Market Currents: Daily Briefing
Quantitative analysis of current market conditions
Market Snapshot
The Top Line
We are operating in a U.S. expansionary regime showing signs of deceleration beneath the surface, with consumption and labor markets sustaining growth while AI-driven disruption introduces new cross-currents into equity markets. January payrolls surprised to the upside at +130,000 — the strongest monthly gain in over a year — and the unemployment rate ticked lower, signaling a labor market that remains firm despite pockets of softening in prior months. January CPI printed 2.4% YoY, its lowest level since May 2025 and below consensus of 2.5%, confirming that the disinflationary trend survived the tariff shock intact. The structural theme dominating markets has shifted from AI as a pure tailwind to AI as a disruptive force, with software, logistics, and financial services sectors repricing around competitive threats from increasingly capable AI tools.
Inflation
The January CPI report delivered an unambiguous positive signal for the disinflationary narrative. Headline CPI rose just 0.2% month-over-month and 2.4% year-over-year, both below consensus expectations of 0.3% and 2.5% respectively, marking a meaningful deceleration from December's 0.3% MoM and 2.7% YoY readings. The acceleration in progress is notable: annualized CPI has now fallen from above 3% in September to 2.4% in just four months, tracing a path that is bringing the headline measure within striking distance of the Fed's 2% target. A notable decline in energy prices was the primary driver of the January deceleration, with gasoline falling sharply amid lower crude oil prices and mild winter weather.
Core CPI, which excludes food and energy, came in at 2.5% year-over-year — its lowest reading since 2021 — and 0.3% month-over-month, in line with estimates. The shelter component, which has been the most persistent source of above-target inflation, continues to moderate gradually but remains elevated relative to pre-pandemic norms. Services inflation outside of housing is showing further progress, consistent with the gradual cooling in wage growth. Average hourly earnings growth has decelerated, and the Employment Cost Index has trended lower over recent quarters, reducing the pass-through risk from labor costs to consumer prices.
Following the CPI release, fed funds futures repriced modestly dovish, with traders now expecting approximately 61 basis points of easing in 2026, up from 58bps prior. Markets assign the highest probability to a first 25bp cut in June, followed by a second in September. The March meeting is expected to be a hold, and the April meeting saw its cut probability rise but remains below 50%. The Fed remains in data-dependent mode, but the combination of moderating inflation and a stabilizing — not overheating — labor market is gradually building the case for mid-year easing.
Key Takeaway
The Fed is positioned to hold in March but the path to a June cut has widened after January CPI printed below expectations. Core PCE data on Friday will be the next critical input; a reading below 2.8% YoY would further solidify the case for mid-year easing. Financial conditions are easing gradually as yields decline.
Risk and Positioning
Risk sentiment is mixed, with a pronounced divergence between equity index levels and the underlying market structure. The S&P 500 lost 1.39% for the week ending February 13, the Nasdaq shed 2.10%, and the Dow declined 1.23%, driven primarily by a broad selloff in technology and AI-exposed sectors. The VIX closed at 20.60, elevated relative to its 52-week low of 13.38 in late December but below its April 2025 peak of 60.13. Importantly, the VIX declined 1.06% on Friday despite the flat index performance, suggesting options markets are not pricing in imminent tail risk but rather sustained, moderate uncertainty.
Equity positioning reveals a market grappling with a historic rotation. The Russell 1000 Value Index has outperformed its Growth counterpart for seven consecutive weeks, extending its year-to-date lead to over 1,100 basis points. This is a rare and significant shift that reflects genuine capital reallocation rather than a temporary blip. The forward P/E on the S&P 500 stands at 21.5x, above the 5-year average of 20.0x and the 10-year average of 18.8x, signaling that index-level valuations remain stretched even as underlying sector dynamics undergo structural repricing. Market breadth on the S&P 500 improved during the week, with 66.2% of constituents trading above their 200-day moving average, up from 63.4% the prior week — a constructive signal that the selloff was concentrated rather than broad-based.
