Stocks Pull off CPI Relief Rally After Initial Hesitation: Feb. 13, 2026

A softer-than-anticipated CPI reading this morning is driving a rally in Treasuries as investors increasingly envision a trio of rate cuts by year-end. Indeed, the chances of three reductions in 2026 are now even with lowering the benchmark twice in light of the balance of risks tilting more towards the labor market. Employment is stable, but the lack of hiring buoyancy amidst inflation in the low 2s signals the need for a few risk management adjustments by the committee to bring its benchmark closer to neutral. But it’s been a bumpy ride for equities today, as bulls and bears wrestle with the tailwinds of monetary policy accommodation prospects against the backdrop of a crumbling AI narrative. Stocks have already swung from modest gains to losses several times as of noon on heightened volatility subsequent to three consecutive down days. The Russell 2000 is leading the pack of indices by a wide margin since its positioned for relative outperformance in an environment of loosening financial conditions and continued growth; its jumping 2% on the session. Yields, meanwhile, are plunging relatively evenly across the curve as bond buyers evaluate central bank relief at the shorter tenors with lessening price pressure expectations at the long end. Elsewhere the greenback is advancing slightly, crypto is rallying, forecast contracts are seeing engagement and the commodity complex is appreciating overall.

Headline Inflation Eases

The Consumer Price Index (CPI) decelerated to its slowest pace since May, reflecting ongoing progress on inflation despite worries about tariffs pushing up costs. The headline rose 0.2% month over month (m/m) and 2.4% year over year (y/y) in January, below expectations by 0.1% on both fronts and under December’s 0.3% and 2.7%. Core results met estimates at 0.3% and 2.5%. The core version’s December’s print was 0.2% and 2.6%.  What drove the overall miss were deceleration in price pressures for shelter, food and medical care services, while gasoline, medical care commodities and used cars saw charges decline. New automobiles ticked up 0.1%, energy services (heating/electricity) climbed 0.1% and the transportation services category was the strongest gainer at 1.4%, but that was bolstered by airline fares, which is a good thing from an economic cycle perspective as it signals that discretionary consumption remains buoyant. Furthermore, it was the sixth consecutive increase and raises the potential durability of household spending momentum.

Rotation May Be Getting Long in the Tooth

The ability for the cyclical areas of the market to offset tech weakness may be getting long in the tooth considering that the Russell 2000 and Dow Jones Industrial indices are up 7% and 3% year to date while the S&P 500 and Nasdaq 100 benchmarks are down 0.5% and 3%. The AI theme has been driving significant multiple expansion in stocks and it’s going to be very difficult to replace that with classic style equities that tend to be more tilted toward value and maintain ceilings on their price-earnings ratios. It’s precisely the lack of substantial growth drivers accompanied with spectacular narratives about their futures that caps the ability of these names to counter weakness in the Magnificent 7. The final word is that if tech can’t recover, watch out, because we’re probably having a down year.

International Roundup

Euro Area GDP Meets Expectations

Euro area gross domestic product grew 0.3% quarter over quarter and 1.3% y/y in the final three months of 2025, according to a preliminary estimate from Eurostat. Both results met estimates from economists. While the q/q pace matched the third-quarter rate of expansion, the y/y gain decelerated marginally from 1.4% in the preceding period.

While Employment Growth Was Stronger than Expected

The number of employed individuals in the euro area climbed 0.2% q/q and 0.7% y/y in the October through December period, exceeding estimates for payrolls to ascend 0.1% and 0.6%. In the July through September period, payrolls expanded 0.2% q/q and 0.6% y/y.

Euro Area Trade Surplus Grows

The euro area’s trade surplus jumped from €9.3 billion in November to €12.6 billion in the final month of last year. Exports climbed 3.4% y/y while purchases of items by other jurisdictions ascended 4.2% y/y.

China New Home Prices Continue to Fall

China’s residential real estate market continued to suffer last month from a more than three-year long period of falling home prices, a result of a glut of dwellings and weak domestic demand. Prices for new residences sank 3.1% y/y, an acceleration from December’s 2.7%. It was the largest collapse in prices since the 2.8% plunge in August 2025. Perhaps even more sobering, the last time the metric was positive was August 2022, when it was up only 0.1% y/y.

The prolonged housing slump is occurring as Chinese officials seek to boost domestic demand with various stimulus measures, but declining home values are an obstacle because they detract from individuals’ wealth, which discourages consumer spending.

As New Loan Growth Misses Expectations

Chinese banks provided 4.71 trillion yuan ($681.56 billion) in new loans last month, a considerable increase from $910 billion yuan in December but below the economist consensus estimate of 5 trillion yuan. Nevertheless, it was the highest print since February 2025, when Chinese officials reported that new loan issuance totaled 5.13 trillion yuan. The combined amount of outstanding loans, furthermore, was 6.1% higher than during December, slightly below the economist consensus estimate of 6.2% and lower than December’s 6.4% gain.