Market Recap: Stocks End Flat Despite Cool CPI Data

The February 13, 2026 market reaction to cooler-than-expected CPI data exemplifies a market that had already adjusted expectations. The Consumer Price Index report showed headline inflation at 2.4% year-over-year, down from 2.7% in December and below economist expectations of 2.5% [1][2][3]. Core CPI matched expectations at 2.5% but remained above the Federal Reserve’s 2% target [2][3].

The flat market performance across major indices—S&P 500 (+0.03%), NASDAQ (-0.07%), Dow Jones (+0.12%)—represents a significant recovery from the sharp selloff on February 12, when the S&P 500 fell 1.79% and the NASDAQ dropped 2.36% [0]. This recovery pattern suggests underlying market support despite lingering concerns about the economic outlook.

The sector rotation pattern provides crucial context for understanding market dynamics. Defensive sectors led the advance: Utilities (+3.55%), Energy (+1.64%), Basic Materials (+1.56%), and Consumer Defensive (+1.43%) [0]. Meanwhile, Technology (-0.68%) and Real Estate (-0.41%) lagged significantly. This rotation into defensive sectors typically signals risk-off positioning among investors, even as headline inflation data appeared favorable.

The Russell 2000’s outperformance (+1.01%) versus the major indices marks a notable divergence, suggesting renewed investor interest in smaller capitalization companies potentially reflecting expectations for improved economic conditions or relative valuation opportunities [0].

The market’s muted response to positive inflation data reveals several important market dynamics:

1. Expectations Already Priced
   : The flat reaction suggests traders had already incorporated cooling inflation scenarios into asset prices. The Barron’s headline characterized the data as an “Inflation Yawner,” indicating the market’s anticipatory positioning [1].

2. Fed Pause Expectations Solidified
   : The combination of the January jobs report (130,000 positions added, 4.3% unemployment) and today’s inflation data makes a March rate cut extremely unlikely. Morningstar’s analysis confirms: “Today’s firm inflation data, combined with this week’s solid jobs growth data, means the Fed is extremely unlikely to cut the federal-funds rate in March” [3].

3. Uncertainty Around Fed Leadership
   : President Trump’s nomination of Kevin Warsh as Fed Chair introduces potential policy orientation uncertainty that may be keeping the market cautious despite encouraging inflation data [4].

4. Potential Tariff Effects Masked
   : The cooling inflation figure comes after 2025 tariff implementations. Market participants should consider whether delayed tariff effects are being masked in the current inflation data [4].

• Fed Communication Risk
  : Any hawkish signals from Federal Reserve officials could trigger renewed market volatility, particularly given the uncertain leadership transition
• Inflation Persistence
  : Core inflation at 2.5% remains above target, leaving limited room for policy error
• Technical Damage
  : The February 12 selloff may have established new resistance levels that could cap upside momentum
• Retail Sentiment
  : The AAII sentiment survey showed pessimism rebounding, suggesting retail investors remain cautious [6]

• Small Cap Revival
  : The Russell 2000’s strong relative performance may indicate emerging opportunities in smaller capitalization equities
• Sector Rotation Watch
  : If defensive sector leadership persists, it may signal continued uncertainty requiring portfolio defensive positioning
• Recovery Potential
  : The market’s ability to recover from the February 12 selloff suggests underlying fundamental support

This analysis synthesizes market data from February 13, 2026, when U.S. equities closed essentially flat despite cooler-than-expected CPI inflation data [0][1]. Key metrics include:

• Headline CPI
  : 2.4% (expected 2.5%, down from 2.7% in December)
• Core CPI
  : 2.5% (matches expectations, above Fed’s 2% target)
• Market Performance
  : S&P 500 +0.03%, NASDAQ -0.07%, Dow Jones +0.12%, Russell 2000 +1.01%
• Sector Leaders
  : Utilities (+3.55%), Energy (+1.64%), Basic Materials (+1.56%)
• Sector Laggards
  : Technology (-0.68%), Real Estate (-0.41%)

The Federal Reserve is expected to maintain its wait-and-see approach given solid employment data and core inflation still above target. Market participants should monitor upcoming Fed communications and the Warsh nomination process for policy direction signals.