Credit markets remain sanguine, with high-yield spreads near historic tights and no meaningful stress signals in investment-grade credit. Gold continues to trade at historically elevated levels, driven by central bank purchases, de-dollarization flows, and the weakening dollar. The DXY has fallen approximately 9% over the past twelve months and is trading in the high-96 to low-97 range, reflecting both relative rate differentials and structural shifts in global capital allocation away from U.S. assets. The Japanese yen and Australian dollar posted notable gains against the greenback during the week, driven by the Japanese election outcome and hawkish RBA signals, respectively.
Key Takeaway
Implied volatility at 20.60 VIX is elevated but not extreme, reflecting persistent uncertainty around AI disruption rather than macro or credit stress. The key contradiction is between resilient breadth (66% above 200-DMA) and concentrated index-level selling in mega-cap technology. This divergence suggests a rotation, not a breakdown.
Sector and Cross-Asset Analysis
The dominant market story of 2026 continues to be the rotation away from growth and technology leadership toward value, cyclicals, and international equities. For the week ending February 13, the selloff was concentrated in technology, communication services, consumer discretionary, and financials, with mega-cap names including Apple, Amazon, Meta, Alphabet, and Broadcom declining between 2.3% and 8%. Nvidia fell 2.2% on Friday alone, and its outsized index weight made it the single largest drag on the S&P 500 for the session. The software subsector has been particularly devastated, with the S&P 500 software and services industry group down roughly 20% year-to-date as AI tools from companies like Anthropic, OpenAI, and others raise existential questions about traditional software business models.
In contrast, "old economy" sectors have rallied sharply. Materials, industrials, energy, and consumer staples have each gained more than 12% year-to-date, driven by a combination of attractive valuations, improving earnings growth expectations, and capital rotation from overweight technology positions. Utilities and real estate led on Friday, benefiting from lower yields following the CPI report. The S&P 500 Equal Weight Index notched a fresh all-time high during the week, even as the cap-weighted index declined — a powerful signal that the median stock is performing well even as mega-cap tech falters. Internationally, developed markets (MSCI EAFE) are up more than 8% year-to-date and emerging markets have surged over 11%, reflecting dollar weakness, attractive relative valuations, and idiosyncratic catalysts like Japan's election-driven rally (Nikkei +4.96% on the week).
The fixed income backdrop has turned supportive, with the 10-year yield declining to 4.04% — its lowest since November — and the 2-year at 3.40%, its lowest since 2022. The 2s10s spread has steepened to approximately 64bps, consistent with a normalizing curve as markets price in mid-year Fed cuts. Q4 earnings season has been constructive, with 79% of S&P 500 companies beating estimates by an average of 8.2%, and blended earnings growth tracking 13.2% — well above the 8.3% expected at quarter-end. Revenue growth at 9.0% would be the highest since Q3 2022 if sustained.
Key Takeaway
Performance is broadening decisively away from mega-cap technology. The S&P 500 Equal Weight at all-time highs while the cap-weighted index declines underscores the health of the median stock. Value has outperformed growth by 1,100bps YTD — the largest gap in years — and international markets are leading.
Economic Data & Events
Today's Calendar
- 9:30 AM MT — U.S. equity markets reopen — Moderate impact
- First session after 3-day weekend; watch for gap risk from international overnight developments
Week Ahead
This is a back-loaded week with the FOMC minutes Wednesday and a data-dense Friday featuring GDP, core PCE, and PMIs. Nvidia reports earnings next Wednesday (Feb 25), which will be the defining catalyst for the technology sector's near-term direction. Walmart, Booking Holdings, Deere & Co., and Palo Alto Networks also report this week.
