Weekly Investment Perspective

U.S. equity markets pulled back again in the week ending February 13, but the headline index move masked an important shift under the surface: leadership continued to rotate away from the headline growth winners (especially mega-cap tech and parts of software/financials) and toward more traditional, dividend-oriented and cyclical areas tied to physical assets. The S&P 500 fell 1.39%, the Dow fell 1.23%, the Nasdaq fell 2.10%, and the Russell 2000 fell 0.89%. Notably, the equal-weight S&P 500 outpaced the cap-weighted index by 1.70% for the week and set a fresh record high mid-week—a sign that breadth is improving even as the biggest stocks weigh on the headline averages.

That rotation was also evident across sectors. The S&P 500 utilities sector surged +7.3% and real estate rose +3.9%, alongside strength in materials (+3.7%) and energy (+1.9%), while the most selling pressure hit financials (-4.8%), communication services (-3.5%), consumer discretionary (-2.1%), and technology (-2.0%). In plain English: investors showed a preference for businesses with tangible infrastructure and supportive dividend yields, while continuing to scrutinize areas where AI-related uncertainty is rising—either because of very large investment requirements (big tech capex) or potential disruption risk (select software and other white-collar intensive industries). Volatility remained elevated and day-to-day dispersion was high, but the market has also been resilient: leadership is broadening, and fundamentals, especially earnings, have generally remained supportive.

On the economic front, last week’s data releases were mixed and noisy. Retail sales disappointed with flat growth in December, adding to evidence that consumer demand is cooling at the margin. Meanwhile, the January jobs report surprised to the upside at +130k payrolls (vs. ~70k consensus) and the unemployment rate ticked down to 4.3%, but the details were messy: there were large benchmark and monthly revisions, and recent surveys were disrupted by government shutdown-related gaps and severe weather, making the signal harder to read with confidence. Wage growth remains positive (average hourly earnings up 3.7% compared to a year ago) but continues to trend lower with weakening labor demand.

Inflation data was more encouraging. January CPI rose 0.17% (headline) and 0.29% (core), bringing year-over-year inflation to 2.39% headline and 2.51% core. Energy prices helped (gasoline fell), and shelter inflation continues to cool gradually. A separate tailwind is that last year’s tariff-related price effects are increasingly dropping out of the year-over-year comparisons, which could help the inflation trend look better over the next several months. At the same time, parts of the inflation “plumbing” remain imperfect due to reporting delays and revisions, so it’s best to focus on the broader trajectory.

Earnings season remains the strongest fundamental counterweight to the choppier trading activity. With 83% of S&P 500 companies reported, the blended earnings growth rate is running near 13%, well above the 8% rate expected at the end of the quarter. The quarter’s results point to broadening earnings growth, with particularly strong upside in more cyclical, real-economy areas such as industrials and materials. At the same time, investors have grown more skeptical of big tech’s AI spending plans, especially as the scale of data-center buildouts (and, in some cases, debt financing) becomes more visible. Importantly, that skepticism is not the same as a breakdown in fundamentals: the large platform companies are still delivering impressive revenue and profit growth at enormous scale, which remains a key underpinning for continued investment across the data-center ecosystem in the year ahead.

Looking to the week ahead, two items are likely to drive the near-term narrative. First, markets will parse the minutes from the January FOMC meeting for greater clarity on how policymakers are weighing encouraging inflation progress against still-uneven growth data. Second, as earnings season winds down, large retailers take center stage including this Thursday’s results from Walmart, which should provide one of the more important reads on the health of the consumer after a softer retail sales print. Taken together, the combination of cooling inflation, stable-but-slowing employment trends, and broadly solid corporate results remains consistent with a market that is rotating rather than unraveling, even if day-to-day and company specific volatility stays elevated.

2026 The Long View | First Merchants Bank