response warrants close monitoring of upcoming economic data and Federal Reserve communications.

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The significant gap between bond market enthusiasm (yields falling to multi-month lows) and stock market restraint (essentially flat closing) represents a key market divergence. This suggests investors remain uncertain about the economic growth outlook despite favorable inflation trends. The bond market appears to be pricing in aggressive Fed rate cuts, while equity investors are adopting a more cautious stance, possibly due to concerns about economic deceleration.

The sector rotation toward Utilities, Consumer Defensive, and Healthcare—typically considered defensive sectors—away from Technology signals investor caution about the economic outlook. While technology weakness (-0.68%) may partly reflect ongoing rotation from growth stocks, the broader defensive positioning suggests markets are preparing for potential economic headwinds.

The Russell 2000’s strong (+1.01%) performance could indicate increased risk appetite among investors, but it’s worth noting this occurred during a period of significant market volatility. Small-caps often lead during economic recoveries but can also experience sharper declines during periods of uncertainty.

While CPI data shows clear progress toward the Fed’s 2% inflation target, explicit Fed guidance on potential rate cuts remains absent. Markets appear to be pricing in rate cut expectations, but if the Fed maintains a more hawkish stance, bond yields could rise, potentially pressuring equity valuations.

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1. Fed Policy Trajectory Risk:
   The bond market’s aggressive rally suggests markets are pricing in significant rate cuts. If Federal Reserve officials maintain a more hawkish stance than expected, bond yields could reverse higher, creating volatility in both fixed income and equity markets.

2. Technology Sector Weakness Continuation:
   The Technology sector’s underperformance (-0.68%) may continue, potentially weighing on major indices given the sector’s significant weighting in the S&P 500 and Nasdaq. This could indicate ongoing structural rotation away from growth stocks.

3. Economic Growth Uncertainty:
   Despite encouraging inflation data, the muted stock market response suggests investors remain concerned about economic growth. Any signs of economic deceleration could trigger renewed market volatility.

4. Service Sector Inflation Persistence:
   While headline CPI cooled significantly, the services sector showed significant upward pressure [4]. Core inflation remains at 2.5%, still above the Fed’s 2% target, suggesting inflationary pressures may not be fully defeated.

5. Market Volatility History:
   The week preceding CPI saw significant market weakness, with the S&P 500 declining approximately 4% before the CPI-driven bounce [3]. This recent volatility history suggests markets remain vulnerable to sudden shifts in sentiment.

1. Rate-Sensitive Sectors:
   If bond yields continue declining and rate cut expectations increase, Utilities, Real Estate, and Financial Services sectors may continue to benefit from lower borrowing costs.

2. Small-Cap Value Opportunities:
   The Russell 2000’s outperformance suggests potential opportunities in smaller capitalization stocks, particularly if economic conditions remain stable.

3. Defensive Positioning:
   The rotation toward defensive sectors indicates opportunities in Healthcare, Consumer Defensive, and other traditionally defensive industries during periods of uncertainty.

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The February 13, 2026 CPI report showed inflation cooling to 2.4% year-over-year—the lowest level in four years—triggering a significant rally in Treasury bonds with yields falling to multi-month lows [1][2]. However, equity markets responded with relative caution, closing essentially flat, with the S&P 500 up just 0.03% [0].

Key market indicators for February 13, 2026:

• S&P 500: 6,836.18 (+0.03%)
• Nasdaq Composite: 22,546.67 (-0.07%)
• Dow Jones Industrial: 49,500.94 (+0.12%)
• Russell 2000: 2,646.70 (+1.01%)
• 10-year Treasury yield: 4.06% (lowest since November 28, 2025)
• 2-year Treasury yield: 3.42% (-4 basis points)

The sector rotation toward defensive industries (Utilities +3.55%) and away from Technology (-0.68%) suggests investors remain uncertain about the economic outlook despite encouraging inflation trends. The disconnect between bond market enthusiasm and stock market restraint warrants close monitoring of upcoming economic data and Federal Reserve communications [4]. The CPI data shows inflation has declined despite earlier tariff announcements, but the full effects may not yet be fully reflected in consumer prices.

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[0] Ginlix Analytical Database - Market indices and sector performance data

[1] CNBC - “Consumer prices rose 2.4% annually in January, less than expected”
URL: https://www.cnbc.com/2026/02/13/cpi-inflation-report-january-2026.html
Date: 2026-02-13

[2] Wall Street Journal - “Treasury Yields Fall Further After Inflation Data”
URL: https://www.wsj.com/livecoverage/cpi-inflation-data-stock-market-02-13-2026/card/treasury-yields-fall-further-after-inflation-data-EKjWgOrU1QkpdBeyc3sL
Date: 2026-02-13

[3] Energy Connects - “Stocks Join Bonds Higher as CPI Fuels Fed Wagers: Markets Wrap”
URL: https://www.energyconnects.com/news/oil/2026/february/stocks-join-bonds-higher-as-cpi-fuels-fed-wagers-markets-wrap/
Date: 2026-02-13

[4] Market Pulse - “It’s an everything rally after the CPI miss – Market Reactions”
URL: https://www.marketpulse.com/markets/its-an-everything-rally-after-the-cpi-miss-market-reactions/
Date: 2026-02-13