U.S. Markets Rebound on Softer-Than-Expected January CPI Data

The Bureau of Labor Statistics reported that the Consumer Price Index rose 2.4% year-over-year in January 2026, representing a meaningful deceleration and coming in below economist estimates [1][2]. This “soft CPI print” marked the first major inflation data release following President Trump’s tariff implementations, bringing inflation closer to the Federal Reserve’s 2% target [4]. Monthly CPI increased 0.2%, with food prices rising 0.2% monthly and 2.9% annually [1].

Markets had experienced sharp declines in the preceding days, with the S&P 500 falling -1.79% on February 12 alone [0]. The CPI data helped stabilize markets, with the Dow Jones testing and holding critical support around 49,000 [5]. According to Oxford Economics lead economist Bernard Yaros: “Headline CPI inflation was a touch softer than expected in January, delivering a welcome surprise to the downside at the beginning of the year” [4].

The CPI print triggered a broad market rebound on February 13, 2026 [0]:

Index	Daily Change	Close
S&P 500	+0.03%	6,836.18
Dow Jones	+0.12%	49,500.94
Russell 2000	+1.01%	2,646.70
NASDAQ	-0.07%	22,546.67

Sector rotation was pronounced following the inflation data, with defensive sectors significantly outperforming [0]:

Sector	Performance
Utilities	+3.55% (best)
Energy	+1.64%
Basic Materials	+1.56%
Consumer Defensive	+1.43%
Healthcare	+1.35%
Technology	-0.68% (worst)

The strong outperformance by defensive sectors (utilities, consumer defensive, healthcare) suggests investors sought safety amid ongoing uncertainty. Technology continued to underperform, consistent with the broader AI sector selloff noted in recent analyst reports [6]. The Russell 2000’s 1.01% gain indicates small-cap strength during the recovery.

The cooling inflation strengthens the case for a potential March rate cut, though the strong January jobs report (130,000 positions added, unemployment at 4.3%) may delay action [3][6][7]. Fixed income markets indicate the Fed Funds Rate is expected to remain in the 3.5%-3.75% range, with under one-in-five probability of a rate cut at the March FOMC meeting [7][8].

The Fed faces additional complexity from leadership uncertainty, as Jerome Powell’s term ends with Kevin Warsh nominated to succeed him [7]. This transition creates additional unpredictability for monetary policy projections.

The CPI data represents a critical intersection between macroeconomic policy and market dynamics. The soft inflation reading provided immediate relief to markets reeling from tariff-related uncertainties, yet the sector rotation pattern reveals investor caution persists. The divergence between defensive sectors (+3.55% for Utilities) and risk assets like Technology (-0.68%) indicates a nuanced market response rather than broad-based confidence.

The 2.4% CPI reading brings inflation to levels not seen since shortly after Trump announced tariffs in April 2025 [2]. However, economists note that tariff effects are still passing through the economy, and future inflation trajectory remains uncertain [1][4]. The labor market’s resilience (130,000 jobs added) creates a nuanced situation for the Fed—strong employment suggests economic durability, while moderating inflation provides policy flexibility.

From a technical perspective, the S&P 500 is holding 6,880-6,900 pivotal support with the 50-hour moving average at 6,900 [5]. The Dow Jones is recovering from 49,000 psychological support while facing 49,940 resistance [5].

Risk Factor	Status	Implication
Inflation persistence	Moderate	While CPI softened, tariff effects may resurface
Fed policy uncertainty	Elevated	Leadership transition creates unpredictability
Technology sector weakness	Elevated	AI selloff continues; sector underperformance
Housing costs	Elevated	Persistent shelter inflation remains a concern

1. Rate-sensitive sectors:
   The CPI data strengthens the case for potential rate cuts, potentially benefiting utilities, real estate, and financial services
2. Small-cap recovery:
   Russell 2000’s leadership (+1.01%) suggests potential opportunities in small-cap value
3. Defensive positioning:
   Strong defensive sector performance may continue if uncertainty persists

The immediate market reaction suggests the CPI data has been largely priced in. Market participants will now focus on upcoming Fed communications and Q4 2025 earnings season for further directional cues.

This analysis synthesizes the CPI-driven market rebound on February 13, 2026. The key findings are:

• CPI Data:
  Headline inflation eased to 2.4% annually (below expectations), monthly CPI rose 0.2% [1][2]
• Market Response:
  Indices recovered from prior rout; S&P 500 +0.03%, Dow Jones +0.12%, Russell 2000 +1.01% [0]
• Sector Dynamics:
  Defensive sectors led (Utilities +3.55%), while Technology lagged (-0.68%) [0]
• Fed Outlook:
  Rates expected to remain at 3.5-3.75%; CPI strengthens March cut case but strong jobs data creates complexity [7][8]
• Technical Levels:
  Dow Jones holding 49,000 support, S&P 500 defending 6,880-6,900 zone [5]

The January jobs report showed resilience with 130,000 positions added and unemployment ticking down to 4.3% [1][3]. While the CPI data provides short-term relief, decision-makers should note that the Federal Reserve has emphasized a data-dependent approach, and political pressure on the Fed regarding interest rates may intensify [4][7]. Historical patterns suggest inflation data volatility around tariff implementations remains a possibility [1].