What We're Watching
Monetary Policy
The January FOMC minutes, due Wednesday at 2:00 PM ET, will be closely scrutinized for the committee's discussion around the decision to hold rates at 4.25-4.50%. This meeting preceded both the January jobs report and the January CPI release, so the minutes will reflect a more hawkish information set than what markets are currently pricing. The key question is whether any members expressed openness to earlier cuts contingent on further inflation progress. Fed funds futures now price 61bps of easing in 2026, with the first cut most likely in June. A hawkish tone in the minutes could push that expectation back toward July, while dovish dissents would reinforce June pricing. The transition to Kevin Warsh's chairmanship in May adds an additional layer of policy uncertainty.
Rates and Fixed Income
The 10-year yield has broken below 4.10% to 4.04%, its lowest since November, with the 2-year at 3.40% — its lowest since 2022. The 2s10s curve has steepened to approximately +64bps, a significant normalization from the prolonged inversion. Friday's GDP and core PCE data represent the next major test for rates: a GDP print above 3.5% or core PCE above 3.0% would likely push 10Y back toward 4.25%, while in-line or soft data could target 3.90%. We favor intermediate duration (5-7 years) given the steepening curve and the likelihood that front-end rates decline faster than long-end rates as the Fed approaches its first cut.
Equities
The broadening trade is the defining equity theme of early 2026. With Value outperforming Growth by 1,100bps YTD, the S&P 500 Equal Weight at all-time highs, and the Russell 2000 up approximately 7.5%, the underlying equity market is healthier than headline indices suggest. Sustainability of this rotation depends on two conditions: continued earnings growth broadening beyond technology (Q4 results are encouraging at 13.2% blended growth across nine of eleven sectors), and the absence of a sharp re-rating lower in mega-cap tech that drags the overall index. Forward P/E at 21.5x remains elevated, but equal-weight valuations are more reasonable. Nvidia's earnings on February 25 are the single most important near-term catalyst.
Key Risks
The primary risk has shifted from traditional macro concerns to AI-driven disruption repricing. The 20% decline in S&P 500 software and services stocks year-to-date signals that markets are beginning to price structural competitive threats from AI, and this repricing could spread to additional sectors including financial services, real estate brokerage, and logistics. Geopolitically, the weakening dollar (-9% over 12 months) could accelerate if global investors continue to reduce U.S. asset exposure, potentially triggering disorderly capital flows. Tariff policy remains a background risk, though the January CPI data suggests tariff pass-through has been more muted than feared. The Kevin Warsh Fed transition in May introduces uncertainty around balance sheet policy and the forward rate path.
The Bottom Line
Treasuries are consolidating at the lower end of their recent range, with the 10-year at 4.04% following a CPI report that confirmed the disinflationary trend is intact. The immediate direction will be determined by Friday's GDP and core PCE data, with support near 3.90% and resistance at 4.25%. Equity internals tell a more constructive story than the S&P 500's 1.39% weekly decline suggests: the Equal Weight index made new all-time highs, breadth improved to 66% above the 200-day moving average, and the rotation into value, small caps, and international equities has broadened participation meaningfully. Today's session should be relatively subdued given the return from a three-day weekend and an empty data calendar, but positioning ahead of Wednesday's FOMC minutes and Friday's GDP/PCE prints will begin in earnest. Expect range-bound trading on the S&P 500 between 6,780 support and 6,880 resistance, with technology names likely to underperform ahead of Nvidia's February 25 earnings report.
This briefing was drafted with the assistance of artificial intelligence tools. All content has been reviewed and approved by Thomas MacPherson, Investment Adviser Representative (Series 65) and Chief Compliance Officer, River Rose Financial, LLC, prior to publication. AI systems may produce errors, omissions, or outdated information; readers should independently verify data.
Market Currents does not constitute an investment advisory relationship, does not create a fiduciary duty, and does not include personalized investment advice. Subscribers should not rely on Market Currents as a substitute for individualized financial advice. This briefing is for informational purposes only. Market conditions change rapidly; all data and projections are subject to revision without notice.
River Rose Financial, LLC is a registered investment adviser with the State of Colorado. Registration does not imply a certain level of skill or training. Past performance is not indicative of future results. All investment strategies involve risk, including possible loss of principal.
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